Tax anticipation notes

Interestingly, there is a similar proposal (it's very different in implementation, but has a similar principal of notes - or in this case bonds - that can be used to as payment for taxes) by Phil Pilkington (an Irish economist) and Warren Mosler, which was proposed to the Irish government last year, but which seems to have been knocked-down based on vague/unclarified reasoning by Michael Noonan:
https://fixingtheeconomists.wordpress.com/2013/12/05/press-release-for-my-new-tax-backed-bonds-policy-note-at-levy

The link is an updated version of the proposal from a few days ago, for addressing last years concerns; so this makes two (partially related) ideas, which can allow government to pursue boosted fiscal spending, to exit austerity and achieve economic recovery.

Here is the direct document:
http://www.levyinstitute.org/pubs/pn_13_10.pdf

Deleted User wrote: »

What would the benefit to a supplier / employee / welfare recipient / whoever of accepting payment (in part or in whole) in these TANs over cash?

Cash can be used to settle any tax bill, any other bill, can be paid as a dividend and it can earn interest.

I note from the blog link you gave above:

If the government issued 69,812,000,000 TANs during 2012 but the tax liability was only 56,524,000,000 what happens to the difference? Do those who received the TANs have to sit on them until they can use them or sell them at a discount to those who can afford to wait?

About the only people I see benefiting from this would be the likes of myself - I might be able to settle my income tax bill with TANs bought from a teacher or welfare recipient for less than their face value and I could pocket the difference.

The benefit to the people receiving the TAN's, is that they can get higher payment and actually be given jobs, as opposed to having less payment or remaining unemployed - so that ends up more profitable for everybody, even if there was a discount.

Since there do not appear to by any major roadblocks to using these, you should be able to completely end unemployment, with the correct jobs program.


Spending enough TAN's in one year to exceed tax intake, would be a massive overspend, so I don't believe that would happen - I would think that the best way to run such a spending program, is to not let the number of TAN's in the economy, exceed tax intake (but that's just my personal take on it, it can still be exceeded).

This (through supply and demand) minimizes any discount on the TAN's, while providing all the benefits of economic growth/recovery - and considering the benefits of that, even if a discount did start to develop, it would be kept in homeostasis (i.e. balanced at a relatively low level, due to supply and demand), and it would be far far outweighed by the benefits that economic recovery provides.

Yes, people would be partially paid in TAN's - some of the payment (preferably most) would need to be in Euro's, which means likely a portion of all the public services wage pay, would be in TAN's.

So no, not the whole income will be made up of TAN's; when you consider selling on TAN's on the private market, then (as I described in posts above):

KyussBishop wrote:

Lets say though, that TAN's get issued beyond the holders tax liabilities, which would create a reason to trade them privately, and which may cause their trade price to drop, [from €100] to (for example) €95:
This would allow private companies (and pretty much anyone with tax liabilities - i.e. everyone) who do not have TAN's, to be able to trade €95, in order to extinguish €100 worth of taxes.

Effectively, that would allow them to save €5 out of every €100 worth of taxes, reducing their tax liabilities by 5% - this would than create high demand for TAN's, and that would then (through supply and demand) reduce any discount to a very small value, keeping TAN's very close to parity with Euro's.

So that quote above, explains how TAN's would be kept very close to parity with Euro's - there may be a discount, but the above would make sure the discount is tiny.

Considering that TAN's would allow not just an expansion of public services and public spending, but also an increase in wages in the public sector, people would be more than happy to accept the wage increase, since that can easily be made to exceed any (miniscule) discount.

In a post on another thread, I put forward this analogy (in the second quote), which may help understand them better:

KyussBishop wrote: »

Gandhi wrote:

When you do your taxes, and pay the government in TANs instead of Euros, where is the government going to get the Euros to plug the resultant budget hole?

The government can fund the budget hole, with more TAN's - essentially keeping the same amount of TAN's in circulation.

