trond
sorry i could not get to your comment before today. i agree with bill's previous response but let me add two things.
1. we have to distinguish between pie-in-the-sky legislation and reality. we can legislate that the CB will henceforth be responsible to ensure the sun rises at 6:45 am, and that shall be its sole responsibility. (or, we can legislate that it control the rate of increase of some constructed index, like the cpi. or the exchange rate against some basket of currencies. these amount to precisely the same impossibility.) Or we can legislate that the CB will henceforth be "independent" of the treasury, and will never "print money" on the demand of the treasury, nor buy the treasury's debt. (and in fact, that is more or less the way the fed was set up in 1913). but, as bill says, this is entirely irrelevant if the fed doesn't bounce treasury checks or taxpayer's checks.
2. if you do a close analysis of norway's operating procedures you will find that in fact coordinating procedures have been developed to ensure that the CB does always operate to ensure that the checks don't bounce; while it may not directly buy treasury debt it will create procedures to allow private banks to buy them w/o debiting reserves if banks are already short. and the reverse, too. Bell and i have done this sort of analysis for the US and laid it all out in several places, most recently in a recent jpke article. you can do exactly the same thing for norway. i will bet that you will find procedures very similar to those permitted in the US by the special accounts at private banks.
it is simply a myth that a legislature can legislate such independence, or that such laws change anything of significance with respect to the "functional finance" and "money as a creature of the state" explanations. what we are describing applies equally well to ALL nations with a sovereign currency, regardless of size, and regardless of legal constraints placed on the CB or Treasury. if there is a sovereign currency and a floating exchange rate, the country can behave the way we describe. Now, this gets sticky because if the policy makers really do believe that, say, Saint Greenspan must twirl before govt can deficit spend, and if greenspan won't twirl, then gov't may CHOOSE not to deficit spend.
Or, Govt might believe it is like any other debtor, hence, must sell bonds before it can run a deficit. Now, this is not really a problem because we have developed ways for the treasury to sell bonds before it has created the excess HPM balances that the bond sale will soak up (the fed allows special banks to buy the bonds without debiting their reserves). but, we could pass a new law eliminating these special banks. the bond sales would then drain required or desired reserves, forcing the fed to inject reserves through an offsetting open market purchase (or loans at discount window). this makes things tougher, but changes nothing of significance. the fed cannot choose to be "independent" because, first, overnight rates rise above target; second, checks start bouncing.
randy
randy
-----Original Message-----
From: Trond Andresen [mailto:trond.andresen@itk.ntnu.no]
Sent: Fri 2/7/2003 3:27 AM
To: she_forum@adam.itk.ntnu.no
Cc:
Subject: [HE] Re: Much ado about nothing?
To Randy, Bill, Warren:
Your position in this discussion rests upon one crucial
assumption: That the central bank is wholly controlled by the government (f.inst.
through the treasury). Then you must be against all institutional
arrangements where there ar barriers against gvt. influence on the CB, no?
In Norway the CB has in later years been gradually more decoupled from gvt.
influence, a deliberate choice made by the parliamentary majority (which I
do not believe have much understanding of economics, but who wish to do
the "modern" thing -- and to decouple the CB is "modern".).
At the same time the bank received a revised instruction on what should be
the prime goal of its operations: To curb inflation (earlier it was to keep
the exchange rate stable). This has been used very effectively as an
instrument to put downward pressure on wage demands, and on the budgets
in municipalities for education, childcare, schools, care for the elderly,
public transport, culture and similar unimportant things. The majority
politicians and gvt. ministers simply say "we can't use more money or allow
higher wages because then interest rates will increase and also the exchange
rate." They talk about this as if it was the weather, earthquakes or other
non-controllable natural events. By this the neoliberal board of the CB has now
effectively been given the role of economic policy dictator in Norway.
In Norway one may of course do something about these institutional
arrangements. But I don't think it is possible in the EU, since there are
different national governments, political systems, countries, cultures,
languages (and will remain so in the future as far as I can imagine) that share one
CB -- by EU law decoupled from any "political influence".
To conclude, I seems to me that Randy, Bill and Warren's recipes can only be
implemented in countries that are not too big, and not too split up in autonomous
sub-units. This is an extra argument against confederate-type superstates.
Trond Andresen
--
Trond Andresen <trond.andresen@itk.ntnu.no>
The Norwegian University of Science and Technology
Faculty of Information Technology, Mathematics and Electrical Engineering
Department of Engineering Cybernetics
N-7491 Trondheim, NORWAY
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Received on Wed Feb 12 15:41:58 2003
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