Affordability Issues. As we have seen over the course of the previous 44 blogs, a sovereign nation operating with its own currency in a floating exchange rate regime can always financially afford an JG/ELR program. So long as there are workers who are ready and willing to work at the program wage, the government can “afford” to hire them. It pays wages by crediting bank accounts. If it credits more accounts than it debits through tax payments, a deficit results. This initially takes the form of net credits to the banking system, held as reserves. If the reserve holdings are excessive, banks bid the overnight rate down. The government can then either choose to let the overnight rate fall toward zero (or its support rate if it pays interest on reserves), or it can intervene to sell interest-paying bonds at the desired support rate; this will drain excess reserves. In no sense is the government spending on JG/ELR constrained either by tax revenues or the demand for its bonds.
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