Trees and cars

This is from Warren Mosler's blog:

They used to tell the story about a guy who claimed he could make cars out of wood, and he started a company in Oregon that brought trees into one door of his giant building with new cars coming out of another door, and he wouldn’t let anyone inside to see how it was done. He was given an award for innovation and widely acclaimed, until one day someone got inside and saw he was shipping the trees out the back to Japan and bringing in new Korean cars. He was then arrested and jailed, etc. etc.

The point is, for the macro economy it didn’t make any difference what was going on behind those closed doors, and that for purposes of understanding one can think of foreign trade as a company that takes in all that you export and delivers back whatever is imported.

This model also promotes the understanding of how, in real terms, exports are the costs of imports, and optimizing real terms of trade is about getting the most cars for the fewest trees, which is likewise what productivity is all about for the domestic economy.

What about the jobs lost due to increased productivity? Well, history shows it used to take 99% of the workforce to grow the food we need to eat to live, and today in the US it takes maybe 1% of the workforce to grow enough food to eat with a lot left over to export. Yet unemployment isn’t necessarily any higher today than it was back then. Why? Because there’s always a lot more we think needs to get done than there are people to do it, and unemployment comes from a lack of funding, and not a lack of things to do. Today the service sector dominates, and more so every day, with no lack of services we’d like to have done as far as the eye can see. And unemployment, as currently defined, is necessarily the evidence that for a given level of govt. expenditure the economy is that much over taxed, as a simple point of logic. Not that policy makers understand that, of course…

Now let’s add a border tax to the model, for the purpose of creating jobs, not withstanding how that premise is categorically ridiculous, as per the prior discussion. But, to quote Don Rumsfeld, ‘We’ve got to fight with the army we’ve got.’ Anyway, a border tax would put a tax on importing the cars to attempt to keep us from buying them so we would have more jobs building cars domestically, and reduce the tax on exporting the trees so we would have more jobs cutting down and shipping out trees.

Let’s assume that’s what happened and look at those consequences. First, we would be shipping out more trees and getting fewer cars. This makes the nation as a whole worse off due to those reduced real terms of trade. The next step is to identify the winners and losers, recognizing the losses to our standard of living are higher than the gains. Best case we put more people to work growing more trees so we have just as many trees for ourselves, and we’d put more people to work building cars so we’d have just as many cars as before. So what we accomplished is that we are working more to be left with the same amount for ourselves.

That’s called a drop in productivity, and a decline in our standard of living, as work is an input and a real cost of production. Work itself is not an economic benefit. The economic benefit of work is the output produced. And the whole point of producing output is consumption of some type, either for immediate use or for future use. That is, it makes no economic sense to work and produce output for the purpose of immediately throwing it away.

So with the above ‘best case’ assumptions, the border tax does work to create jobs, and unemployment is a political problem, which is why the border tax has that element of political appeal. Not that it matters, but my first choice for job creation would be a fiscal adjustment, either a tax cut or spending increase, large enough to promote sufficient spending to increase sales, output, and employment to produce that additional output. That way we have that much more domestic output to consume plus all the imported cars we were buying before the border tax, and we don’t have to give away the extra trees due to the border tax proposal.

And how does it look from the government’s point of view?

First, the government expects extra revenue from the tax on the imported cars, net of the revenue lost from tax benefits for exporters. This means less spending power for consumers paying the tax, presumably offset by new tax cuts, making it all revenue neutral, which through some presumed channels is theorized to have its own positive consequences.

So in this ‘best case’ scenario Americans work more and get less, while consumer taxes go up and other taxes go down. Hardly seems worth a second look?


But that is only the economic best case scenario. All kinds of other things can happen, with the same model used for purposes of analysis.

"Saving" Social Security

Of course, we all know that Social Security doesn't have to be "saved".  The US government can always create enough dollars to pay Social Security benefits, forever.  The only question is whether the US economy will produce enough goods and services for those Social Security dollars to buy. 

But, we operate under the illusion that some of our Social Security taxes go, and have been going, since 1983, into a "trust fund", from which future benefits will be paid, if the annual tax is lower than the annual benefits.  And that if the "trust fund" balance falls to zero, benefits would have to be cut, or taxes raised, because there is no other source of money for the benefits.  What nonsense!  What would we do if the Defense Department had a "trust fund", and the balance went to zero?  We'd issue some Treasury Bonds and keep paying the soldiers, that's what.  (The need for bond-selling as a source of money is also an illusion, but I won't get into that today.)

