6 ideas
The domestic private, government, and foreign sectors' financial balances must sum to zero by accounting identity, so one sector's deficit is necessarily another's surplus. Policy debates that treat government deficits in isolation ignore this constraint.
A sovereign government creates demand for its currency by imposing tax liabilities payable only in that currency, which obliges people to sell goods and services to obtain it. Because the currency issuer spends by crediting bank accounts, taxes do not finance spending. Instead they create demand for the currency, withdraw purchasing power to control inflation, and shape behavior.
A government issuing its own floating currency sells bonds to offer an interest-bearing alternative to reserves. This drains excess reserves so the central bank can hit its overnight interest-rate target. Bond sales are a monetary operation, not a financing necessity, so such a government cannot be forced into involuntary default on debt in its own currency.
Fiscal space depends on whether a government issues its own non-convertible floating currency or pegs it, dollarizes, or borrows in a foreign currency. Only full currency issuers escape financial constraints, leaving inflation and real resources as the binding limits.
The government offers a job at a fixed basic wage to anyone willing and able to work, so its spending expands automatically in recessions and shrinks in booms. The program acts as a buffer stock of employed labor rather than unemployed labor. The fixed program wage serves as a price anchor that stabilizes inflation while eliminating involuntary unemployment.
All money is a debt instrument, meaning an IOU denominated in a state-chosen unit of account, and these IOUs form a pyramid. Households use bank deposits, banks settle in central bank reserves, and the government's own liabilities sit at the top as the most acceptable. This view treats bank lending as creating deposits rather than lending out prior savings.