Re: Neglected prophets!

[Sven R Larson <larson@xxxxxx>]

The threat from shrinking public debt has been hanging over Europe for a
long time now. I imagine the persistent debt in the US has compensated
for the effects of European debt reduction. Debt slashing will continue
in the EU (with Austria now joining Sweden as the unsurpassed herald on
the Dante-style descent into the abyss of austerity) and when you
combine that with what e.g. John McCain has suggested the US should to -
I think too many will have too many occasions to regret they didn't
listen to Paul & Jamie.

/srl

Gunnar Tomasson wrote:
>
> 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
> >
> >

--
-----
Sven R Larson
Department of Social Sciences, Bldg. 22.1
Roskilde University
Pb 260
DK-4000 Roskilde, Denmark
Phone: (+45) 4674 2910
Fax: (+45) 4674 3080
Rigor rei publicae forum populi delit;
forum populi deletum rei publicae dissipationem veniat.