Re: NOTHING TO SUBTRACT

Reads to me like there is now full operational
agreement on this list:
 

 What guarantee is there that the supplies
> over time of OM+GS,
> independently entailed by the deficit, will conform
> to portfolio
> preferences? None.

This is essentially correct. The further question is
'How do we know the net financial assets provided
by govt. deficit spending are/are not equal to the net
financial assets desired by the non govt sector?'
For one thing, unemployment is evidence the non govt
sector is seeking additional net financial assets.

 [An interest-setting monetary
> policy mechanism enables
> the private sector as a whole to alter the
> quantities and proportions in
> which it holds OM or GS, but NOT the quantities and
> proportions in which it
> holds the SUM of the two.]

Yes.

 Therefore, the variables
> determining portfolio
> choice must somehow alter endogenously to bring this
> about -- e.g., by
> higher activity levels and inflation, and by
> monetary policy yielding to
> higher interest rates.

Yes, these policies may alter the desire of the
non govt sector to hold net financial assets.
There are others as well, including introducing
taxed advantage savings schemes to increase the
desire to net save, Australia's incentives for
first time homebuyers which reduced the desire to
net save.

If, as Prof Wray
> suggests in a later communication, a deficit will be
> self-correcting in some
> measure or manner, via impacts on activity/growth, I
> would like to see some
> formal demonstration of this.

That is a good project, and there have been studies
in the past showing how price levels adjust to keep
deficits at levels where the savings net financial
sector of the non govt sector gets only so high in
real terms due to 'excessive' deficit spending.

Warren Mosler
 

>
> Regards,
>
> Tony Aspromourgos
>
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Received on Sun Feb 16 16:58:03 2003