Another important quotation by Liu:

Government levies taxes not to finance its operations, but to give value to its fiat money as sovereign credit instruments. If it chooses to, government can finance its operation entirely through user fees, as some fiscal conservatives suggest. A government does not need to be indebted to the public. It creates a government debt component to provide a benchmark interest rate to anchor the private debt market, not because it needs money. Technically, a sovereign government need never borrow. It can issue tax credit in the form of fiat money to meet all its liabilities. And only a sovereign government can issue fiat money as sovereign credit.

If fiat money is not sovereign debt, then the entire conceptual structure of finance capitalism is subject to reordering, just as physics was subject to reordering when man's worldview changed with the realization that the earth is not stationary nor is it the center of the universe. The need for capital formation to finance socially useful development will be exposed as a cruel hoax, as sovereign credit can finance all socially useful development without problem. Private savings are not necessary to finance public socio-economic development, since private savings are not required for the supply of sovereign credit. Thus the relationship between the national private savings rate and public finance is at best indirect.

Sovereign credit can finance an economy in which unemployment is unknown, with wages constantly rising to provide consumer buying power to prevent production overcapacity. A vibrant economy is one in which there is persistent labor shortages that push up wages to reduce overcapacity. Private savings are needed only for private investment that has no intrinsic social purpose or value. Savings without full employment are deflationary, as savings reduces current consumption to provide investment to increase future supply, which is not needed in an economy with overcapacity created by lack of demand, which in turn has been created by low wages and unemployment.

More importantly, with a hat tip to Hyman Minsky, sovereign credit can be used to fund a job guarantee programme so that nobody has to be involuntarily unemployed - if someone wants a job at the minimum wage they go to a government employment office and they get that job, paid for by fiat money. If the jobs the government funds in this way are productive, this fiat money is not inflationary. But any job is less inflationary than an unemployment subsidy. (I'm leaving disability, and old age pensions, child benefits, and so on out of this "subsidy" category).

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma