The result is that the government creates the money we use by spending it into existence. It cancels the money it spends through tax. Thatâ€™s literally how the money creation system works â€“ it is that simple.
What this means is important. If the government wants there to be government-created money in the economy â€“ and that is vital to its operation â€“ then it has to run deficits or it must do quantitative easing. It has been claimed both of these mechanisms create debt. We do not agree: they create the money that keeps the economy going round. And given that is the case, all talk of â€˜repayingâ€™ this debt is misplaced, unless the government wants to risk the economy literally being short of money.
So cancelling the money through tax is just great. But taking money out of the economy is a bad idea because it might leave us with not enough money.
Needs some work there really.