Government bonds and an effective way to bridge the budget deficit

22/03/2016 0:00 BAGHDAD -

Imad emirate, said the economist d. Qusay al-Jabri:
The issue of addressing economic imbalances is one of the key things macroeconomic any country, saying it was of interest to many economists, like the study and analysis of economic balance and how to reach him.
He added in an interview with Al-Jabri «morning» was part of what held an important aspect of the concerns of economists, is the subject of the government budget deficit, where divergent views on the economic effects of this deficit and the modalities of financing the budget deficit, and one of them finance non-inflationary.
He said al-Jabri intended to finance non-inflationary is the government financed its budget deficit, as well as revenue from other sources does not lead to inflationary effects in the economy, this is done when the government resorted to borrowing from the banking system by selling government bonds to individuals or business enterprises or Insurance companies.
Theoretical «Keynesian»
Jabri explained that this type of borrowing is the way active and influential in collecting savings and absorb surpluses and directed towards bridging the budget deficit, it is thus lead to the entry of financial resources in the economic cycle it was to enter without this technique as a result of lack of demand to absorb the output in the case of investment according effective demand theory Alkinsah ((relative to the economic Premier John Maynard Keynes' theory, which relies primarily emphasis on aggregate demand, which is Banvaqat individuals, business, government and prepared by the theory the main engine of the economy)).
Jabri continued that this does not lead to any increase in the money supply does not Nha does not represent a new creation to criticism, and that the reliance in financing the budget deficit on borrowing from non-banking sector requires the availability of several conditions, the most important of the existence of an active and well-developed financial market, and the stability of the purchasing power of the local currency and the existence of credibility over the payment of benefits and consumption of permissions and bonds in a timely manner due, and that is the nominal interest rate higher than the inflation rate granted by the government on these tools, in the sense that is the nominal interest rate is higher than the prevailing rate of inflation, with the availability of financial surpluses among these sectors is banking and the existence of ready to buy public debt instruments.
Money supply
According to al-Jabri here claiming «Alncodeon» that the fiscal policy Pure is ineffective unless accompanied by a change in the money supply, because the effects will subside in the short term, and are thus agree with the Keynesian vision on the impact of fiscal policy on economic activity, pointing out that it differs in term term, the big increase in the size of government spending lead to a decline in consumer and investment spending, which leads to bring public spending replace private spending, then you will be talking to any increase in output and employment.
interest rates
He noted that the amount that will be removed from the private spending due to rising interest rates will depend on two factors, first the extent to which the interest rate will rise when income increase, which is dependent on the elasticity of demand for money relative to income and interest rate.
He went on: The second factor is the extent to which the fall of investment in response to the high rate of interest, and this depends on the elasticity of demand for investment in relation to that rate, and that government spending financed through domestic borrowing leads to lower consumer spending, if the individuals expected to increase tax liabilities existing and future as a result of the need to extinguish the public debt, or if the spending led to a rise in the general level rate
He concluded his speech by saying Jabri «These effects lead to the weakening of the expansionary fiscal policy in output and employment effect, and that the fiscal deficit is financed by borrowing from the banking sector are likely to leave the other effects.