(S – I) = (G – T) + (X – M)
So total private savings (S) is equal to private investment (I) plus the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents. That has to hold as a matter of accounting. It is not my opinion.
Thus, when an external deficit (X – M < 0) and public surplus (G - T < 0) coincide, there must be a private deficit. While private spending can persist for a time under these conditions using the net savings of the external sector, the private sector becomes increasingly indebted in the process.
I've continued my skepticism on Chartalism's basic arguments. First, I don't think, as many of them claim, that mainstream economists are ignoring an accounting identity. I am not particularly mainstream, but I think Chartalists are over-selling their argument. I agree with the above accounting equation. What concerns I have are two fold:
1. That the causality does not necessarily have to be government deficits CAUSING a net savings. An accounting identity is just that - it is not a model of causality. THe identity leaves open numerous and simultaneous causation runs. Net savings could fund deficits, a capital account surplus could fund net investment....
2. I disagree with the above statement, "...private spending can persist for a time under these conditions using the net savings of the external sector, (but) the private sector becomes increasingly indebted in this process."
How is this supposed indebtedness a given? If we are running a current account deficit, and by definition a capital account surplus, foreigners are providing us part of their savings to fund our negative net savings and government debt. What is it about this that is unsustainable for as long as our currency and economy is strong?
I agree with the typical post-Keynesian argument that debts financed from abroad can lead to bubbles in some cases, but not necessarily this Chartalist subgroup. I don't see how this means the solution is for government debt (deficit spending) to replace foreign funding to pay for investment spending. Further, I don't see how encouraging further private savings (less consumption) would be somehow less attractive than running large government deficits.
I get that the government is the monopolist of money and therefore has no offsetting liabilities for money assets in aggregate. I don't get how it necessarily follows, given the above, that the government should just spend and spend and spend, and print and print and print.
I'm still open to dialogue on this, but I have to say, the inability of chartalists to present a cohesive argument is not appealing. (And I've read up a LOT on this subject).