Our new President has promised to “save” Social Security and Medicare, and there is even a TV commercial now showing him saying so and asking viewers to tell their Congressman to do it.

So, given the fantasy world in which we operate, it would help if we could somehow increase the balance in the Social Security "trust fund". And given the policies advocated by the current President, I have thought of a way we can do that – a way that should not be total anathema to the other party.

Jobs is the popular shared concern. Every politician is in favor of more American jobs. Clearly, some American jobs have been lost to multi-national American companies moving them to areas of lower labor cost, or outsourcing them to companies employing foreign workers at lower wages than American workers would have demanded. The well-known formula is that if you want less of something, you tax it. And then add the new tax to the Social Security “trust fund”.

The tax would be at the rate of the FICA (Social Security and Medicare) tax, and paid by companies that have outsourced work formerly done in America to other countries, whether directly or through a third party. The rate is the total (employer + employee) FICA tax rate, and the tax base is the amount that would have been paid to an American worker, not the lower amount that was actually paid to the foreign worker. Adding this tax to the “trust fund” would substitute for some or all of a tax increase or benefit cut that our illusion would otherwise demand of us.

For jobs outsourced in future years, the rate could be doubled. For jobs insourced during the tax year, the company could get a temporary break on the FICA tax, and the government would make the contribution to the “trust fund” on their behalf, just as was done in 2011 and 2012.

This plan could substitute for the proposed “border tax”, a very bad idea which would tend to reduce trade and incomes worldwide, and increase prices at the same time.

So call your Congressman, and tell him to save Social Security, and how to do it.

Why is there unemployment?

There were 100 dogs on an island, and an airplane dropped 90 bones, and the dogs went out to search for them.  10 dogs came back with no bones.  The leaders created a training program to teach the dogs how to become better at finding the bones, and next time the 10 dogs that were trained got their bones, but 10 other dogs were boneless.

The number of jobs in the economy depends on spending.  Business hires people when it runs out of products and needs to make more of them.  If it can't sell the products it is making today, it won't hire any more workers.

When people save some of their money, don't spend all their incomes, they don't spend enough to buy all the stuff they produced.  Unless someone spends more than his income, some production will be unsold, and that leads to production cuts and layoffs.  This is known as the Paradox of Thrift.

You and I can't spend more than our incomes for very long.  It's unsustainable.  You can borrow some, but eventually you will owe too much, lenders will no longer lend to you, you will have to stop spending in order to pay off your loans.  The government, which creates money, can spend more than its income forever.  In the US, it has been doing it since 1837.  It is only the government deficit that allows us to save and not have continuous recession.

Still, the government cannot spend (or cut taxes) enough, by the usual means, so that everyone will be employed.  Well, it could, but we wouldn't like it.  Some resources will be exhausted before others, and continued attempts to buy more of those resources will result only in price increases, not more hiring and not more production.  Even if you never studied economics, you may have heard of the Phillips Curve.

There are still 100 dogs and only 90 bones.

But there is a way for everyone to be employed - that means everyone who wants a job, 0% unemployment not 4.7% "full" employment - and not have inflation.  We just need 10 more bones.

Please read and sign the petition.

Read this anyway

I know y'all don't care much for the economics posts, but this one is quite timely and is something we all can, and need to, understand.  

It's from Warren Mosler 

It starts like this:

There is no right time for the Fed to raise rates!

Introduction
I reject the belief that economy is strong and operating anywhere near full employment. I also reject the belief that a zero-rate policy is inflationary, supports aggregate demand, or weakens the currency, or that higher rates slow the economy and reduce inflation. Additionally, I reject the mainstream view that employment is materially improving, the output gap is closing, and inflation is rising and returning to the Fed’s targets.

What I am asserting is that the Fed and the mainstream have it backwards with regard to how interest rates interact with the economy. They have it backwards with regard to both the current health of the economy and inflation, and, therefore, their discussion of appropriate monetary policy is entirely confused and inapplicable.

You can read the rest at the link.

What is money?

