longweekend58 wrote on Jan 22^nd, 2015 at 7:39am:


My interpretation is well in line with any published dissertation on macroeconomics. The fact that the Norwegian SWF is created from international funds is of no consequence as none of it finds it way into either the public or private sector balance sheets. The Norwegian budget surpluses are therefore funded entirely by the private sector.

Quote:


You've misinterpreted things a bit Longy. Nobody forgot about the external trade balance. In the Norwegian case, the trade balance is largely off the table as it is entirely seconded by the wealth fund as far as oil revenues go. In the local case it doesn't matter as we almost always run a negative current account. I'll look when I get a bit of spare time but I suspect that the Norwegian trade balance would be negative as well with oil removed from the figures.

If the private sector has to fund both a trade deficit and a budget surplus then logically, private savings must decrease.

Local GDP expands by about 5% pa in nominal terms. Naturally, so too does the base money supply. As pointed out before, as long as the budget deficit is smaller than the money supply growth it is not going to add to net public debt in any way. The deficit is always funded by bond issues that are taken up by the private sector. The RBA simply repurchases them when they expand the money supply. Any difference between the base money supply growth and the public deficit can be used to manage the government debt position.

If you really are interested in how the RBA manages the money supply I suggest you google "open market operations" for a description.

longweekend58 wrote on Jan 22^nd, 2015 at 8:40am:


Not directly but indirectly. If the revenues of the SWF were disbursed to the citizenry or even used to fund the public budget there would be less need to cover the shortfall in savings.