Re: the Fed and NPR

[FAC_BROSSER@xxxxxxxxxxxxxxxx]

Response to Randy Wray on Seignorage: (41 lines)
     I think all this was said before, but just
to have the record clear here goes again.
     There are two issues, one terminological,
one empirical.  The terminological one involves
the meaning of the term "seignorage."  You are
correct that the strict traditional meaning of
that term is a gain received by the actual
governmental body issuing the money.  I and
some others were using it in a broader sense
of a gain to the citizens of the country as a
whole due to being the international currency-
issuing country.  The former definition allows
only the interest gain to the US Treasury as
you have described.  The latter allows a gain
in purchasing power of the nation's citizens
due to the extra demand for their currency.
     The empirical issue is how much extra
demand for the currency is generated by this
use of the dollar as an international medium
of exchange.  I admit that I do not know,
although I presume that there is such an
amount of demand.  Clearly at the current
time it is being overwhelmed by other largely
speculative pressures that are holding the
dollar below PPP equilibrium, much below it
in fact.  Thus at the moment US citizens are
not "enjoying" the, let us call it "quasi-
seignorage" potentially accruing from the
dollar's international role.
     With respect to the position of the dollar
I tend to agree with Doug Henwood on this one.
It may be that there is nothing anybody can
or should do about the dollar decline.  But
to applaud it for its stimulative effects
is a mistake I think.  The real problem here
is global aggregate demand.  Dollar depreciation
may stimulate US aggregate demand.  But it will
do so at the expense of other nations, classic
"beggar thy neighbor" policies.  I also agree
with Doug that the longer run effects on US
growth will be inimical, although comparing the
US to Argentina clearly overstates the case.
Barkley Rosser
James Madison University,
visiting at University of Wisconsin-Madison