The chart shows euro area sectors’ financial balances.

The total extent of the bars above zero measures net private financial saving.

The total extent of the bars below zero measures all liabilities that make financial saving possible in each period. 

The recent dynamics shows

a) a reduction of financial saving to pre-crisis levels

b)  a stable financial saving by households

c) a decline in non-financial corporations’ saving, reflecting a slight increase in investment

d) a declining support from fiscal policy, except a slight increase in fiscal deficits in the last 2 observations

e) an increasing current account surplus that supported saving and prevented another recession, except a decline in the last three observations, reflecting the global slowdown.

Public debt under a non-convertible currency (downloadable)

Here is my answer on Quora:

This would simply be equivalent to a tax cut. At the end of the day, every adult American would find $1,000 more in her pocket.

If the Fed does it directly, this would not be counted as government “debt”.

Some people call this “helicopter money”. It is a form of fiscal policy in disguise.

A tax cut would be a good idea today in the U.S.

Also, here is Joerg Bibow’s letter to the Financial Times on helicopter money.

As long as the Euro area enforces balanced budget constraints at ALL levels of government, the Euro area will not be sustainable.

I have summarized here the argument behind the statement above.

What follows is a simple model that shows the logic of the argument.

1. In a monetary economy where the private sector demands financial assets as a vehicle to store wealth (aka ‘financial savings’), spending (by the private sector) can be assumed to depend on saving desires. Specifically, in any given period of reference, the change in total spending (ΔE) is a function (α) of the difference between the available stock of financial assets (FA) and the desired stock of financial savings (FA^d):

The intuition is that if the value of available financial assets exceeds the desired stock, spending will increase, and vice versa.

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