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The Implementation Pitfalls Of A Balanced Budget.

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If you want some fun balancing a budget here's a link to the LA Times and try and balance California's budget:

http://www.latimes.com/news/local/budget/

I've posted quite often in favour of a balanced budget, which in theory eliminates the danger of govt deficit spending and the build up of unsustainable debt.

However just proposing a balanced budget isn't good enough because there is a problem because what is a balanced budget? On the face of it a stupid question but there are issues.

Lets say I run a country with a balanced budget law, how could a possible run a deficit and create a debt mountain? Very easy because all I do is produce a balanced budget.

I add up all I'm going to spend on health, education etc... we'll say the figure comes to £100bn, now I predict revenues for the forthcoming year which equals £100bn. I now have a balanced budget. Now each month I need to generate £8.3bn a month in taxes and I match my monthly spend. But lets say I'm a real politician and I've hugely over estimated tax revenues to match my spending plans, so taxes only bring in £5bn a month. Clearly in 12 months time I've got a deficit of £40bn even though my initial budget balanced.

Now you might argue that wouldn't happen, but I'm guessing issues like this would happen. Maybe after 6 months I'd be forced to produce another budget but what about the existing overspend, how long would you get to recoup the money, producing a budget that would give you a £60bn balanced budget could cause major problems as in 6 months you've already spent £50bn leaving you with £10bn to spend in the last 6 months.

I'm coming around to the idea that possible the only way a balanced budget can be implemented is by govt spending the tax revenues collected in the previous year. In an emergency you'd be able to use taxes from that year's tax revenues, but the obvious pitfall you'd impact the following years budget. Obviously this would require monitoring because in an election year there could be a temptation to screw over the opposition if you felt you where going to loose. I'd also like to think that this would ensure govts would seek to retain the currencies purchasing power because if they let inflation rip, there spending plans are clearly not going to buy very much.

So if you where going to implement a balanced budget how would you do it?

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So if you where going to implement a balanced budget how would you do it?

For the UK :-

1) Budgets would only need to balanced at the end of a parliament to give some freedom (politicians personally liable for this).

2) Hypothecate taxation as much as possible.

3) Budgets have to be signed off by an outside body (e.g. national government budget signed off by a senate of local governments).

4) Require a budget surplus, if it becomes a reality a portion could be returned as a tax rebate at end of year.

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Most companies have these same problems, yet they manage to balance budgets just fine (or they end up out of business).

only because the government makes available the required securities by having a net negative financial asset position such that the companies (and other entities required to balance budgets like households) can run a net positive financial asset position.

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Most companies have these same problems, yet they manage to balance budgets just fine (or they end up out of business).

Most individuals, and most families, in fact.

You build upa surplus, and adjust your spending accordingly if you are in danger of dipping into the red.

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Full reserve banking with the government in charge of issuing new money.

Job done.

If the 'job' in question is instant hyperinflation then I'm inclined to agree with you.

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only because the government makes available the required securities by having a net negative financial asset position such that the companies (and other entities required to balance budgets like households) can run a net positive financial asset position.

You don't need a government money in order to allow companies to trade. Companies could even trade in beans (or anything else) if they had to, but they would still have to balance a budget.

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You don't need a government money in order to allow companies to trade. Companies could even trade in beans (or anything else) if they had to, but they would still have to balance a budget.

a budget in what?

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Most individuals, and most families, in fact.

You build upa surplus, and adjust your spending accordingly if you are in danger of dipping into the red.

You don't even need to do that. You could just make a percentage (say, 10-20%) of public sector salaries relate to taxation levels that year. In short, you could have a bonus, depending on how well the economy performed.

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a budget in what?

Whatever they agree in the contract/deal, be it grams of gold, ounces of silver, magic beans, free range eggs etc.

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  • 334 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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