Re: Neglected prophets!

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

Point well taken.

Yet, by the same token, nervous investors in Thailand, South Korea, and
Indonesia might have stayed put rather than plunge these erstwhile "tiger"
economies into chaos if "secure" government paper had offered them an
alternative to capital flight.

In the case of the U.S. economy, while "debt redution" might be the
proximate cause of destabilization in financial markets, the ultimate cause
would be the build-up of paper assets relative to the economy's real assets
which has fueled the long-running boom that has made the U.S. economy the
envy of the world.

In this respect, "the dangers of debt reduction" effectively underscore -
and are one with - those of "the more naive inflationist fallacies" (a.k.a.
American "keynesianism") that have informed U.S. financial policies after
the early 1970s.

Gunnar Tomasson



----- Original Message -----
From: Paul Davidson <pdavidson@xxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Cc: <galbraith@xxxxxxxxxxxxxxx>
Sent: Monday, February 21, 2000 2:09 PM
Subject: Neglected prophets!


> In an article entitled "The Dangers of Debt Reduction" on the editorial
> page of the March 3, 1999 WALL STREET JOURNAL, Professor James Galbraith
> and I wrote "The promised buy-down of the government's own debt, poses
> another set of dangers. U.S. government bonds are a safe asset, completely
> free of default risk. Their vast abundance are stabilizing elements in
> world finance. Take them away and... private investors will be forced to
> seek safety in hedging, which tends to destabilize financial markets".
>
> The same theme has suddenly been discovered in a major article in the
> February 17, 2000 issue of The New York Times entitled "Shrinking Treasury
> Debt Creates Uncertain World". The Times reports that with the U.S.
> repurchasing Treasury bonds "...the debt securities that remain in the
> shrinking market are expected to be much more prone to wild swings in
price
> and therefore riskier to investors".
>
> It took the New York Times almost a year to discover what was obvious to
> Galbraith and myself.
>
> Paul
>
> Paul Davidson
> Holly Chair of Excellence in Political Economy
> Editor, JOURNAL OF POST KEYNESIAN ECONOMICS [JPKE]
> Economics Department -- 523 SMC
> University of Tennessee
> Knoxville, Tennessee 37996-0550
> email: Pdavidson@xxxxxxx;   phone: (865)974-4221;    fax: (865) 974-4601
> http://econ.bus.utk.edu/Davidson.html
>
>