Once the economy has fully recovered, which is judged by having full private sector employment - with all the workers in the government jobs program, having been re-employed in the private sector, after the private sector has re-inflated.
Once the economy has fully recovered like that, government will reduce spending but will keep taxes at the same level (so that spending is less than taxes), and this will gradually reduce the amount of TAN's in circulation, until there are none left.

This lets government extend spending today (with TAN's), in order to achieve economic recovery faster, and reel-in the extended spending (TAN's) once recovery is achieved.

KyussBishop wrote: »

Another way to think of it, is that it is like being able to extend public debt, but it carries zero interest, and it can be paid back whenever we like - there is a cost (the debt must be repaid), but we can defer it into the future without any additional cost, since we don't have any interest payments to pay on it - so this makes it completely sustainable, and totally different to borrowing (we in fact, would not seek out investors to borrow from, but would be directly paying people in these bond-like notes instead - this debt would be 'repaid' when people use TAN's to pay tax liabilities, but as my post above describes, this can be extended by reissuing TAN's).

I don't personally like this public-debt analogy, because it can give people the wrong idea (and because this actually wouldn't be counted as debt), but it's a more understandable way of looking at it.
It has its limits (we would not want to have too many TAN's in circulation), but it allows a significant expansion in spending, which can achieve recovery.

TAN's do not work like bonds (not even zero-coupon bonds) - they are only analogous, but they do not work the same, so they are not like borrowing:
People invest in bonds (meaning Euro's are exchanged for bonds, and if the demand is not there for the bonds, they may trade at a discount - government is borrowing, and pays interest).
People are paid with TAN's (government gets €100 worth of labour for every 100 Euro worth of TAN's, at no loss, no Euro's are exchanged, not subject to supply/demand, government is not borrowing, and pays no interest).

Bond's also can not be used to pay tax liabilities, but TAN's can - this increases demand for TAN's if workers paid in them trade them at a discount, because the people who buy discounted TAN's off the workers, get to reduce their tax liabilities by the discount.
A 100 Euro TAN trading at €95, a 5% discount, allows anyone who buys that to pay 100 Euro in tax liabilities for €95, to effectively get a 5% reduction in their tax liabilities - that would create huge demand for TAN's, particularly among corporations.

Do you see the self-correcting balance there? Supply and demand will ensure any discount remains tiny, because any increase in the discount, will make demand for TAN's jump for anyone who wants to lessen their tax burden.

The problem with calling it borrowing, and then comparing that to government bonds that are put out at interest (which is what the public debt is made up of), is that it has the potential to confuse/mislead due to how different TAN's are.

You are correct though: You can consider TAN's a form of borrowing (borrowing labour rather than Euro - though I think this may confuse understanding of them), and you can consider it a form of public debt (but one which is, legally, not counted alongside our normal public debts) - but to mix up TAN's with government borrowing through bonds and the legal form of public debt, isn't accurate, because TAN's and regular government bonds function in completely different ways.


Yes, that's true that TAN's trading value can be affected by the interest rate, but the closer you are to the 31st of October (when taxes are due), the closer to parity with Euro TAN's must be - people holding TAN's, can trade them then for very little discount - or simply just pay off their tax liabilities with them.

So, at worst, the TAN's discount will be (after taxes are paid, from mid-November onwards) equal to the interest rate + a small amount, and our interest rates are currently at their lowest in recent memory - currently 0.25%.
In 6 months time, that will then be "0.125% + a small amount" - the discount drops the closer you are to the next tax date.

You're looking at a discount in the low single-digits, at worst - and the wages of people being paid in TAN's, will be increased far beyond this discount - that's a net gain for everybody (for all of the people currently employed, all of the unemployed - since we would have full employment, the economy in general would improve, government wouldn't be affected by any discount - only holders of TAN's and they now have higher wages).


Also, government doesn't need to forego future tax revenue - government can respend every year, the same amount of TAN's that are paid down in taxes, rolling it over perpetually until economic recovery is complete.

