Gary: I wasn't quite sure what point you were trying to make, or whether it was related to points previously made on this line. Bill, Warren, and I are NOT claiming the central bank can both exogenously set the interest rate AND set the exchange rate. Quite the contrary. Rather, we argue the CB should set the overnight rate at a low level (even 0) and let the currency float where it may. We do not disagree with you that "speculators" (or, better, the "rest of the world's demand to net save in dollar assets") impact the value of the dollar. I think we would probably disagree about the extent to which the CB could manipulate the exchange rate (without a currency-board arrangement, anyway) if it chose to abandon a floating rate (which we think is a very bad idea).
Note, however, that the US dollar is not crashing. the euro is simply moving back toward its previous level. And, in any event, Euroland will very soon come crashing down, and the euro may well self-implode. Hey, the Argentinean peso remained very strong right up to the end, too!
randy
-----Original Message-----
From: Gary Santos [mailto:evs@info.com.ph]
Sent: Sat 2/8/2003 10:58 AM
To: she_forum@adam.itk.ntnu.no
Cc:
Subject: Re: [HE] Re: Much ado about nothing? A light clicks!
Hi, Warren. And, as you know I, too, am having a hard time understanding the
"no consequence" to borrowing. So, if we could cover that ground again, if
you will: (And, I don't think you are a Nazi. You're a regular guy with
wierd but perplexing ideas.)
I can understand that the Fed has full control over the interest rate. I can
understand that it also has a considerable degree of control over the
exchange rate especially when exporter country central banks have an
interest in keeping their exchange rates competitive. BUT, the private
sector, the speculator and the investing funds, do not have to cooperate to
keep the dollar strong. And, certainly, not all central banks. After
conventional wisdom tells them that the US debt level is too high, they will
likely choose not to net save in US$. They will say, "Let the central banks
have all of the dollars. Give us other fiat especially those with less
uncertainty."
And, isn't this happening even now? We belittle the dinar of Mahathir and,
perhaps, even the Arab dinar but doesn't this show the crack in the dike?
The same with the move to price oil in Euro, the rise in the CRB Index and
of some central banks diversifying some of their reserves into gold?
To be sure, the confluence of events over the last decade or two, all
contributed to the strong dollar and the bind the exporting countries find
themselves in, in that, they perpetuate the status quo and allow the US to
"borrow" from the world and from its citizens. The US is, indeed, fortunate
that China is willing to price themselves so low. But, the lifestyle that US
citizens have grown accustomed to is contingent on so many changing things.
The logic of sustainable borrowing even appears to me dependent on a
deflationary mentality -- that the money stock does not show up in spending
and borrowing because people want to save.
Certainly, the central banks with an interest to keep the dollar strong can
keep the status quo going for some time, perhaps, even as long as a decade.
But, the bigger the debt level as fiscal deficits and current account
deficits continue, the bigger the uncertainty, the stronger the tendency to
diversify away from the US$. And the bigger the fallout in the end. Fiat
does not create value, only labor does. There are two cracks in the dike:
inflation imported into the US (China implodes, oil is priced in Euro) or
the exchange rate can't be held or both. Imagine what will happen if
interest rates are forced upward due to bond selling.
----- Original Message -----
From: "Warren Mosler" <mosler@rocketmail.com>
To: <she_forum@adam.itk.ntnu.no>
Sent: Saturday, February 08, 2003 8:55 PM
Subject: Re: [HE] Re: Much ado about nothing? A light clicks!
>
> --- Peter Kriesler <P.Kriesler@unsw.edu.au> wrote:
> >
> >
> >
> > OK, so what you are saying is that if the government
> > borrows from the
> > private sector by selling bonds, then, if we rule
> > out any interest rate
> > effect, there will be no change to the level of
> > aggregate demand. I can
> > accept that. However, if that is the case, then what
> > problem is there with
> > government borrowing?
>
> None, it's just not an imperative for spending
> as most think. Budget constraint, etc. and all that.
>
> If the government increases
> > expenditure, then, I
> > agree, "financing" is irrelevant. However, if it
> > makes people happy, to
> > have an equivalent amount of borrowing and it has no
> > impact, then what is
> > wrong with that?
>
> Nothing at all, apart from a waste of accounting
> time, and all those bond traders that could be
> otherwise employed curing cancer, etc.
>
> warren
> >
> >
> > Peter Kriesler
> > School of Economics
> > UNSW
> > Sydney 2052
> > http://economics.web.unsw.edu.au/people/pkriesler/
> >
> > _______________________________________________
> > SHE_Forum mailing list
> > SHE_Forum@mail.itk.ntnu.no
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>
>
> === > http://www.mosler.org
> http://www.moslerauto.com
>
> Primary email contact: wmosler@mosler.org
>
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Received on Wed Feb 12 15:15:41 2003
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