The only time that a budget surplus represents increased national savings is when the government creates a sovereign fund.
Answer: False
The answer is True.
From the perspective of Modern Monetary Theory (MMT) the national government's ability to make timely payment of its own currency is never numerically constrained by revenues from taxing and/or borrowing. Therefore the creation of a sovereign fund by purchasing assets in financial markets in no way enhances the government's ability to meet future obligations. In fact, the entire concept of government pre-funding an unfunded liability in its currency of issue has no application whatsoever in the context of a flexible exchange rate and the modern monetary system.
The misconception that "public saving" is required to fund future public expenditure is often rehearsed in the financial media. In rejecting the notion that public surpluses create a cache of money that can be spent later we note that Government spends by crediting an account held by the commercial banks at the central bank. There is no revenue constraint. Government cheques don't bounce! Additionally, taxation consists of debiting an account held by the commercial banks at the central bank. The funds debited are "accounted for" but don't actually "go anywhere" and "accumulate".
Thus is makes no sense to say that a sovereign government is saving in its own currency. Saving is an act that revenue-constrained households do to enhance their future consumption opportunities. The sacrifice of consumption now provides more funds in the future (via compounding). But the government doesn't have to sacrifice spending now to spend in the future.
The concept of pre-funding future liabilities does apply to fixed exchange rate regimes, as sufficient reserves must be held to facilitate guaranteed conversion features of the currency. It also applies to non-government users of a currency. Their ability to spend is a function of their revenues and reserves of that currency.
So at the heart of the mis-perceptions about sovereign funds is the false analogy mainstream macroeconomics draws between private household budgets and the government budget. Households, the users of the currency, must finance their spending prior to the fact. However, government, as the issuer of the currency, must spend first (credit private bank accounts) before it can subsequently tax (debit private accounts). Government spending is the source of the funds the private sector requires to pay its taxes and to net save and is not inherently revenue constrained.
However, trying to squeeze the economy to generate these mythical "pools of funds" which are then allocated to the sovereign fund as if they exist is very damaging. You can think of this in two stages.
First, the national government spends less than it taxes and this leads to ever decreasing levels of net private savings (unless there is a strong positive net exports response). The private deficits are manifest in the public surpluses and increasingly leverage the private sector. The deteriorating private debt to income ratios which result will eventually see the system succumb to ongoing demand-draining fiscal drag through a slow-down in real activity.
Second, while that process is going on, the Federal Government is actually spending an equivalent amount that it is draining from the private sector (through tax revenues) in the financial and broader asset markets (domestic and abroad) buying up speculative assets including shares and real estate.
Accordingly, creating a sovereign fund amounts to the government competing in the private equity market to fuel speculation in financial assets and distort allocations of capital.
However, as you can see from pulling it apart, this behaviour has been grossly misrepresented as providing "future savings". Say the sovereign government ran a $15 billion surplus in the last financial year. It could then purchase that amount of financial assets in the domestic and international capital markets. But from an accounting perspective the Government would no longer have run that surplus because the $15 billion would be recorded as spending and the budget would break even.
In these situations, the public debate should be focused on whether this is the best use of public funds. It would be hard to justify this sort of spending when basic infrastructure provision and employment creation has been ignored for many years by neo-liberal governments.
So all we are talking about is a different portfolio of assets.
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