Fiat, taxation, and economic policies that seem to flow from theory and display the world we end up living in.
Modern Monetary Theory - MMT labels any transactions between the government sector and the non-government sector as a vertical transaction.
still counter intuitive:Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector.
The conclusion that MMT necessarily draws from this is that private net saving is only possible if the government runs budget deficits; alternately, the private sector is forced to dis-save when the government runs a budget surplus.
hmmmm what seems counter intuitive appears to be close to what actually happens.
MMT therefore does not support the notion, as some Keynesians do, that budget surpluses are always necessary in periods of high effective demand. According to the framework outlined above, budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Rather, MMT suggests that continual budget deficits are necessary for a growing economy that wants to avoid deflation. MMT only advocates budget surpluses when the economy has excessive aggregate demand, and is in danger of inflation.