The task of resuscitating an economy is not a straightforward as the task of destroying an economy. It is not as straightforward as increasing the Money Supply. The inadequate statement that a fall in the Money Supply causes a fall in the economy demonstrates a lack of understanding of the composition of the Money Supply. This leads to the erroneous assumption that the economy can be revitalised by increasing the Money Supply. This is a costly mistake. When new money is forced into the Money Supply there is a high likelihood that the money will become hoarded. Such action often leads to a decrease in velocity as money becomes hoarded. The primary aim is to increase the GDP in an appropriate manner. Although there are different definitions of recession and depression, the clear task in economic revitalisation is to get the people and the businesses working again. To that end, it is necessary to take action that might make appropriate increases in the GDP. By appropriate increase in GDP, I am suggesting that we don’t wish to increase the jail services or suicide councilors, we wish to increase the business activity in the real economy. The significant failure of many attempts to revitalise an economy is clouded in the lack of understanding of the composition of the Money Supply. When one dissects the Money Supply into its components: Hoarded Money and Circulating Money, it becomes easier to comprehend the actions that cause a recession and also the actions needed to revitalise an economy. Recessions are always related to a fall in Circulating Money. They are effectively the same thing. Thus, they are related to either falls in Money Supply or falls in velocity or both. Money Supply times velocity equals GDP, so we are talking about a fall in GDP, which is one of the definitions of a recession.
Velocity of money tends to be fairly constant during a steady economic state, leading to the erroneous belief that recessions are caused by a fall in the Money Supply. This is followed by the erroneous assumption that recovery requires an increase in the Money Supply. During the revitalisation process, the velocity decides to be anything but constant. You should be able to understand the first diagram. It may take until later in the book for you to realise the significance of the following two diagrams. Almost all tax and almost all interest and bank repayments are taken from Circulating Money. In a recession, the Circulating Money falls significantly for even minor falls in the Money Supply:
In the above diagram, a fall of 8% in the Money Supply has caused a 50% fall in the Circulating Money.
Basel Three is supposed to toughen up the banking system by imposing lending weightings. It is supposed to toughen up the banking system to prevent another 2008 crisis. Unfortunately, the area most harshly treated is the area that is essential to a vibrant trading economy. Basel Three is particularly hard on business. All loans to business are weighted in an unfavourable manner that strongly discourages business support. The rules will also treat smaller banks in an unfavourable manner. Basel Thee may be counterproductive to the operation of an efficient economy. Basel Three if likely to hamper the growth of small business. This will affect the availability of jobs worldwide. Without adequate finance, small and medium business will suffer as will the economy. In many countries, the small/medium business sector is a very large employer. Although small business may seem as riskier business to a private bank, this sector is the backbone of the economy and employ a high percentage of the workforce. This sector is also responsive to change and is the dynamo that is available to revitalise an economy.
Websearch “Basel 3”
For example, ninety-nine percent of SMEs in Germany have an annual turnover of less than €500 million. Between them, they employ greater than seventy percent of all workers. [see KfW Bankengruppe 2011] [2] SMEs are the backbone of an economy. Any failure to provide adequate financing to this sector severely affects the economy.
Basel Three may also be particularly harsh on small banks. Small banks often tend to cater for small enterprise and are thus supportive of the real economy. These small banks did not cause the financial crisis and their solid standing was a source of stability that enabled the recovery. Basel Three may significantly impede the ability of small banks to supply the credit so vital to a functioning economy.
In the next diagram, I show the effects of forcing an increase in the Money Supply. When new dollars are forced into the Money Supply, there is a significant chance that the money gets into the hands of those with ‘more money than they can spend’. The money vultures are very good at sniffing out new sources of money to hoard. Businesses are more ambivalent. Businesses only have a passing acquaintance with incoming money. They pass it straight on. Poor people also hold money for very short times.
The following diagram gives an insight into appropriate thinking to revitalise and economy. One method is to convert Hoarded Money into Circulating Money (Method 1). One approach would be for the government to extract Hoarded Money by selling bonds to the hoarders and spending the proceeds into circulation. A more sensible method would be to tax Hoarded Money and spend it into circulation. Selling Bonds is the idiotic way, but it tends to work. In ‘Method’ 2, new money is generated and by a wish and a prayer, the government hopes that it becomes Circulating Money.
