In a recent blog post, I explained that government deficits increase the private sector’s holding of net financial assets. And this led to the following question from one reader:
“How does a chartalist respond to the idea that gov’t spending does not actually add $ to the private economy because of debt issuance?”
And to the following command from another:
“stop insisting that gov’t deficits add wealth to the private sector (they don’t if the gov’t sells debt).”
Apparently, both readers believe that budget deficits could, in theory, increase the private sector’s holding of net financial assets, but that, in practice, they do not because, the sale of bonds “pulls dollars out of the private economy,” leaving the private sector with no net addition to their holding of financial assets.
