Re: IMCU questions

[<mosler@xxxxxxxx>]

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,

I UNDERSTAND YOUR POINT. AND I UNDERSTAND THAT
IS EXACTLY WHAT NATIONS LET HAPPEN TO THEM.
MY POINT IS THAT IMPORTS ARE A BENEFIT, AND
THE RESULTING DROP IN AGGREGATE DEMAND YOU POINT TO CAN JUST AS WELL BE OFFSET BY TAX CUTS OR
SPENDING INCREASES OF THE IMPORTING NATION,
WITH A MORE BENEFICIAL ECONOMIC OUTCOME.

there no nation need to take "tighten your belt" deflationary policies
because of a balance of payments constraint,

THERE IS NO ACTUAL 'NEED' CURRENTLY.  YES, THERE IS A PERCEIVED NEED DUE TO INCOMPLETE ANALYSIS (AT BEST), BUT THATS A DIFFERENT POINT ENTIRELY.


(2) there will be no imported
inflationary pressures,

WHAT DIFFERENCE WOULD AGG DEMAND FROM ABROAD
VS DOMESTIC AGG DEMAND HAVE ON THE PRICE LEVEL?

 and (3) nations can run independent interest rate
policies.

THEY CAN DO THAT ANYWAY- MORE ON THAT BELOW.

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.

TOO MANY TYPO'S TO FOLLOW THE ABOVE.  TODAY
ARGENTINA CAN LET THEIR PESO FLOAT AND IGNORE
THEIR GOVT. $US DEBT.  THEY ARE A LARGE NET
EXPORTER AND HAVE NO PROBLEM PURCHASING IMPORTS WITH FX REVENUES THEY EARN.  THERE WILL BE A
ONE TIME ADJUSTMENT IN THE PRICE LEVEL AND
THEN IT WILL STABILIZE IF THE GOVT. DOESN'T
SELL PESOS FOR $ TO BUILD FX RESERVES, AND IF
THEY DON'T CHASE THEIR TAILS WITH 'INDEXATION'
OF GOVT WAGES.  IF THEY DO ENGAGE IN INDEXATION THE PRICE LEVEL WILL BE ROUGHLY A FUNCTION OF THAT INDEXATION.

As Randy Wray continually, and correctly argues, the putting of "reserves"
for social security pensionsin a "lockbox" is a foolish and depressing
fiscal policy.  THERE ACTUALLY IS NO SUCH THING.
WHEN GOVT. COLLECTS TAXES, IT REDUCES THE BALANCE
IN YOUR ACCOUNT.  THOSE FUNDS DON'T 'GO' ANYWHERE.
YES, THEY ARE ACCOUNTED FOR, BUT THAT'S A DIFFERENT STORY.  WHEN GOVT SPENDS IT CREDITS
YOUR ACCOUNT.  THOSE $ LIKEWISE DON'T 'COME FROM' ANYWHERE, THOUGH THEY TOO ARE 'ACCOUNTED FOR.'
THE GOVT. IS THE 'SCORE KEEPER' WITH ITS CURRENCY
OF ISSUE.  WHEN YOU SCORE A TOUCHDOWN, WHERE DO
THOSE 6 POINTS 'COME FROM?'  IS THE SCORE KEEPER
EVER 'RUNNING OUT OF' POINTS?

BOTTOM LINE:
GOVT. CHECKS IN LOCAL CURRENCY DON'T BOUNCE
UNLESS GOVT. DECIDED TO BOUNCE ITS OWN CHECKS.




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.

AGREED!  THE MAJOR CAUSE OF UNEMPLOYMENT, PERHAPS?
HOW DO ALL THOSE ECONOMISTS MISS THIS???

 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.
SO YOU ARE SAYING EXPANSIONARY FISCAL POLICY
IS NOT BEING ACTED PARTLY BECAUSE OF PERCEIVED
BALANCE OF PAYMENTS 'PROBLEMS?'  AND IMCU
WILL ELIMINATE THIS EXCUSE FOR UNEMPLOYMENT???
IF SO, YOU ARE ACCEPTING UNIFORMED POLICY RESPONSE AND TRYING TO SECOND GUESS IT TO
FIX ITS NEGATIVE RESULTS.



>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?

CREDIT SENSITIVE MEANS, IN THIS CONTEXT, THERE
IS NO FINANCIAL LIMIT ON GOVT. SPENDING/BORROWING.
THE LIMITS ARE POLITICALLY DETERMINED, NOT
MARKET CONSTRAINED.
  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.

MAYBE SOME, BUT NOT MUCH.  TRADING CURRENCIES ON
INTEREST RATE DIFFERENTIALS DOESN'T WORK VERY WELL.

 If
enough people do this, there is  capital flight --
I THINK YOU MEAN CURRENCY DEPRECIATION.

 with all the attendant
depressionary dislocations .
TODAY IT SEEMS WE ARE BACK TO BEGGAR THY NEIGHBOR
WITH THE BIG THREE JOCKEYING FOR LOWER CURRENCY
VALUES TO HELP THEIR EXPORTERS.




>  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).

NOT WHAT I SAID.  SUCH EXTERNAL DEBT IS
PROBLEMATIC AND NET DEBT SERVICE ON IT AT THE
GOVT LEVEL SHOULD BE IGNORED.  THEN ITS NOT
A PROBLEM.
 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.

OTHER GOVTS DO NOT HAVE TO BORROW $US AT ALL.
ITS AN ERROR FOR THEM TO DO THAT.  OR, MORE
CORRECTLY, ITS AN ERROR FOR THEM TO REPAY
OR NET SERVICE THOSE LOANS.


  I see a problem of servicing  international debts
denominated in foreign currencies -- which an exchange rate decline merely
exacerbates
ME TOO!!!

>   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.

CAN'T AN IMPORTER PAY FOR HIS IMPORTS IN
LOCAL CURRENCY WHICH THE CENTRAL BANK THEN
CONVERTS TO IMCU'S TO MAKE PAYMENT TO THE
EXPORTING COUNTRY?

   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.
OK
Clearly, you can not use the overdrafts to increase spending on imports ad
in finitum as you implicitly suggest.
IF YOU IMPORT HEAPS WITH LOCAL CURRENCY WILL YOUR CHECKS BOUNCE OR CLEAR???

>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

EMPLOYMENT ON EXPORTS IS A 'COST.'
 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?)
UNNECESSARY.



>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.
AS ABOVE.

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??

NO.  THE US IS THE MODEL, NOT THE EXCEPTION.
BEST!
W

Paul