Under Method 2, new money is added to the Money Supply on the left. If you are ‘Lucky’, the money augments the Circulating Money. If you are ‘Unlucky’, the new money augments the Hoarded Money. This is a learning curve. There is no simple rule to ensure that the new money enters the Circulating Money. It is more intelligent to prize Hoarded Money out of the hands of hoarders and put it back where it belongs, in Circulating Money as in Method 1. In a country with a velocity of 1, an immediate tax of 1% tax on all hoardings, then repent into circulation, would increase Circulating Money by about 11%.
Do not get upset if you do not understand the diagrams. Your understanding will increase as you progress through the book.
To revitalise a sagging economy, it is necessary to make it easy for existing businesses to increase their activity and new businesses to start. This, in turn, creates more services and product which increases wage income which increases demand. It makes money ‘go round’. Thus, it is increasing the portion of the Money Supply that is circulating. During the downturn, many businesses will have closed permanently and the technical skills lost. Many business owners will have been emotionally scarred from the event and will not want to re-enter the business. So we are looking at younger entrepreneurs expanding their business and fresh entrepreneurs starting businesses. The government has a role as a regulator of business which leads it to exhibit a ‘control and restrict’ attitude. The government also has a role in ensuring business flourishes to enable society to operate. Business encouragement becomes difficult in a ‘control and restrict’ atmosphere. The government and the people gain from business entrepreneurship. Business entrepreneurship is essential for civilised life. A government culture of ‘mentoring’ and ‘assistance’ is required rather than a ‘control and restrict’ attitude. At a local level, councils can build a panel of retired ‘experts’ to mentor and assist new business. Government gains tax from these businesses and gives little in return except regulatory headaches and delays. A whole raft of encouraging policies is required, including removal of simple restrictions on running small business and offices from home. Big business often bullies its way through with appropriate highly-paid lobbyists. Small business tends to operate under a government burden. After regulation and encouragement, the next issue is the availability of credit. Business needs money before it earns money. Individuals can earn money provided they can afford some clothes and a bus fare. Business needs are different. A business that needs no capital would be closer to an employment arrangement. In Australia, if you walk into a bank for a car loan, you are more likely to get the loan than if you walk in for a business loan. Even Mohamed recognised the need for credit for business. This was a step forward from the practice of the Christian Church in banning all lending even to business. The Christian Church had adopted the words of Moses, as Christ himself does not appear to have discussed this issue. A good lesson on the credit needs of small and medium business is obtained by reading some paragraphs from the China National Development Bank. This government owned ‘Public Bank’ goes to extraordinary lengths to ensure that businesses obtain the credit necessary for business to expand. They are so thorough that this extends through a network to ensure that even the peasant farmer has access to micro credit. It should never be forgotten that money costs nothing to produce. It should never be forgotten that business needs money before it can make money. Business needs money to expand. If business has no access to money, they will not expand.
Money is a transport mechanism that carries over the value of one transaction until the next transaction. It is a temporary store of value that transports the value of the last transaction into the next transaction. It is not the money that has value, it is the transactions that have value. Without the transaction, money has no value. When a government creates money or credit, it costs the nation nothing but encourages many times the value of the money over the period of the life of the money. If a government were to inject one million dollars of freshly created credit into a region at no cost to itself or the people, many millions of transactions would occur in that region. All businesses in the region benefit from the extra million dollars rushing from transaction to transaction. The region is not one million dollars richer from the one million dollars that cost nothing to create, the region is many million dollars richer from the millions of dollars of business activity created. It is the transactions created by the freely created million dollars that have value. The next chapter discusses the role of National Development Banks.
The method of taxation affects the activity in the economy. If money is taxed out of circulation when it is doing what it was designed to do, the economy will suffer. Money only does the job of money when it partakes in transactions. In the million dollar example above, if a million dollars is removed from a region, the region is not just one million dollars poorer, it is many millions poorer, because many, many millions of transactions did not occur because business activity was reduced, not by one million, but by many millions.