From an essay by J.D. Alt

First, “money” is not a natural resource that humans dig out of the ground, or catch in the sea, or cultivate with water and sunshine. Money is a social invention created in people’s minds (using paper or metal or digital symbols to keep track of.) The purpose of the money-invention is to facilitate the trading of “debts” amongst individuals in a very large, collective society. The debts are for goods and services individual members of the society provide to each other. It should be obvious to anyone’s common sense that these goods and services are NOT limited by the number of paper, metal, or digital symbols that keep track of the debts, but are instead limited ONLY by the actual goods and services individuals are willing and capable of providing each other. The paper, metal, or digital symbols (the “money things”) are created, as needed, to accommodate the actual goods and services that are exchanged.

Second, people cannot individually create their own paper, metal, or digital symbols (“money”) because it would be impossible to know the value of one person’s money compared to another’s with respect to the quantity of various goods and services the money symbols can be exchanged for. The money invention can only work if the social group collectively agrees to a common unit of currency, and assigns the task of creating or “issuing” that currency (producing the paper, metal or digital symbols) to a Central Authority.

Third, while money could simply be created “by law”—with the central authority threatening to put citizens in jail if they refuse to provide goods and services in exchange for the authority’s money-symbols— it is less effort and more effective to use a more dynamic method: Federal Taxes. Instead of requiring citizens to provide goods and services in exchange for the money, the central authority levies a tax on the citizens which can only be paid with the money the authority issues. Having given each citizen a debt which can only be paid with the authority’s money—taxes due—the collective state sets in motion the dynamic whereby it is now able to issue paper, metal or digital symbols (money) and the citizens are willing to provide real goods and services in exchange for those symbols.

If you don't like economics, read this

This is a link to a one-hour lecture that is the equivalent of an MA in economics, but without a need for any prior training.  Whether you think so or not, you do practice economics in your daily lives.  You know more than you think.  If you vote, and if any part of your decision-making in the course of voting is based on the candidate's economic policies, then you need to see this.  Anyone can understand it.  Really.

https://www.youtube.com/watch?v=GkAKG6nkFM4

Taxes

I'd like to wait for April 15, but I'd surely lose track of these quotes by then.

I'm proud to be paying taxes in the United States.  The only thing is I could be just as proud for half the money. -- Arthur Godfrey

It is a good thing that we do not get as much government as we pay for. -- Will Rogers

The difference between death and taxes is that death doesn't get worse every time Congress meets. -- Will Rogers

I wouldn't mind paying taxes if I knew they were going to a friendly country. -- Dick Gregory

Tax returns are too difficult for a mathematician.  It takes a philosopher.  -- Albert Einstein

An architect's view of MMT

This is brilliant, and most understandable to a non-economist.

neweconomicperspectives.org/2014/01/diagrams-dollars-modern-money-illustrated-part-1.html#comment-1047584

MMT video

MMT for non-economists.  "even a central banker can understand".

http://moslereconomics.com/2013/12/22/mosler-barnard-tour-2013/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheCenterOfTheUniverse+%28The+Center+of+the+Universe%29

We're not broke, no matter what they say

Basic MMT on UTube.  Stay with it until the end, when Warren tells his grandson how to pay off the National Debt.

http://moslereconomics.com/2013/11/30/new-economic-perspectives-on-the-government-budget-deficits-and-the-national-debt-youtube/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheCenterOfTheUniverse+%28The+Center+of+the+Universe%29

Platinum coin fixes the debt ceiling problem

In 1996, Congress passed a law giving the Secretary of the Treasury authority to mint platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.  The section of the law for these platinum coins is different in that respect from the sections governing commemorative gold and silver coins, and from the section on the normal coins in your pocket.

It has been suggested that he mint platinum coins of very high values, in the trillions of dollars, in order to continue spending money authorized by Congress without having to issue more Treasury debt.  One suggestion is to mint a single coin with a face value of $60T, which would avoid all deficit and debt problems for many years.

The coin would be deposited into Treasury's "checking account" at the Federal Reserve, and the money would only be spent as authorized by Congress, the same as any other spending.  It would not "dump" $60T into the economy all at once, causing hyperinflation.  But Treasury would be able to spend without having to first tax or borrow to refill its account, and the debt ceiling would become moot.

