Re: Speaking of uncle Miltie

["Andrew Hagen" <xah@xxxxxxxxxxxxx>]

Thanks to Jim for correcting many errors of mine. Some further points
are below.

On Sat, 08 Sep 2001 11:50:39 -0700, Jim Devine wrote:

>The way in which US individual, external,and (to a lesser extent) >corporate indebtedness were increasing -- the Three Bears attacking the >Goldilocks economy -- suggests that the boom was unsustainable. (Godley & Izureta's (sp?) view is similar.) That in turn suggests that Alan >the G's interest rate hikes determined only the _timing_ of the bubble's >collapse.

But couldn't interest rates, set to levels higher than necessary, lead
to an excess of available capital, therfore an excess of lending, and
therefore an excess of debt?

Borrowers would be tempted to take out loans, even at high interest
rates, because the economy is growing and the expectation is that the
debt can be paid off.

>>A further regrettable impact of Greenspan's hawkish anti-inflation
>>policy has been to overly strengthen the dollar. This has contributed
>>to the ongoing huge current account deficit,
>the high dollar was _also_ due to the bubblish boom itself (as folks
>abroad wanted to get a piece of the action).

This seems like a chicken and the egg problem. The speculative bubble
must be attributable somewhat to the inflow of foreign funds. So were
the foreign funds attracted by the speculative bubble or were they the
cause of it? Can we tell the difference?

It seems like Greenspan & Co. cannot be held totally responsible for
overly high interest rates. The budget deficits and public debt of the
80's and early 90's probably led to upward pressure on interest rates.

Thanks for humoring me.

Andrew Hagen
xah@xxxxxxxxxxxxx