Current accounts, how much money increased thanks to the deficit

Before Covid, the difference between income and spending in Italy was -67 billion (deficit), the difference exploded to -228 billion in 2020, but also in 2023 it was -153 billion. The government talked about a 5% deficit, but the current result is higher than 7%. However, with these additional hundreds of billions, the governments made a good impression, showing increased employment and GDP, and no complaints about the economy as there were in the years of austerity (except for those with non-index fixed incomes who suffered from inflation). .

The mark -153 billion income – expense balance means just that In 2023, the country taxed $153 billion less than it spent. Dislikes! Calm down, in the modern economy where one pays and puts a smaller mark in his bank balance, another takes and puts a greater mark in his bank balance. This -153 last year was +153 billion somehow in the economy. Which has actually improved. Do you hear it in the newspapers and on TV? No, but that's why we write.

In fact, these billions of deficits do not disappear as you think by reading economics professors, they are found in checking accounts, savings accounts, and bank securities (ok, some of them ended up abroad for gas…). That is, even if they wereted it if we wanted to in many cases (see the “aspects” of the super reward), The money from the deficit then appears in the bank as someone's “savings”. (Except for the one given to Zelensky…). Then with this money you buy BTPs and close the circuit.

Whoever received approximately 350-400 billion extra in Italy (compared to before Covid) spent it and then passed it on, until it reached someone who collected it instead. And so these billions above the deficit level, or roughly below, maybe 100 billion ended up overseas, as you can see An increase of about 350 billion is now in bank accounts. Is it a coincidence that the country runs an additional deficit of $450 billion and, by removing major energy imports and money from Zelensky, increases bank accounts by the same amount? No, it is an accounting identity.

This is how the public deficit works. It is not, as economics professors say in the newspapers, as if the money disappeared into a hole. Instead, it is always a circle in which credits and debts in the bank are offset. The problem is only to whom the money goes, not that there is no money. Government debt becomes a problem if it forces you to raise interest rates To persuade the public to buy bonds then, but since 2014, the ECB has bought $700 billion worth of bonds when it kept yields below 1% and no one wanted them among savers. If there were no ECB and the euro, would you devalue the currency? Maybe, but the whole world did the same thing, so in fact you didn't even devalue the currency because you have to devalue the currency compared to some other countries that don't have a deficit and everyone is doing it.

these 450 billion additional deficit However, it does explain why the economy is improving. Economics professors always talk about “productivity,” but in reality it's the money created and circulated that matters most. Has productivity improved in the past three years? Obviously not with remote work. They complain about the deficit that has exploded while explaining that the economy has improved and that they are unable to achieve 1 + 1 = 2. Because these hundreds of billions are what moved the economy.

Paolo Picci and Giovanni Zipordi, March 7, 2024

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