"Quantitative Balancing" - A proposal from Italy

"Quantitative Balancing" - A proposal from Italy

If the item "Deposits" were indeed reclassified as "Debts to the US Treasury" in the banks' balance sheets (seigniorage), a corresponding amount would appear in the Treasury balance sheet as an asset.

 If the banking money (M2 minus base currency amount to $18.2 trillion of seigniorage) is factored as Treasury credits, it effectively offsets the national debt by that same amount. The adjusted debt-to-GDP ratio would then be calculated as follows:

To calculate how the debt-to-GDP ratio changes for the U.S. with the updated scenario involving M2 less base currency and national debt figures, we can follow this process:

1. Debt-to-GDP Ratio Formula:

   $$\text{Debt-to-GDP Ratio} = \frac{\text{National Debt}}{\text{Nominal GDP}} \times 100$$

2. Updated Context:

   • M2 less base currency amount is $18.2 trillion (this can be interpreted as a proxy for the money supply outside the Federal Reserve).
   • National debt is $36.2 trillion.
   • Nominal GDP for the U.S. (as of recent estimates) is approximately $26.7 trillion (2024 projection).

3. Adjustments:
   In this case, if we want to link M2 less base currency to debt management or its relation to GDP, we might interpret it as a change in how debt interacts with liquidity or financing mechanisms. However, the core calculation still uses the national debt and nominal GDP values unless additional assumptions redefine GDP with monetary aggregates.

4. Calculation:
   Using the national debt ($36.2 trillion) and GDP ($26.7 trillion):

   $$\text{Debt-to-GDP Ratio} = \frac{36.2}{26.7} \times 100 \approx 135.6\%$$

Initial Parameters

1. National Debt: $36.2 trillion
2. M2 minus Base Currency (Treasury Credits): $18.2 trillion
3. Nominal GDP: $26.7 trillion (2024 projection)

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Adjusted National Debt

The national debt after considering Treasury credits becomes:

$$\text{Adjusted National Debt} = \text{National Debt} - \text{Treasury Credits}$$ $$\text{Adjusted National Debt} = 36.2 - 18.2 = 18.0 \text{ trillion}$$

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Adjusted Debt-to-GDP Ratio

Using the adjusted national debt, the debt-to-GDP ratio becomes:

$$\text{Debt-to-GDP Ratio} = \frac{\text{Adjusted National Debt}}{\text{Nominal GDP}} \times 100$$ $$\text{Debt-to-GDP Ratio} = \frac{18.0}{26.7} \times 100 \approx 67.4\%$$

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Key Outcome

Factoring M2 minus base currency as Treasury credits reduces the U.S. debt-to-GDP ratio significantly:

• Original Debt-to-GDP Ratio: 135.6%
• Adjusted Debt-to-GDP Ratio: 67.4%

This reclassification highlights how leveraging Treasury credits could transform the perception of fiscal health by effectively reducing the nominal burden of national debt.