There is a petition you can sign online, if you want to urge the Secretary to make use of this option.  It was considered and rejected by the President and the previous Secretary during the last debt ceiling crisis in 2011, when the US credit rating was downgraded.

http://petitions.moveon.org/sign/mintthe60tcoin?source=c.url&r_by=1490218

If you haven't heard of this before, you can read about it on the web.  The latest post today is at

http://neweconomicperspectives.org/2013/08/jack-lew-avoiding-default-is-your-responsibility-too.html#comments

Not so smart bunny

I've deleted the previous post.  I read the book.  The economics is mostly in line with MMT, not completely, but the rhetoric is just too much.  It's unhelpful to the cause.  MMT stands on its economics, it doesn't need personal attacks like this by dumb bunnies.

MMT's view of the Euro crisis

Presentation by Warren Mosler
http://moslereconomics.com/wp-content/graphs/2013/03/zurich-presentation.pdf

MMT on the Radio

Warren Mosler talking about the current economic situation

• Republicans allow largest tax hike in history without even a discussion
• QE is “fake” money-printing
• They're stepping on the brake when they think they're stepping on the gas
• We want a strong dollar … or do we?

Warren starts at 28:49

Click here to listen

If you find this interesting, please leave a comment.  Or take this short survey:

1.  What do you think of Warren's ideas?
2.  How much economics training do you have?
3.  How important is it for our leaders to get this right?
4.  Did you go to moslereconomics.com to learn more about MMT?

Just interested to see what a group of random listeners would think.

These are not my original questions.  I've rephrased them slightly, based on ones posted at NEP by Nathan Becker. I'f you're already  familiar with MMT, you'll know the answers, but if you're not, please consider them seriously and think about how a classical economist would answer them.

1.  It is a fact that US Federal taxes can only be paid in US dollars, so what comes first, taxes or dollars? Where do the US dollars come from before our taxes are paid?

2.  It is widely thought that the US government borrows dollars. How did the lenders get these dollars in the first place? Can you borrow something that doesn't yet exist?

3.  If we really are borrowing from someone, shouldn't the lender be the one setting the interest rates and not the borrower? How come the US govt can set the interest rate at which it wants to borrow and how come the rates keep going down even as it borrows more and more?

If these questions seem baffling, I recommend reading 

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Just to whet your appetite, the MMT answers are

1.  Dollars come first, obviously, or we wouldn't have any to pay taxes with.  The thing not obvious to classical economics is that the dollars are created (from nothing) by US government spending.  Government spending, then, is not funded by taxes.  The government need not collect taxes first, before it can spend (though we do have laws, anachronism from the days of the gold standard, that say it does have to tax, or borrow, first.)

MMT doesn't talk about it, but I think this is how dollars originally came into existence:  there was gold, or foreign money like British pounds or Spanish dubloons, and the US government purchased it (spending) from the owners, issuing paper certificates (dollars) for it.  At the same time, taxes were levied, and payment was required in US dollars;  British pounds and Spanish dubloons were not accepted in payment of tax.  This gave value to the dollars, since nothing else would keep the taxpayer out of jail.  This is the essence of monetary sovereignty.

2.  Obviously you can't borrow something that does not exist.  The dollars that these lenders have were created by US government spending.  The Chinese central bank can hold dollar balances in its "checking" account at the Fed, or it can hold the dollars in the form of interest-bearing "savings" accounts at the Fed (aka Treasury bills and bonds).  They can transfer funds between these accounts just as you can do at your bank, or in your brokerage account.  The Treasury securities were created from nothing by the Treasury department, and sold to some special US banks known as "primary dealers", and then resold to others who desired a risk-free, interest-bearing investment (e.g., pension funds and foreign governments).

3.  The US government is the only source of dollars.  The US can set the interest rate on Treasuries because it stands ready to buy or sell them in any required quantity at the rate they set, through the Federal Reserve.

If you read a lot at NEP, you will see it stated that private banks create money when they lend.  They do create money, but that is not the same as creating dollars.  Your deposits in bank accounts are an obligation of the bank, a loan from you to the bank, denominated in dollars, but they are not dollars.  The currency in your pocket is dollars.  If your bank fails, you have no dollars (except what you might get from FDIC).  Just like if your buddy borrows money from you and then goes bankrupt and doesn't repay you.

There is a lot more to it, but think about this:  if the US government can create as many dollars as it wants, without taxing or borrowing, then what is all the fuss about the size of the deficit and the "national debt"?  The government can always pay any obligation that is denominated in US dollars, and there is no possibility of involuntary default.  There is no financial constraint.