We have become accustomed to thinking that money has value when we hold it in the hand, but its value is only released when it is transacted. The more often it is transacted, the more value is released. There is no theoretical limit to the amount of value that can be released by a money token. The task is to keep it moving. I shall give you the village story again about the $20 note. I go into the hairdressers and spend my twenty dollar note. The hairdresser goes next door to the pie shop and buys a box of meat pies. The pie man pays his apprentice twenty dollars in back pay. The apprentice goes out and buys a bunch of flowers for his girlfriend. The flower seller rushes to the vegetable shop and buys a box of apples and bananas. The shopkeeper goes to the cake shop and buys a birthday cake. The cake shop goes to the garage and pays the mechanic. The mechanic pays the apprentice. In one hour, our twenty dollar note has enabled $200 in transactions in a town full of people with empty pockets. I previously used this to illustrate the problem of hoarding. When one person hoards (saves) (holds on to) the money, the money ceases to create transactions and the wealth generation ceases. This time, I am going to use the twenty-dollar-note story to illustrate the effect of removing tax at each transaction. If 10% sales tax is removed at each transaction, the money is reduced as in the following series: $20.00, $18.00, $16.20, $14.58, $13.12, $11.80, $10.62, $9.56, $8.60, $7.74, $6.97. The twenty dollar note has reduced to $6.97 during ten transactions. It is true that the government spends the money back into circulation. However, there are better taxation options.
Income tax for business has a similar problem. It stifles entrepreneurial activity. Most businesses like to expand. However, the money they would use for expansion is syphoned off to the government. This graph for the USA demonstrates the negative nature of Income Tax. Not only does a high rate of income tax stifle business it actually results in decreased revenue for the government. There is strong reason to believe that a decrease in Income Tax both increases business activity AND increases government revenue. Income Tax is a nation destroyer. Besides the negative effect on the economy, there is a huge incentive to minimise income tax by legal and illegal means. An army of accountants is required to cover for the fake accounting of businesses and another group of lawyers keeping the more obvious business paperwork avoiders out of jail. Barry Goldwater had this to say: “The income tax created more criminals than any other single act of government.” I am beginning to believe that Income Tax is counter-productive to the business health of the nation, although the depreciation component is by far the worst component. It is quite possible that increases in income tax above some level, produce less revenue. The simplistic reasoning is that an increase in income tax stifles the profit on which the tax is based.
In the following graph, you can see the ‘Reagan Tax Cuts’ and the ‘Bush Tax Cuts’. On both occasions greater tax revenue was collected.
I need to make greater research into the effect of Sales Tax on government revenue. I am suspicious that the same effect will surface. Income Taxes and Sales Taxes need to be reduced. Particularly fearsome is depreciation of assets. This is a particularly bad procedure. This depreciation procedure changes the tax from an Income Tax to a Profit Tax. Acquired assets required for production are classed as income and a tax reduction is not allowed until well into the future. I put this another way. A small business has a turnover of $30 000 and expenses of $10 000. The business owner has a pre-tax income of $20 000 on which to live and feed his family. This is also his pre-tax profit. He decides to purchase a sausage machine for $10 000, at the end of the year, to better service the local society. The bean-counters list his pre-tax profit as $20 000 on which he has to pay tax. However, his income is $10 000 less tax on $20 000 profit. This is a shocking punishment to a small business trying to expand. This forces the business to go to the loan sharks to expand the business. Banks are clearly not going to argue against this business unfriendly arrangement. And banks have a lot of lobbyists. The label ‘lobbyist’ needs to be corrected to ‘briberist’. Business taxation needs a significant overhaul. Never forget that the government collects tax from vibrant business. You cannot get much work out of a dead horse and you won’t get much tax out of burdened business. It is better for the government to encourage business expansion. These taxes play straight into the hands of the moneyed class. The only businesses likely to survive are the ones that play games with their tax. It is difficult to criticise businesses for doing this when the only ones that are going to expand are the ones that play games with their accounting using accountants to turn fiction into truth.
Plato: “When there is an income tax, the just man will pay more and the unjust less on the same amount of income.”
Walter B. Wriston: “All the Congress, all the accountants and tax lawyers, all the judges, and a convention of wizards all cannot tell for sure what the income tax law says.”
Warren Buffett: “If anything, taxes for the lower and middle class and maybe even the upper middle class should even probably be cut further. But I think that people at the high end--people like myself--should be paying a lot more in taxes.”