You're mistaken in counting that discount as government interest; that discount only affects people who hold TAN's - the government already gets their €100 worth of labour (per 100 Euro in TAN's) from the workers, and government does not really lose any tax revenue, it just gets collected when TAN's are recalled far into the future, after the economy has recovered.


You're right to point out the discount, but don't you see how the discount does not affect government (only people holding TAN's), how the discount would be really small (very low single-digits - since interest rates are 0.25%, maybe even less than 1%) and how you can still massively expand government spending (and peoples wages), without the discount causing a problem?

You can consider it public debt, yes, and that is an accurate way of describing it - but it is not legally counted as part of our public debt (it still effectively is public debt though, yes), and it does not carry interest, so there are no sustainability issues like there is with regular public debt.
Other than having to repay the original debt in the future, there is no additional cost that would be incurred through interest and such.

It would be different from promissory notes, in that promissory notes are not tax redeemable, whereas TAN's are, and TAN's would not have a due date like promissory notes would.


Paying workers in TAN's, would actually benefit them compared to now, because:
1: You can increase the workers wages using TAN's (which can easily be made to wipe out any minor discount that may occur with TAN's - thus workers would hold more Euro's than their original salary, if they trade the TAN's), allowing them to spend more than before (boosting the private economy).

2: All of the unemployed, can be employed in a temporary jobs program (receiving payment in Euro's and a portion in TAN's, like all others working with government), which actually gets them earning, paying down debts, and spending again - these workers immediately benefit from being back in work, and getting paid for it, and the economy benefits from full employment.

3: The above expansion in spending, and the jobs program, would gradually restore the private economy to full health - workers in the temporary jobs program, would gradually be re-hired by the private sector, exiting the jobs program until nobody is left in it - economic recovery would then be complete, with full private sector employment. Government spending would drop below taxation, and TAN's would be recalled.


I understand the skepticism (and appreciate it, as it's helping me find ways to frame this better), but I think there is one remaining part where there's a bit of confusion:
That TAN's can be used to pay tax liabilities, is an important thing to look at, because this (along with people being paid in TAN's, rather than government having to find investors) is one of the more significant ways they are different to bonds and other similar financial instruments, like promissory notes. It changes how they work in a very large way, that is important for understanding them.

Well no, more I mean that there's no fixed time period that TAN's have to be in circulation - a person can hold onto their TAN's for a year, two years, three etc., and when TAN's are used as payment for tax liabilities, government can just recirculate them, keeping the level of TAN's in the private economy constant (so there's no paydown of principal by government, until TAN's are 'reeled in' after economic recovery, by letting government spending fall below taxation levels).

People don't have the opportunity to redeem them whenever they like though, they would have to do it around the 31st October-14th November like usual, if they don't trade the TAN's for Euro earlier.

Perhaps, though it depends upon the discount and the interest rates available - there's no reason TAN's can not be made tradeable as a currency itself (businesses who accept them, will see a boost in trade/profits by accepting them, so it's win-win for everyone - doesn't matter that they don't bear interest, the greater profits can still outstrip that), so you could easily see workers spending them like that, rather than trading them at a discount.

Ah, I didn't know VAT was payable bi-monthly - that would in fact bolster the argument for business accepting TAN's as payment for goods as well then - that fast rate of tax liability repayment for VAT, will further reduce the discount, to "(interest rate / 24) + a small amount" (24 for bi-monthly VAT payments) - tiny single digits, if not fractional instead.

If they are redeemed (almost) immediately, then this will arguably happen through increased consumer spending with the TAN's, since that is when consumers will get the most out of their TAN's - while people are spending them, and businesses paying down taxes with them, government just keeps spending more TAN's back out into the economy all the time, keeping the amount in the economy constant.

So even if they get used to pay down taxes quickly, that doesn't hamper them at all (it actually benefits them by further reducing the discount), since government can easily keep more flowing back into the economy through spending/wages - that's still a massive boost to government spending and business in the private economy, with everyone at a net-benefit even after you consider possible discounts and lack of added interest (because both profits and wages will increase, to far outstrip those potential negatives).

