Re: DeLong On Deficits, Interest Rate

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

--- Robert Vienneau <rvien@xxxxxxxxxxxxxx> wrote:
> Has anybody been following Brad DeLong's weblog
> lately? In many, many posts he
> has objected to the recent Bush
> tax-cut-on-some-divends policy. DeLong's
> objections
> have been overwhelmingly on the following grounds:
>
> (1) Higher deficits will ultimately raise interest
> rates. And economic
> growth will be
> slower as a result. It's all a matter of supply and
> demand, as taught in
> the first weeks
> of a freshman economics class. The laws of supply
> and demand have theoretical
> exceptions, but there's no particular reason to
> expect  the bond market to
> be special.
> One cannot really argue otherwise.

Robert,

It IS 'otherwise.'  Our monetary system is the case of
a 'public
monopoly' with the govt the single supplier of
interest bearing alternatives (tsy secs,etc.) to non
interest bearing reserves.

The case of Japan makes this obvious.  With the
world's highers debt, debt ratios, multiple
downgrades, etc. 3 month t bills routinely yield
.ooo1%, and 10 year notes .80%.

The risk free nominal interest rate with a non
convertible currency/floating exchange rate is
whatever the 'politicians' want it to be for as
long as they want it to be.

Warren

=====
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Primary email contact:  wmosler@xxxxxxxxxx

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