The UK government's fiscal deficit is the UK private sector surplus, and that includes you. The government's deficit is your surplus. One of the founding concepts of modern monetary theory is sectoral balances, and its power lies in its simplicity. Every economy can be broken down into three sectors.

The government sector, the private sector, and the foreign sector. If you assume a balanced trade budget, then any government deficit increases our net wealth. A government deficit is our surplus. The fantastic Australian-based Modern Money Lab (link: https://modernmoneylab.org.au/databank/) maintains sectorial balances for most nations. Visit the website, link below in the comments, and choose any nation.

You have more than a 95 percent chance of seeing an economy with the government consistently running a deficit. Government is the UK's sectorial balances from 1990 to projected 2028. Pb is public balance, Fb is foreign balance, and Gb is government balance. A few things to consider. What appears above zero is a mirror image of what lies beneath it.

This is the simplicity. It's an accounting identity. Overall, income in any economy must equal expenditure. Any surplus of income over expenditure by one sector of the economy, be that private, public or foreign, must be balanced by deficits elsewhere. Next, notice that the UK government balance is historically in deficit.

That's the red below zero. And this is the case for all but a handful. Finally you will see that the UK has a trade deficit above zero in blue. This is the case for again, all but a handful of nations. Now what does the sectorial balance tell us about the UK economy? Now every year the foreign sector runs a surplus in our economy.

The value of imports is higher than the value of exports. And we import so much, we have two choices. Either the private sector, That's you again. Finance is that foreign surplus, or the UK government does. Now on most occasions, thankfully, the government does the deficit spending instead of you, but this isn't always the case.

Now zoom in on 2015 to 2019, and you can see the grey boxes below zero. For five years, it was the private sector that did part of this deficit spending. Now over that period, we started to draw down our net. financial wealth. Now the government took most of the slack, but we went into more debt to create a surplus for the foreign sector.

UK private debt reached 3 trillion for the first time in 2015. By 2019 it was 3. 4 trillion. Now it's no coincidence that there was a private 2006 and 2007, the years preceding the great financial crash. Private sector debt is much more dangerous for financial stability than public sector debt. And the main reason is that as a currency issuer, the government can always pay off its debt in its own currency.

Now that's not the case for me and you. For us, debt really can lead to insolvency. Now an obvious question to ask is, where would we have been without massive government spending during Covid? In 2020 and 2021, private sector net financial wealth increased and was mirrored by the government deficit. Of course it was.

As the foreign sector had a surplus, the deficit spending could only come from the government. If the government didn't spend, well collectively, we would have all eaten into our financial wealth as we emptied or cashed in. all of our savings. The government deficit was our surplus. Now with all things being equal, government debt is much better than private sector debt.

However, sectoral balances tell us nothing about who in the private sector is taking all of this government spending. We need other tools to understand why inequality is still growing in the UK. Sectorial balances are simple. They show that government deficits are both normal and needed. to support financial stability.

Sectoral l balances help us see where the stress is located in an economy.

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