Gary: ok now i see your points; i'll comment all in caps:
-- the sustainability is contingent on keeping interest rates low, very low
in fact. Otherwise, interest payments will then start to be a burden.
YOU SEEM TO BE MAKING TONY'S MISTAKE. FIRST, YOU MUST AGREE THAT AS A TECHNICAL MATTER, GOVT CAN ALWAYS MAKE THE INTEREST PAYMENTS BY CREDITING BANK ACCTS? THERE IS NO TECHNICAL LIMIT TO THIS, ALTHO THERE MIGHT BE UNDESIRED ECONOMIC CONSEQUENCES?
THE MORE IMPORTANT MISTAKE YOU AND TONY MAKE IS TO IGNORE THE IMPACT THAT GOVT INTEREST PAYMENTS HAVE ON INCOME AND WEALTH IN THE NONGOVT SECTOR. GOVT INTEREST PAYMENTS ADD TO THE DEFICIT AND FUEL NONGOVT INCOME AND WEALTH. IN THE REAL WORLD, A BOOM ENSUES THAT PUSHES THE BUDGET TOWARD SURPLUS. YOU SEEM TO WANT TO DO A PARTIAL EQUILIBRIUM ANALYSIS AND CARRY THE GOVT'S BUDGET TO THE EXTREME BUT YOU IGNORE THE IMPACT THAT GROWTH HAS ON THE DEFICIT. (SEE DOMAR FOR DISCUSSION OF EFFECT OF GROWTH ON "DEBT BURDEN")
Given this, I then wondered just how tenable are keeping interest rates low,
not that it is not within the power of the Fed to do so, rather, keeping
interest rates low while continuing to increase debt levels have their
effects on the financial markets.
OF COURSE, THE NONGOVT SECTOR CAN GENERALLY CARRY MORE DEBT THE LOWER THE INTEREST RATE.
There are endo/exogenous forces involved.
A flight from US assets will raise interest rates and exchange rates.
NOT SURE I FOLLOW THIS--WHY WOULD A "FLIGHT" RAISE EXCHANGE RATES? NOTE ALSO THAT IF INTEREST RATES (OVERNIGHT) GO UP, IT IS BECAUSE THE CB RAISES ITS TARGET IN AN ATTEMPT TO RAISE EXCHANGE RATES. THERE ARE NO ENDOGENOUS FORCES RAISING INTEREST RATES.
A rise
in demand for Euro as a reserve asset will lower the demand for the US
dollar.
THERE ARE ESSENTIALLY ONLY 3 OR 4 WORLD CURRENCIES; NONE OF THE 3-4 MAIN PLAYERS WILL ALLOW EXCHANGE RATES TO MOVE MUCH W/O INTERVENING. YES THE DOLLAR MIGHT FALL BY 15%. EFFECTS OF THIS ARE FAIRLY MINOR.
I cited, as a scenario builder, the moves to create other currencies
which will effectively raise the demand for Euro although Warren has
commented privately that an oil-priced-in-Euro will have no effect on the
demand for dollars. I don't understand this position since one would expect
non-oil producing countries to increase their Euro reserves. Furthermore, we
see the CRB rising, we see gold rising, we see in our daily lives prices
rising notwithstanding what the official CPI says.
I WON'T COMMENT ON OIL, BUT WHAT I OBSERVE IS RAPIDLY FALLING PRICES ALMOST EVERYWHERE. OF COURSE WITH STOCK MKTS COLLAPSING AND REAL ESTATE ON THE VERGE OF COLLAPSE, SOME SPECULATORS HAVE GONE TO GOLD.
I go back to "only labor
creates value" and as each "unfunded" fiat is spent, the unit value of fiat
decreases.
FIRST, THE STATEMENT THAT ONLY LABOR CREATES VALUE IS A TAUTOLOGY, ALTHO A VERY USEFUL ONE. I HAVE NO PROBLEM WITH IT. NOR DID KEYNES, OF COURSE.
THE SECOND STATEMENT IS FALSE. SPENDING FIAT MONEY CAN PUT OTHERWISE UNEMPLOYED LABOR TO WORK TO CREATE VALUE.
Some say, it depends. Depends on whether the spending will result
in capital spending and job creation?
RIGHT, OF COURSE.
What if the present debt sustainability (it hasn't shown in domestic
inflation) is only because of the defaltionary environment?
SOVEREIGN DEBT IN A FLOATING RATE REGIME IS "SUSTAINABLE" (WITH THE CAVEAT NOTED ABOVE THAT LARGE ENUF DEFICITS WILL ALWAYS FUEL A BOOM THAT WILL SELF-LIMIT THE DEFICIT). HOWEVER, NONGOVT DEBT (OR NONSOVEREIGN GOVT DEBT) IS CERTAINLY ON AN UNSUSTAINABLE PATH IN THE US, UK, EUROLAND, AND OZ. THERE WILL BE A NONSOVEREIGN DEBT IMPLOSION OVER THE NEXT COUPLE OF YRS, ALA MINSKY/FISHER. SINCE THE EUROSTATES HAVE BECOME NONSOVEREIGN THEY WILL ALMOST CERTAINLY SUFFER FAR MORE THAN THE REST OF US.
What about
maldistribution effects which I think are not even in the equation when
discussing debt sustainability? So much of the value created is going into
financial assets because of the superstructure, the real economy is being
impoverished.
THIS SEEMS IMPOSSIBLE ON YOUR DEFINITION OF VALUE--AS SOMETHING CREATED BY LABOR. IT CANNOT BE ABSORBED IN THE FINANCIAL SECTOR (EXCEPT IN THE BRICKS AND MORTAR USED TO BUILD THE OFFICES).
Then there is technology which so far has displaced labor.
RIGHT. FALLING RATE OF SURPLUS VALUE AND ALL THAT.
Don't these two factors mean a slow but deteriorating level of aggregate
demand? And, if don't see it empirically, it is because of all of the debt
creation. Remove debt. The system crashes.
YOU NEED TO DISTINGUISH BETWEEN INSIDE AND OUTSIDE DEBT. IN ANY CASE, YES THERE IS A PROBLEM WITH AGGDEMAND ALL OVER THE WORLD, MOSTLY DUE TO FISCAL AUSTERITY.
Allow me to say however that I continually wonder whether we have, indeed,
entered into a new era where things like soft money or social credit (both
of which I do not understand) are the new paradigm.
RIGHT. CURRENCY SOVEREIGNTY AND FLOATING RATES = NEW PARADIGM.
My present anxiom is:
Only labor creates value. This value is stored in money.
THIS SEEMS TO ME TO BE CONFUSED. I ACCEPT THE FIRST PROPOSITION. THE SECOND MAKES NO SENSE TO ME.
RANDY
Received on Thu Feb 13 09:31:39 2003
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