Peregrinus wrote: »

But if they're sufficiently tradeable that people will accept them as, e.g., payment for goods, and they can be used at any time to pay tax debts to the government, in what way are they different from, well, money? In what way is your plan different from the government simply printing money to pay the workers it hires?

That's a good question and a useful thing to pause on for a moment, to consider:
1: These are like public debt, even being in the form of bond-like notes, that allow expansion of spending, and
2: These also act like money, and are (at worst) equally as inflationary as public debt (public debt is in fact more inflationary, since interest gets paid on top of the principal).

Consider this also: The bonds used for public debt (regular public debt, not TAN's), are practically guaranteed against default, and are not just as good as holding money, but better than money, since they carry interest - they are tradeable too, and usually in high enough demand, so (even though you can't pay taxes with them), they can be considered a form of money too.

So, if expanding TAN's is like printing money, why not expanding public debt too? Hell, can not all debt/bond instruments be considered money then, as long as people are willing to trade them?

There's even a separate (not-too-dissimilar) proposal I linked earlier in the thread, from an Irish economist Phil Pilkington (along with US economist Warren Mosler), that proposed to make government bonds (our public debt) redeemable for tax payments (primarily to reduce market concern about possible default) - would that suddenly make all of our public debt, created money?
https://fixingtheeconomists.wordpress.com/2013/12/05/press-release-for-my-new-tax-backed-bonds-policy-note-at-levy
http://www.boards.ie/vbulletin/showpost.php?p=87932578&postcount=6


Going back to your question though: The main difference here, is that the ECB controls money creation, and so Europe would have to come to a political agreement first, to agree to do that, before it could be done.
Europe is in a political deadlock though, and the massive strength of TAN's, is that the Irish government doesn't need to consult Europe in order to use them, but can do this independently (possibly with our central bank supervising it, while monitoring inflation).

Deleted User wrote: »

Ignoring getting European approval for the moment

We don't need it, which is why this is so powerful - if European approval was needed, there are much better EU-wide policies that could be done, separate to this.

The big advantage of TAN's, is sidestepping the political deadlock in Europe, and being able to act/seek-recovery on our own.

Deleted User wrote: »

- if these were issued and looked like debt why would a dispassionate investor (some big foreign pension fund for example) not consider them as debt and factor them into their pricing model?

Separately from that - what are all these newly created jobs to do? And how would a private employer compete with these jobs when the rival public employer can just print an IOU to pay the wages.

Edit:For some reason Gresham's law is knocking around in the back of my mind:

I don't see what you mean with foreign investors - what pricing model would they factor them into, for what assets, and how would that be relevant for Ireland?


As for the jobs, the public sector can be restaffed for one, and parts of it like public health can be expanded to provide proper coverage (since it's straining now), particularly a large expansion in mental health facilities/resources/treatment (since this is very poorly provided right now), and resources for education surrounding mental health and health issues can be properly expanded too.

Beyond that, you can have an expansion of jobs with community development - proper maintenance of rundown community areas, and for areas troubled with social issues, resources put forward to help tackle that (like more facilities/education for help with drug addiction, among other issues), more facilities/jobs for helping the elderly.

We also would have the resources for going ahead with shelved infrastructural projects, and planning/starting new ones as well - in particular, new ones we definitely should be looking at, are large R&D and infrastructural work on moving our energy system away from fossil fuels - and expansion of public transport infrastructure (in addition to restaffing cut public transport services).

That's only a handful of things off the top of my head as well - there's not really an end to the different types of useful work that can be thought of and people put to work at (also ones which target social purposes, rather than just economic).

The jobs in general, would be aimed at not competing with the private sector - that would want to be avoided.
The wages for the jobs program would want to be kept at a wage consistent with a minimum decent standard of living (with wriggle room on pay for more skilled jobs), so the wages will be kept at a low level (to minimize competition with the private sector) - which the private sector will need to do better than to hire the workers out of the jobs program.


