Re: IMCU questions

[Paul Davidson <pdavidson@xxxxxxx>]

At 08:06 PM 5/15/2002 -0400, you wrote:

> Questions for an imcu world.
>
> 1.  To maintain full employment in a world
> of domestic 'demand leakages' such as ira's
> keough's, pension reserves, insurance reserves, and the like over time
> govt. deficit spending in
> local currency will likely be required to be at full employment.  In other
> words, international trade balancing will not likely be sufficient
> for international full employment?


The IMCU proposal  is not a "chicken soup" remedy for everything from acme
to economics to zenophobia.  What the proposal does is to assure that (1)
there will be no global forces (international trade) unleashed that can
induce recessions in nations -- i.e., no importing recessionary forces,
there no nation need to take "tighten your belt" deflationary policies
because of a balance of payments constraint, (2) there will be no imported
inflationary pressures,  and (3) nations can run independent interest rate
policies.

If any nation finds that its domestic aggregate demand is less than the
full employment aggregate supply -- for reasons you give -- or for other
reasons, e.g., entrepreneurs not having enough animal spirits given the
private sectors propensity to consume -- then with the IMCU in place, that
nation can undertake whatever expansionary  Argentina  now faces -- and via
contagion Uruguay at the moment.

As Randy Wray continually, and correctly argues, the putting of "reserves"
for social security pensionsin a "lockbox" is a foolish and depressing
fiscal policy.

The IMCU does not guarantee that politicians will not legislate foolish
policies to increase aggregate savings sufficiently to lead to a lack of
effective demand.  What the IMCU does is provide
"intelligent"  expansionary policy advocates with an environment where no
one can use the balance of payments statistics to argue against such
expansionary spending policies and for incentives to increase savings
BEFORE full employment domestically is achieved.


> 2.  Since each nation maintains its own central bank, member governments
> are not 'credit sensitive' in their own currency.

Are you pulling my leg Warren?  Under current international relations, if a
nation lowers interest rates below say that in the G7 in order to encourage
private sector borrowing, then there is an incentive to borrow domestically
, convert the domestic money into say US dollars to be lent abroad at the
dollar interest rate and profit on the interest rate differential.  If
enough people do this, there is  capital flight -- with all the attendant
depressionary dislocations .

>  Is it therefore not to their benefit to not only deficit spend in their
> own currency to maintain
> domestic full employment but additionally to
> import as much as possible via additional deficit spending of their own
> currency?


Again this is where we differ. You see no problem in servicing
international debts growing out of the need to finance the import surplus
in either US dollars (for homogeneous commodities, e.g., agriculture,
minerals, that are traded in dollars in international markets) or in the
currency of the exporting nation ( in terms of most branded goods).  Being
able to print your own currency (or expand domestic bank credit)  does not
help you service growing international debt -- unless you are the US and
can "print" US dollars.  I see a problem of servicing  international debts
denominated in foreign currencies -- which an exchange rate decline merely
exacerbates


>   That is, purchase as many imcu's from the CB (which will go into
> overdraft as per clause #5) as possible and spend them on imports?

If you read my IMCU proviso#2 you will see that there is only
one-way  guaranteed convertibility -- any central bank who holds IMCUs att
the clearing union can always convert them into any nation's domestic
money. BUT a nation's central bank  does NOT have the option of printing
domestic money and convert it to IMCU  as they wish.

  Proviso #5 permits  "short-term overdrafts" when a nation requires such
credits to smooth out SEASONAL export- import flow payments  --and then
this seasonality will require the pro bono publico managers of the clearing
house to provide approval.  Thus, for example, if a nation produces some
agricultural crops as its major exports, it will be flush with IMCUs after
the harvest and sale of its crops -- but may find itself , the months
before harvest, short of IMCUs  necessary for normal import flows (say of
manufactured goods that have little seasonality patterns). This is when the
SHORT-TERM overdrafts of proviso #5 come into play.

Clearly, you can not use the overdrafts to increase spending on imports ad
in finitum as you implicitly suggest.


> 3.  Doesn't forcing creditor nations to spend imcu's in nations with
> overdrafts actually, in real terms, help the creditor nations at the
> expense of debtor nations?

No it helps the debtor AND the creditor nation -- for the debtor nation can
enjoy full employment without having to service excessive (real income
reducing) international debts.  (Or are you denying that servicing debts
denominated in foreign currencies is a "real" cost to a nation?)


> 4.  Since domestic deficit spending is unlimited and can be used for
> domestic full employment
> by each member nation, why would they not attain full employment that way
> regardless of imports.

The problems of (1) servicing foreign debts, (2) preventing capital
flight,  and(3) under the current system, tightening one's belt to get IMF
and World Bank loans when foreign creditors begin to fear that the nation's
debt obligations will not be able to be serviced in the future --- e.g.,
currently Argentina.


Can we agree that those nations (with the US a possible exception) that run
persistent import surpluses must incur international debts denominated in
other than their own currency -- and that these debts MUST be serviced??

Paul