But what about inflation?  Inflation can only occur if government spending creates demand for more product than the economy can produce.  As long as there is high unemployment, additional production is possible and inflation is not.  Today, still reeling from the Great Recession, we need more spending and lower taxes.  Our representatives are contemplating the opposite.

Paradigm shift

This J.D. Alt writes some entertaining stuff.  Which is pretty rare, for economics to be entertaining.

http://neweconomicperspectives.org/2013/01/news-conference-for-a-paradigm-shift.html

Global what ???

I got this in an email from an investment advisor:

US Carbon Emissions Plummet  

Coal consumption in the US continued to fall because new supplies of natural gas are displacing coal in power plants. The change has been so dramatic that since 2006, the US has been the world leader in reducing carbon dioxide emissions since natural gas emits less carbon dioxide per unit of power produced. US carbon dioxide emissions have fallen to a 20-year low as a result.

Looks like we'll need some other explanation for global warming and Superstorm Sandy, since it was not USA CO2 emissions.

20/20

This is brilliant.  MMT is hard because it requires one to un-learn so many things, but if you approach it this way, it becomes so much more self-evident.

http://neweconomicperspectives.org/2012/11/2020.html

Something YOUR Congressman should see

http://neweconomicperspectives.org/2012/11/stephanie-kelton-presenting-on-fiscal-cliff.html

One more economics rant

Everything changed in 1971.  Well, almost everything.  Economics textbooks didn't change, and some laws that are now meaningless didn't change.

What happened in 1971?  We went off the gold standard, and fixed exchange rates, so now the dollar, and all the other major currencies in the world, are fiat currencies, and their values float against one another in the foreign exchange markets.

The implications of this change are profound, and largely unrecognized.  Under the gold standard, the treasury promises to exchange dollars for gold, or vice verse, at a fixed price.  That means there must always be enough gold in Fort Knox to satisfy the demand of anyone who wants to trade their dollars in for gold.

On the gold standard, the government must be careful not to create more dollars than people are willing to hold, lest the people turn in their dollars and the government gold reserves be exhausted.  If government finds itself running short of gold reserves, it will have to devalue its currency, changing the price of gold at which it will make the exchange.  "You can't print gold."

Today, a dollar cannot be traded in for anything except another dollar.  The government can create all the dollars it needs to create, and is no longer limited by the amount of gold reserves it holds.

A government that is the sole issuer of its own fiat currency is said to be monetarily sovereign.  Before computers, a monetarily sovereign government could print all the paper money it needed.  Today, it need not even take the trouble to do that.  Money is created by keystrokes on computers.  The government creates money by instructing a bank to increase the balance in an account.

A monetarily sovereign government can never become insolvent in its own currency.  It can always create whatever amount of money is needed to pay its debts.  The notion that the US government is "broke", or "running out of money", is pure nonsense.  The idea that some day the government will not be able to pay dollars of "unfunded" retirement benefits it has promised, or dollars of medical benefits it has promised, is also nonsense. 

A monetarily sovereign government is not like a household.  Households cannot create money, and their spending is limited to what they can earn or borrow.  A monetarily sovereign government can create money, and need not earn or borrow it.

State and local governments are not monetarily sovereign.  They cannot create dollars.  Only the US Federal government can create US dollars.  State and local government spending is limited to what they can tax or borrow, and the interest rate they pay on their debt is set in the bond market.  If their ability to service additional debt is questioned, then the interest rate they must pay will rise.  

The Euro nations are not monetarily sovereign.  Greece cannot create Euros.  Only the Eurpoean Central Bank can create Euros.  Greece is in the same position as California or Illinois.  The US is not Greece.

The monetarily sovereign government has no need to borrow the money it has created in order to spend.  Why would it borrow, when instead it can create the money it needs with a few keystrokes?  The answer is that there are laws, left over from the bygone era of the gold standard, regulating how the government can create money.  These laws are obsolete.

Likewise, the monetarily sovereign government has no need to collect taxes in order to spend.  It can create the money it needs using keystrokes. Why, then, do governments tax?  Again, there are laws left over from the bygone era of the gold standard, regulating how the government must tax and spend.  But besides those laws, there is an important theoretical reason for taxes, and an important operational reason.

The theoretical reason for taxes is to give value to the currency.  After all, if fiat money is only a piece of paper or a number in a bank account, why would anyone want it?  What value does it have?  The answer is that it is the thing that is accepted by the government in payment of a tax liability.  If you owe a tax, you must acquire dollars to pay it, or they put you in jail.  This is what gives fiat money its value.