Since the workers getting paid, and spending money into the private economy, will reinflate the private economy again, the private sector will gradually regain health, and will hire people out of the jobs program until nobody is left in it - that will be the point (full private sector employment) at which our economy has completely recovered from the crisis.


I posted a thread here on the Job Guarantee idea when I first learned about it, but my opinions and knowledge of the topic have changed a lot since I wrote it, so it may contain some mistaken information that I've since learned better.


Greshams law is a good point, but I don't believe it should be an issue, since the discount on TAN's (if any) should be extremely small.

I think that over-long explanation might not aid understanding, it's hard to think of ways to put some of this succintly - a simplified explanation is that the gap you see can be filled with TAN's.

Adding to all of the above: The economic recovery that the TAN's will spark, will increase tax revenues as well, which will automatically increase the amount of Euro's collected in taxes as well (maybe not beyond what was collected before TAN's were introduced, but it would help close the gap later on, when TAN's are recalled).

Ah, missed this post:

roro2 wrote: »

Apart from plenty of other issues, the point about it not affecting our creditworthiness, being an interest-free solution, etc just isn't true.

Total tax revenues this year will be €38bn and total current spending will be €51bn. Investors have bought billions of euro of Irish bonds over the last 2 years and reduced interest rates on these bonds to affordable levels on the basis that this huge gap between revenue and spending will be closed. If you now turn around and say that we are going to forego €10bn of future tax revenue per year (400,000 unemployed paid €25k in TANs), will these investors say "that's ok, we still think you'll have enough tax revenue left over to pay us our interest and redeem our bonds"? I don't think so - they will flee, and any market funding that we do manage to get will be at unaffordable levels. It's akin to hoping the economic payoff is so large that you don't need external support or financing anymore, i.e. that the benefits outweigh the current €12bn revenue gap. I don't see where these benefits are coming from, other than the hope that the private sector can very quickly absorb the 400,000 unemployed, full employment is achieved and everybody pays enough tax again. (A similar argument to those that said we should default and move to a permanent self-funding position overnight without our debt burden).

I do admire your "out of the box" thinking though!

There aren't other issues though - pretty much none put forward, provide any show-stopping challenges for TAN's; the majority of the issues presented thus far, are non-issues due to the way TAN's work.

With TAN's we don't need any more market funding - and once they are demonstrated, showing they restore the economy, any lack of confidence from the markets would disappear - it would be bolstered in fact, by a recovering economy.

Even that wouldn't benefit-us/matter though: We wouldn't be depending on government bonds for funding anymore. We wouldn't need investors buying any more bonds.

Full-employment would be achieved within a very short time with the Job Guarantee program - though full private sector employment would take longer.
That's a pretty enormous benefit straight off the bat - all those people working/earning again, restoration of public services and expansion of infrastructure (among other useful work done), and spending increased in the private economy due to the wages paid.

roro2 wrote: »

Full employment in name perhaps, but 400,000 additional public sector workers being paid by future tax revenues/government borrowing. At the moment we have about 20% of tax revenues being used to service government debt, and now the suggestion is that another 25% of tax revenues are foregone to fund massive increases to the public sector. The remaining tax revenues are going to have to stretch an awful long way, particularly with all this new infrastructure development to fund and maintain...

I accept that a government stimulus package of this magnitude would boost GDP (temporarily), but there's no surprise there - that is standard economics and would have solved a lot of the current problems had we been able to fund such a programme. And that is the crux of the problem. Tax revenues in 2013 will be €12bn short of funding current government spending, and now this proposes to reduce tax revenues by 1/4 and increase spending by an unspecified amount.

You don't service payments on TAN's like you do regular government bonds - TAN's don't carry interest, so don't suffer the same problem of burdensome interest payments.

