RE: Re: Much ado about nothing?

dear peter: i must say i am puzzled by your comment below. a govt deficit must all else equal increase the nongovt sector's saving. in a closed economy, the private sector's net saving exactly equals the govt sector's deficit. in an open economy, the domestic private sector's net saving exactly equals the govt deficit plus the balance of trade surplus. as i think we have agreed, a sovereign govt with a floating exchange rate and issuing a domestic currency does not really borrow. so when you say we should accept that the level of govt borrowing does not influence net saving, you have completely lost me. a sovereign govt spends by crediting bank accts. a govt deficit as a matter of logic must mean net saving has gone up (unless you have in mind some process that guarantees that the BP moves in exactly the opposite direction). govt can then offer to pay interest on that net saving, if it so chooses. it can do this either by paying interest on reserves, or by selling bonds that pay interest (these are operation
ally the same thing, of course). i cannot see any way in which govt offers to pay interest on the net saving that is in the form of govt "liabilities" can possibly mean that there is less "inside" saving held in the form of nongovt assets. so can you expand your comment below? randy

        -----Original Message-----
        From: Peter Kriesler [mailto:P.Kriesler@unsw.edu.au]
        Sent: Tue 2/4/2003 8:22 AM
        To: she_forum@adam.itk.ntnu.no
        Cc:
        Subject: [HE] Re: Much ado about nothing?
        
        

        I can save in the form of any asset I wish. If we accept that the level of
        government borrowing does not influence net saving, then the more the
        government borrows, the more people save in the form of government debt,
        rather than some other asset. With given net saving, this must have the
        effect of lowering demand for other assets, and hence lowering aggregate
        demand.
        
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Received on Wed Feb 5 09:00:04 2003