Re: Stiglitz on Soros

[Paul Davidson <pdavidson@xxxxxxx>]

At 11:34 PM 5/16/2002 +1000, you wrote:
> Paul
>
> Thanks for your comments setting me onto the straight and narrow.


From what follows you are being factious here
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.

If the IMF thought it was good policy -- you should be suspicious!! --)



> 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.

Yes, if you tighten bank credit you make it harder for people to spend
domestically as well as on imports. If you liimit bank credit to those in
international sector -- and you somehow can keep international and domestic
borrowers separated, then you have invoked some "closet" form of
international capital controls -- (see  my IMCU  proviso#2 ).

> 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.


SO?  who is in favor of a floating exchange rate --?

> 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

Wouldn't it better if we had an IMCU system so these measures were
up-front, known to all, and always available ?

>   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.


The right way?  or the right-wing way?

> 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.


Hey! you are correct -- in already accepting proviso #2 on my IMCU proposal
-- so why not go the whole way and support the entire proposal -- instead
of trying to look "orthodox"?

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


You only have to think your thoughts through and see if you really object
to my 8 provisos?

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

I certainly hope so!!

paul