So long as your remaining tax intake of Euro's, meets all your Euro-only obligations, there's no 'stretching' of tax revenue - you are taking in less Euro in taxes, but equally, you are using less Euro in spending as well.

For every Euro in TAN's paid out as part of government spending, that's one less Euro you need to raise in taxes if you use TAN's for the same spending next year as well; for every TAN used to pay a tax liability, that shortfall in tax revenue, isn't really a shortfall because you'll just be spending the same amount as the shortfall in TAN's again - which keeps the amount of TAN's circulating, constant (the TAN's aren't recalled until later on, after economic recovery is achieved).

roro2 wrote: »

How do we not need to sell government bonds? How do you fund this increased hole without going to the markets? And how do you not spook the markets? Also, as things currently stand, bondholders are effectively senior in the payment structure to other parts of government spending (austerity measures reduce public sector wages, capital spending, etc - bond interest or redemptions are not reduced). It also sounds like this proposal effectively subordinates bondholders and prioritises the TANs (unless the value of the TANs could be arbitrarily reduced by government in the future if they need to balance the books).

Government don't need to sell bonds, because government can spend with TAN's. Markets would not be spooked, because they would see the countries economy gradually recovery due to TAN's, which benefits everybody - that (market perceptions) doesn't matter to government though, because government do not need to seek investors for bonds, because government can just use TAN's instead (which carry no interest, so are inherently preferable to bonds).

Additionally, the increase in economic activity, is going to increase tax revenues, due to (generally) increased profits and wages - this is going to close any non-TAN-based tax/revenue gaps.

It doesn't subordinate anyone either - bondholders etc. still have first dibs on Euro payouts; TAN's are never actually redeemed for Euro's, only to pay down tax liabilities.

roro2 wrote: »

The current government is spending €51bn and taking in €39bn. You are proposing to increase spending by approx. €10bn (400,000 added to the public payroll) and an unspecified amount due to the costs of a massive infrastructure programme (building costs, etc and then maintenance). But the wage costs will be paid in TANs. So, spending increases to something like €55bn cash + non-cash TANs of about €10bn. At the same time, revenue reduces by the TANs, so €39bn goes to €29bn. How is the (55-29) €26bn hole plugged? Am I missing something? Is the bigger hole just plugged by more TANs? Are they introduced into the wider public sector, all wages, supplier payments, etc?

I think markets would take more of a fright from this then any stimulus-induced boost to GDP. Bondholders care about governments having enough cash to pay them - they do not directly benefit from a gradually recovering economy. And if you forego all your tax revenues, there is no cash to pay them.

As for the amount of TAN's being constant, that's fine. But assuming the 400,000 don't migrate to the private sector by the following year, another €10bn of tax will be foregone the following year by having them still on the public payroll.

You would have a portion of the public sectors existing pay switched over to TAN's as well, and you would have a massive reduction in the welfare budget, due to people being put on the jobs program instead - so a large portion of the wages that will be getting paid, will already be factored into, from the existing welfare payments (so it would not be a whole €10 billion out of nowhere - which itself is an arbitrary figure - you need to deduct current welfare cost).

Spending, in terms of Euro's, reduces by the amount of TAN's used for spending - precisely the same as tax income does; they mirror one another, so you're double-counting in your figures there.


Current bondholders won't really have any influence - their interest rate is fixed, and we are not going to seek investors for new bonds (whose interest rate is not fixed), because we can use TAN's instead.
What investors think, does not matter, when you won't be selling bonds to them.


What matters, is solely that these policies lead to enough economic growth, to recover the economy, which would balance out revenue vs spending (ensuring the sustainability of the increased spending), and allow recalling the TAN's once full economic recovery is achieved.

Your statement that there will be a shortfall by the same amount, year on year, is wrong - because economic growth would be increasing tax revenue, and workers moving back into the private sector would be reducing government spending, bringing the budget closer to balance.

Double-counting may not be the correct word - it's just important to focus on how shortfall in revenue due to TAN's, also decreases (Euro-based) government spending by the same amount.

