Re: fiscal deficit

["Sean Reilly" <seanjreilly@xxxxxxxxxxx>]

Do you think that we have reached an interest rate that is so low (we now
have a negative real interest rate) that it is in the region of the Money
Demand curve that Keynes called the Liquidity Preference?

----- Original Message -----
From: "Bill Mitchell" <ecwfm@xxxxxxxxxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, November 12, 2001 1:06 PM
Subject: Re: fiscal deficit


> At 19:06 11/12/2001 +0900, you wrote:
> >In the perspective of post Keynesian, the stimulus by fiscal deficit
which
> >the government run is surely desirable. Because money supply is
endogenous,
> >therefore, "crowding out" can't arise. But I wonder if the accumulation
of
> >fiscal deficit has no effect on any aspects of the economy, however large
> >the accumulation is. What do you think ?
>
>
> The accumulation is not in the deficit - that is a flow. The accumulation
> will be
> in the lower stock of unemployed and increased wealth.
>
> You are thinking along the lines of the "increased debt". well with a zero
> interest
> rate there is no necessity to even worry about that. But with a positive
> interest rate,
> then the increased surplus in the cash position of the system does have
> portfolio
> effects in the private sector. These can be (a) increased money holdings;
> (b) increased
> debt holdings (higher wealth); (c) increased spending (more consumption).
> None of which
> are bad. If (c) generates demand pressures then the deficit needs to be
> lower as the
> spending gap it solves is lower.
>
> best wishes
> bill
>