How to Think About the Deficit, the National Debt, and Interest Rates

According to the Fed’s most recent Z.1 Financial report for Third Quarter 2023, on 12/31/2022 U.S. balance sheets were contained $322 trillion in financial assets and $143 trillion in tangible assets . That makes total assets $452 trillion , about 18x the value of 2022’s $25 trillion GDP.

It makes sense that the stock of total assets is such a big pile of stuff. You can think of it as the value of all existing raw materials, like land, oil, and timber, plus everything people have produced since the beginning of time that is still here (that hasn’t been consumed or worn out yet), plus all existing paper assets like bank accounts, Tre

have left out all the other things people think about when they decide what to own, e.g., taxes, risk, and any benefits an asset provides, like the value of living in your house or looking at a painting. People will take all of these things into account when making decisions. For this post, I want to concentrate two things: 1) there will be a struc

The Balance Sheet Economy is static; it measures what we own , not what we are doing*.* Its metrics are expressed as stocks of assets that exist at a moment in time. For example, on December 31, 2022 there were 142 million existing homes in the U.S.

In the real world, of course, financial assets grow over time as well. Figure 5, above, shows what the distribution of total assets would be like after one year in the hypothetical case where each category of financial asset has grown in proportion to the increase in net worth.

The stock of equities increases, for example, because owners of firms is

The flow economy is dynamic; you can think of GDP accounts as the economy’s Profit and Loss (P&L) statement. It measures what we are doing, using metrics expressed in dollars per year like consumption, savings, investment, government spending, taxes, net exports, and GDP. Things expressed per unit of time measure speed, like miles per hour on y

Two Economies, Not One

As I have written in previous posts, the are two economies, not one. One is the Flow Economy that produces goods and services. The other is the Balance Sheet Economy that stores wealth

I ended up with a picture in my head of a market economy as a far-from-equilibrium communications network that uses prices to transmit information about wants and scarcities to people who make production and consumption decisions, exactly as Friedrich von Hayek4 explained almost 90 years ago.

I ended up with a picture in my head of a market economy as a far-from-equilibrium communications network that uses prices to transmit information about wants and scarcities to people who make production and consumption decisions, exactly as Friedrich von Hayek [4] explained almost 90 years ago. That picture views economic activity is work produced