Corporate Tax has a similar issue. A successful company is clearly vibrant and expanding. Yet its very success brings increased taxation. This has a dubious effect. Companies can raise money by selling part ownership in the form of shares. Shares are sold to obtain money to expand, yet their success brings taxation. Thus, they are selling ownership to pay taxes. Company taxation forces companies to sell shares to persons who want part of the profit without partaking in the day to day stresses of running the outfit. An extreme statement might be that: ‘Shares are a system designed so that rich people can get ownership of business and receive dividends without partaking in the daily stress of operations. Taxation forces businesses to divest ownership in order to expand.’ Company Tax should be minimised. International companies already do this by sensible accounting procedures where profit is moved to low tax countries. How can income tax be fair when big companies have advantages not available to small companies.
One could conceive that moneyed people might encourage the current tax laws so that they can take ownership of corporations through shares.
Payroll Tax is a particularly bad tax. It is often used as a state tax. It is an income tax indiscriminately applied to employees and thus allows anyone with ‘unearned income’ such as interest or rent to escape the tax. Unearned income should be taxed at a significantly higher rate than earned income. Unearned income is more likely to be earned by hoarders.
There are other taxes that could replace these damaging, business-destroying taxes. I will first get you to look at this graph of taxation for Australia:
Transaction Tax. Sales Tax should be reduced to zero for most items except for plastic bags and chewing gum. It should become a regulating tool to reduce inappropriate activities. An all-encompassing Transaction Tax would suit the nation better. A suitable Transaction Tax should cover every transaction of every type including financial transactions. The rate should be less than $1 in $1000 (0.01%). This will help to prevent rapid trading on the share market. There is no reason why goldfish should attract Sales Tax but gold should be exempt. Similarly with purchasing a portion of a company. This should have the same tax rate as a goldfish in a bowl. $1 in $1000 may actually be too high a rate and produce too much tax.
Land Tax should be implemented along the lines suggested by Henry George. Land was freely provided by nature for all living things to share. Man has drawn lines on maps and claimed ownership. Ownership is not given according to need or historical habitation, but by access to money or bank credit. Land thus gravitates to those with the greatest access to bank loans. The less well off pay rent on land freely provided by nature, not to a government, but to better-off people. The same was happening before the collapse of the Roman Empire in the west. An idle income is available for one portion of society for something that was provided by nature. If we are to operate as a society in a cooperative manner for the benefit of all living things, a better system is to rent the land on long leases from the government. Henry George tackles this quite thoroughly. However, I do not advocate making Land Tax a single tax. A mix of taxation types will be more stable. We don’t want a money crisis in a particular area to bring a government down, leading to civil unrest.
Land was freely provided by god or nature (depending on your way of thinking) for all living creatures to share. A high proportion of the young of the world will never own one square centimetre of the land of their nation. If one believes that all persons are born equal, then it is reasonable to assume that all persons should have access to their share of land. Land in the middle of nowhere has no value. No-one will buy one square metre in the middle of a desert. It is not land itself that has value but the proximity to facilities that gives value to land. The features that I refer to include: employment, water, roads, railways, schools, hospitals etc. None of these were added by the owner of the land. If the roads and employment disappear, the land value falls to zero. The title to land is strange in itself. We say we own the land, but really we own the right to exclusive use of the land and only in a certain manner. We have purchased the right to exclude others from the land. We don’t own the air above the land. We don’t own the substance below down to the centre of the earth. We can only build with restrictions. We cannot make excessive noise or do as we wish. Sometimes, se are restricted as to what type of business we can run. If we own the use of the land and rent the land, we are making unearned income from the labours of those that created the surrounding environment, much of which was created from the public purse. The rightful place for the rent is to the creator of the value of the land, which, for the most part, is the government of the people. When a speculator sells land, this speculator is selling the accumulated effort of generations gone past to build the surrounding infrastructure. If the speculator makes short term gain, it is not his effort that increased the price, it was the surrounding businesses that added employment and the government that added infrastructure that caused the appreciation. Land Tax is the natural embodiment of this arrangement. Land Tax is in part a charge for the provision of government services and infrastructure in the area which includes roads, bridges, water, libraries, schools, police and other items. The provision of infrastructure then encourages businesses to operate in the area. In the limit, the speculator drives up the property prices in the area adding causing an upward pressure on wages for the employers of the area which eventually drives the businesses to areas not affected by the land price headache. The situation is in part driven by the banks that provide credit to purchase the land and property based on the incomes of the applicant. As the wages grow, the the loan size increases which inflates the land price. If the banks cutback on lending, the land price falls. I call this the usury of land. The availability of employment and facilities allows a price to be placed on land that would otherwise have no value. Money is lent expecting more of the same in return for the use of transferable parcels of land previously divided up by a government title office. Land Tax cures most of this issue and ensures that all can afford land based on their needs.
