Budget Deficit Problems and Reexamining Soddy’s Schemes of Compound and Simple Redemption

Abstract

This chapter deals closely with several serious problems concerning budget deficit and how to redeem increasing quantities of outstanding national bonds. This chapter introduces the general principles of national budget, principles that must be followed by all national governments. Particular attention is paid to the situation of Japan. This chapter then discusses, in the context of Japan, the two types of budget, i.e. general account budget and special account budget. A special focus is given to the history of special account budgets. This chapter further discusses the serious status of the outstanding balance of Japanese bonds. According to Article 5 of the Public Finance Act of Japan, the Bank of Japan is not legally permitted to underwrite newly issued national bonds. It is shown, however, that the recent monetary policy of the Bank of Japan, i.e. the drastic quantitative easing policy that started in April of 2013, is in actuality an act of violation of Article 5 of the Public Finance Act. The amount of national bonds held by the Bank of Japan is shown to currently be greater than that of the commercial banks in Japan. Soddy once proposed an interesting scheme of bonds redemption, which he termed compound redemption. This chapter presents Soddy’s two schemes of debt redemption, one of which is the scheme of compound redemption. This chapter concludes with a summary and presents the two characteristics of the current society, a society where maximization of present monetary value is put on the center stage of individual decisions, and where the power of expansion of bureaucratic organization is built into the political system.