You're right to point out the imbalance in the budget though, because this will require an increase in tax revenue year on year to close the gap, and that will either have to come from economic growth (which will both increase tax revenue due to increased wages/profits, and decrease government spending due to private employment taking workers out of the jobs program), or growth and increased taxation (doing it with reduced spending wouldn't work and would be no different to now - need growth, even if taxation ends up slowing the growth).

You can even delay any changes to taxation for a good few years (even if spending more than taxing), because there will mainly be a problem when so many TAN's are circulating that Euro-based tax revenue gets so low, that governments Euro-only obligations (including a portion of workers wages being in Euro's) become threatened, which would take a number of years (or, if economic recovery/growth occurs fast enough, this may not be a problem as the budget would balance itself out).


Alternatively, you could look at having more TAN's in circulation than can be taxed in a year, while having a mechanism in place to enforce collection of enough Euro's in tax - this could be done, by requiring a certain percentage of taxes be paid in Euro, or by having TAN's which can only be used to extinguish tax liabilities after a longer period of time (say, 2 years), but these would both require a larger discount (still likely quite low single digits), and it's not something I've thought about in detail yet - but I don't see any show-stoppers with that (I like the percentage-based method better).

That would allow prolonged expansion of the TAN circulation, beyond tax revenue, giving plenty of time to grow the economy towards recovery and recall those TAN's later.


In the end, the whole idea of it is to allow government spending in excess of taxes - Euro-only obligations still have to be met though, which limits the scope of this, but much of the rest of the spending can be met with TAN's.

I'm slowly reforming my thoughts on this as I type: Another way to look at this, would be to think of two separate government spending and taxation systems:
1: The Euro-based system. Government has a certain amount of Euro-only obligations that must be met, and you must tax at least this amount of Euro's. This budget must not be in deficit.

2: The TAN-based system where government can deficit spend TAN's, and tax less TAN's than it spends, which itself can take two forms:
A: Peoples full tax liability can be paid off with TAN's. Economic growth/recovery has to be fast, to close the budget gap - if it is not, this only allows a few years of deficit spending TAN's, before the number of circulating TAN's threaten the Euro-only budget - at that point, the budget must be balanced, or you are forced to rely on government bonds again.

B: Only a percentage of peoples tax liability can be paid off with TAN's (say, 50-80% - this percentage, depends on how much of government spending must be Euro-only), the rest must be paid in Euro's. This has a higher discount, but allows much larger and prolonged deficit spending of TAN's (with no budget balancing - not even the potential tax increases, mentioned above), up to the point at which the central bank steps in, due to hitting inflation targets (the budget would then be balanced, and there would still be enough economic activity and TAN's circulating, to restore the economy).

Yes Euro's exiting the economy through imports is a good point, and (just like government having to be concerned about it's Euro-only obligations) is something that would have to be monitored - and something that may place a limit on how many TAN's can be circulated (but I don't think this would happen).

There are a lot of Euro's in the economy though, so I don't view it as too much of a problem - we can actually use the time that we are spending TAN's, to invest in significantly boosting our competitiveness on international markets (without having to undergo 'internal devaluation'), then when Europe and the rest of the worlds economy recovers, we will be ready to earn back all of those Euro's - and then some - because we will have gotten back on our feet economically, long before others.

So I don't think the length of time that TAN's are used, or the length of time deficit spending, is very important (I think it has a low cost - not nothing, but with far more gain than cost) - we have all this idle labour and industry sitting around, and with the rest of the world (in a sense) choosing to depress their economic activity and resource usage (by not engaging in recovery), it's actually a really great opportunity to get ahead of everyone else and build-up/future-proof our real economy for less cost, before the rest of the world catches on and begins economic recovery - thus making use of the same worldwide resources we can purchase now for less, bidding up their price back to normal.


The people we currently owe interest to, wouldn't really be able to gain higher interest - it would only be newly issued bonds which are open to interest rate changes, and we wouldn't be issuing more of those.