The operational reason is that taxing destroys money.  It is the opposite of government spending, which creates money.  Without taxing, or with too little taxing, the amount of money could increase faster than the amount of goods and services produced in the economy.  If that were to happen, the result would be price increases.  Persistent general price increases are known as inflation, and too much inflation is a bad thing.  Taxes are the way government can ensure that its spending does not create money too quickly.

So, if government can spend without taxing or borrowing, what is the meaning of the annual deficit and the accumulated debt of a monetarily sovereign government?  The annual deficit is, of course, the excess of spending over taxing in a given year.  If taxing exceeds spending, the excess is called a surplus.  The amount of the deficit or surplus is the amount of money added to, or subtracted from, the economy in that year.  It is axiomatic that a large economy requires more money than a small one, and from that it follows that a growing economy requires a growing stock of money.  The deficit is what creates money, so a growing economy requires a deficit, every year.  Balancing the budget, or running a surplus, will prevent the growth of the economy.  A too-small deficit will allow for some growth, but will restrict growth and cause unemployment as the labor force expands faster than the stock of money.

A GROWING ECONOMY REQUIRES A DEFICIT.  Proposing to balance the budget, or run a surplus, is proposing to create a recession.

Because the government has been prohibited by law from running a deficit without issuing an equal amount of Treasury securities, the accumulation of annual deficits and surpluses is equal to the so-called National Debt, which is the outstanding stock of Treasury securities.  The meaning of this number is that it is the amount of money that has been added to private sector financial assets, or savings.  The debt of the government is the asset of the people.  It is their accumulated savings.

If the obsolete laws were repealed, the monetarily sovereign government could pay off the national debt, merely by taking back the Treasury securities and giving dollars for them, or redeeming them at maturity and not issuing new ones.  A good portion of the outstanding US Treasury securities are held by the Federal Reserve and the Social Security Trust Fund.  Exchanging them for dollars would have no economic effect whatsoever.  Many of the other holders of Treasuries, including pension funds and foreign governments, would not be pleased, as they would be deprived of their source of risk-free interest.  Therefore there is a reason to have Treasury securities even though the government has no need to borrow its own currency:  it is to provide an interest-bearing alternative to those who wish to hoard (the economist's word for "save") the currency.

Some math:  GDP = Private sector spending + Government spending - net imports

If you want more GDP, you raise private sector spending ability (i.e., cut taxes or increase transfer payments) or raise government sector spending.

If you want less GDP, you lower private sector spending ability (raise taxes or cut transfer payments) or cut government spending.

When unemployment is too high, you need more GDP.

Isn't that easy?

Some more math:  in a closed economic system, no one can save unless someone else dissaves.  Given a fixed amount of financial assets, if one sector of the economy sees a surplus (an increase in their financial assets) then another sector must have seen a decrease (deficit).  The economy is commonly divided into three sectors:  government, domestic non-government (or private), and foreign.  The foreign sector's savings is called the trade deficit.  When China, for instance, sells us more stuff than we sell them, they have a trade surplus and we have a trade deficit.  They are accumulating dollars (financial assets), and we are accumulating goods (real assets).  I've already described the government surplus and deficit.  The private sector, you and me, also has either a surplus or a deficit.  If we spend less than our income, we have a surplus, which is added to our stock of savings.  If we spend more than our income, which happened during the housing bubble, we have to borrow the difference (or reduce our stock of savings) and we have a deficit.

Government surplus + foreign surplus + private surplus = 0

This says that we can't all be saving at the same time.  If one is saving, then one or more of the others must be dissaving.  If one is in surplus, then at least one of the others must be in deficit.

The foreign sector currently and persistently has a surplus, which is our trade deficit.  If we want the private sector also to have a surplus, which is a good thing, then it is mathematically certain that the government must have a deficit, and it must be equal to the sum of the trade deficit and private sector savings.

If we rearrange the equation,

Private savings = Government deficit - trade deficit

If the trade deficit is a positive number (our imports exceed our exports), then in order for private savings to be positive, the government must be in deficit and its deficit must be higher than the trade deficit.

The nature of money and government fiscal operations for a fiat currency is described by an economic system called Chartalism, also known today as Modern Monetary Theory.   The content of this article is taken from MMT principles and teachings.  There has been much more written at http://moslereconomics.com and http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html