Re: Stiglitz on Soros

["Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx>]

Paul

Thanks for your comments setting me onto the straight and narrow.

You wrote:

> Here you are only introducing a very naive version of the quantity theory
> of money -- and playing right into the hands of the
neoliberal-conservative
> philosophy.

I don't want to hold a naive version of the quantity theory of money, nor do
I want to be playing into the hands of neoliberal-conservative philosophy.

But is too late?  Is there any hope for me?

I must confess that I have actually used monetary policy, to deal with a
balance of payments problem.  What's more, the IMF said it was successful.
It must have been just a coincidence.

It was a nasty policy. The public never knew that anything had changed.  But
I did change the rules in the banking system so that the banks could only
lend while there were sufficient foreign reserves.  That policy stopped the
balance of payments problem.  It appeared to have been an immediate fix and
it continued to work for eight years.  The policy was only a half page
letter, a guideline that gave the banks considerable discretion in their
lending.

I keep telling myself that things were not too bad, really.  After all, the
World Bank did find that while those policies were in place, that country
had the fastest rate of economic growth in the region.  That was just
another fortunate coincidence.

I am sure you must think that is too late.  He's gone.  He must really
believe that stuff.  He has already played into the hands of those nasty
neoliberal-conservatives.

Is there any hope for me?  Am I doomed to be misguided individual because I
have done those nasty things?  Or am I misguided only when I tell others
about it?

I must also confess that I have found that since Australia floated the
exchange rate, the current account in Australia has been equal to the growth
of bank credit and currency.    That is, since December 1983 (when Australia
floated its currency) to July 2001, bank credit (plus notes and coins on
issue) have grown $327 billion and the current account deficit has been $326
billion.  About $20 billion of that monetary growth was not credit growth
but currency.

Furthermore, I found a similar relationship in the Philippines.  The current
account deficit there was actually equal to the growth of commercial bank
lending there, also.

It was these facts that misled me to somehow think that the growth of bank
credit did have some effect on the current account deficit.  Please try to
understand my position; I was misled by the evidence.  I did not mean to do
it.

Be assured that the poor unfortunate country that was subject to those
policies of mine suffers no longer.  Following an institutional change
promoted by the IMF they also changed the policy.  You would be proud of
them, Paul.

But since then, by some strange coincidence, the balance of payments
problems have returned.  The central bank has had to revert back to using
controls on bank credit to manage the balance of payments- as a last resort
of course.  It is only in reaction to serious problems.  In  those
situations they have got to react in strong handed manner and in the only
way that they know that really works.  When things get back to normal, I am
sure that they will do things the right way again.

Perhaps there is no cure for me.  For some reason I keep thinking that if
only they had maintained the guidelines that we had put in place earlier,
they would never had got into trouble and then they would not have needed to
be so hard on themselves now.

There I go again.  Who can save me from these wretched thoughts?

Paul, I am sure that when I read your new book, it will reveal the errors of
my ways and how naive I was.

By the way, what do you say are the causes current account deficits, Paul?

Leigh