A yen short squeeze can only be resolved in the vertical component. And longterm budget targets conflict with that necessity.
This chapter outlines an alternative way of viewing the monetary circuit that takes into consideration the central role of the State from the beginning of the analysis. Vertical and horizontal components of the monetary circuit were introduced and their relation analyzed. It was shown that this framework is applicable not only to currency, but to any commodity, and that deficit spending, as herein defined, is a practical necessity for all currencies and commodities. From inception, one simply cannot consume more than has been produced, and a private sector desire to save any currency or commodity requires deficit spending. Having no national debt in local currency is equivalent to having no inventories of corn, water, or any other commodities. While currency does not obtain its value by virtue of its status as a commodity, once endowed with value a tax-driven currency can be analyzed like any other commodity. In addition to debunking the myth that deficits imply future taxation, it was also shown that such a framework is highly applicable to the current Asian financial crisis.
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Publication information: Book title: Full Employment and Price Stability in a Global Economy. Contributors: Paul Davidson - Editor, Jan Kregel - Editor. Publisher: Edward Elgar. Place of publication: Cheltenham, England. Publication year: 1999. Page number: 177.
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