For Auerback & Co the government budget constraint does not exist since governments can just print money to finance their spending
Many people are perhaps not good at obeying them but most are painfully aware of the budget constraints they face i.e. that spending may exceed income now via borrowing but then has to be reversed at some future date.
It is thus frustrating that some tend to neglect that governments also face budget constraints and some even dismiss them altogether. In the first camp you find the ones who ask for fiscal stimulus but with a budget deficit close to 10% of GDP i.e. government spending far exceeding government income (tax revenue) it is more than hard to see where the extra government borrowing should come from to finance this extra spending ? just witness Greece?s problems raising extra borrowing or rolling other existing debt. In the second camp you find people like Marshall Auerback who occasionally rants against the IMF-EU package for Latvia since, among its many features, it makes Latvia live up to a budget constraint. For Auerback & Co the government budget constraint does not exist since governments can just print money to finance their spending: Apply a floating exchange rate and print money as part of fiscal policy; his paper cannot be read differently since he argues that eurozone governments have to ?finance? every euro they spend (meaning have to borrow or raise via taxes) whereas ?These funding constraints do not apply to the US government, which is sovereign in the US dollar and can never be revenue constrained?. In the Auerback world ?financing? spending is not necessary ? just print money (done by the government borrowing from the central bank which has the monopoly over the printing press). In the case of Latvia this would require abolishing Article 36 of the Law on the Bank of Latvia plus skipping the current independence of the central bank but that is a mere detail in the Auerback world I presume.