The current low regime of low land and property taxes tends to encourage the hoarding of land in expectation of future gains. This is aided by the favourable treatment of income or profit from such hoarding. Most business tax on income or profit is paid in the year that the gain was received, however, with gains from the appreciation of land, the tax is delayed until the profit is realised. This speculative behaviour is grossly unfair from a taxation point of view and grossly distorts the use of land.
The current taxation collection system causes a cyclical problem for the government. When the economy slows, tax collection falls.
This is an appropriate time for the government to compensate by increasing spending. Certainly, it is not a good time to decrease spending. Basing the bulk of taxation on the taxation of the Circulating Money is ill-advised. A crisis is a good time to tax hibernating money and spend it into society on public works.
The next taxation area is Death Taxes. Only productive family business and farms should be exempt.
Following on from this is Inheritance Tax. Again, only genuine family business should be exempt.
The next tax to be implemented should be Wealth Tax. The current income tax for individuals could be modified to include wealth. A slightly higher rate of Wealth Tax should be applied to money holdings. The minimum monthly balance is a guide to the amount of money that is being held for more than one month. Even better would be to factor in the monthly transaction volume. Transaction volume is an indicator of money doing what it was designed to do which is to enable transactions. A person that is creating many transactions in a month is making a significant contribution to the real economy.
Demurrage Tax is yet another essential tax. Demurrage is a small tax on money holdings, often charged on a monthly basis. This is an essential tax to reduce the volume of Hoarded Money. Hoarded Money causes many problems for society. I have not discussed some of the more serious problems with Hoarded Money. Some of the potential problems are more serious than the problem of Hoarded Money being a magnet to stop money circulating. One problem is that Hoarded Money becomes a potential avalanche with the end result being hyperinflation. If all the Hoarded Money were spent into circulation in a hurry, a massive inflationary event will have occurred. Another problem is that Hoarded Money has no value. Each time a significant volume of Hoarded Money is converted to Circulating Money, an inflationary event occurs. Hoarded Money only has value if an equal amount of Circulating Money is converted to Hoarded Money. You will have to wait for another chapter for more discussion on this issue. Demurrage Tax is the easiest way of reducing Hoarded Money holdings. It is a Wealth Tax on money holdings.
Besides the creation of a National Development Bank and adjustments to taxation, it is necessary to directly increase the volume of Circulating Money. I can think of two ways to do this. Firstly is to encourage the holders of Hoarded Money to spend the Hoarded Money into circulation. One way would be to threaten a confiscation of a portion of all bank balances above a certain threshold. The shock would cause most to spend their money on something more useful. It might be a new fence for the property or a refurbishment. I always like the idea that persons would plant trees for future gain rather than chop trees down for short-term gain. If people wish to save for the future, it should be in some other medium than bank credit or government cash-currency. The other way to forcefully increase the Circulating Money is to create a ‘Public Bank’. A Public Bank is a bank that is wholly owned by the government on behalf of the people. This Public Bank will loan money to the government for projects. Thus, fresh credit has been created and directly pushed into circulation. Some will fall into the hands of people with ‘more money than they can spend’, but much will circulate. You can see this in the graph of China. Some government debt is owed to government-owned Public Banks. This is quite clever because the government owes money to the government and as such it is somewhat irrelevant. The government pays interest to the government. Australia achieved the same in 1911 with the opening of a public bank operating as the ‘Commonwealth Bank’.
The next task is to get down and dirty with the banks and make them lend. The banks created the problem by drying up the issue of loans. You can see this in this graph of money and debt for the USA. You can see that Private Debt has decreased. Logic says that the banks continued to collect repayments and interest while avoiding issuing new loans. If the banks want the privilege of creating money by account entries, they need to be held accountable and forced to be responsible. In this graph, look at the Private Debt at around 2008. The Money Supply, M3 faltered a bit, but the government took on debt, which kept the Money Supply from falling too much. On a previous graph, you can see that some of the money created by the government taking on debt finished up in the hands of people with ‘more money than they could spend’. You may have problems forcing the banks to increase their lending. They will scream loud about risk, but they should have realised that when they embarked on lending into society in the first place. If they lend into society and expect more in return than they lent, they will clearly never be able to collect. For years they will be able to asset strip the nation, the people and the government. Once the asset stripping has reached a finite limit, there are no more assets to strip and default is inevitable. Like the Venetian banks of 1345, one big debtor will default and the whole money system will collapse back into the vacuum whence it came.
When you encourage the banks to lift their lending, it is fairly important that they be encouraged to lend in a manner that encourages enterprise. Credit needs to be made available to business and business start-ups. Without the availability of credit, numerous business start-ups will not go past the drawing board. If the bank starts lending for speculation, it will be a disaster for your nation. If the lending is for speculation on stocks and shares, there will be a bubble created in stocks and shares that will ultimately burst and leave you with a bigger problem to sort out. You will, of course, get the blame for the bank’s induced bubble even though you did not cause it. If the banks lend for speculation on land, land prices will rise. This will make business too expensive and drive business to countries that do not have the same level of land usury. It will also make it very difficult for persons to find accommodation near places of employment, again driving up manufacturing costs. For businesses to operate cost effectively, they need premises without excessive rents. If the government rents premises out at reasonable rates, the private sector may keep rents lower making manufacturing more affordable. As usury of land and usury of credit takes hold in a nation, business will be driven to lands where the usury of land is less developed. Banks will lend money for the purchase of land to the extent that persons are capable of paying. In a region that is popular, the price will rise to the limit of affordability which will be the maximum that working people and business can afford. When land is freely available and plentiful, and living and business cost will be low. So there will be a constant movement of businesses from high usury areas to low usury areas.
For a household, it is wise to spend within one’s available sources. To do otherwise is foolhardy. It is not appropriate to apply the same logic to a government. To apply the same logic ignores that the Money Supply of a nation is elastic and generally needs a mild increase each year. Although difficult to achieve, the Money Supply needs to increase in line with increased demand, increased production and increased hoarding. In reality, it is the Circulating Money that needs to rise slightly, and at that, it needs to be in the ‘real economy’ rather than with the nest of parasites that make money from money. Austerity economics dictates that the government cuts spending to balance a budget. This is bad at the best of times and the very worst thing to do at times of recession. A recession, being a slowing of the GDP, it is necessary to augment the Money Supply and in particular the Circulating Money. The fall in the Circulating Money is most likely caused by a reduction in the lending habits of the banks due to lack of customer demand or reluctance of the banks. The banks continue to collect interest and principal repayments during the decrease in lending. The government can counter the bank’s inability to maintain the magnitude of bank-issued credit by borrowing itself. It is true that the government borrows money in the form of existing bank credit, however, this is likely to be Hoarded Money. The government will be borrowing money from hoarders and pushing it into Circulating Money. The effect is to move hibernating money into circulation.
The government operates a deficit to cover for the failure of the banks. To increase the Money Supply, it is necessary to create more debt. If the public is reluctant to take on more debt, the government has to step in and take on more debt.
The following graph shows how a government bond issue during a recession can increase the Circulating Money dramatically. The bank failure to maintain the magnitude of the Money Supply demonstrates a blatant disregard for the interests of the nation and its citizens. A government bond issue is a dodgy repair to a broken rickshaw. But, in the absence of common-sense regarding the creation of the money of the nation, it will fix the problem until the banks pull the same stunt in a few more years.
Under the current money regime, government debt is unavoidable. Whilst the government is denied the opportunity of creating money in its own right, the only source of money is borrowing, taxation or asset sales. The only sensible course for the government is to make good use of the borrowed money. In the limit, the debt and interest is unpayable. The government is effectively capable of calling a bluff on the banks. Either the banks allow the government to create the money of the nation or the government bleeds the banks dry until they relent. If the government can’t pay, it can’t pay. The bank cannot confiscate the government like a home-buyers house. The newspapers will scream default, but what did the bank lend? Just numbers in an account. The government can do that. It can also write numbers in a bank account. My argument is that if the government cannot create its own money, then operate on debt and copious quantities of it. Don’t jump to the demands of the creditor. Make the creditor dance to the tune of the debtor. Deficits are born of a money system that runs on debt. In a sovereign money system where the government creates the money, no deficit is possible. The closest arrangement to this is to use debt wisely and to never repay until the banks wise up and realise that their debt creation and magnification is going to end.