Re: DeLong On Deficits, Interest Rate

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Warren Mosler <mosler@xxxxxxxxxxxxxx> =====
>--- Gary Santos <evs@xxxxxxxxxxx> wrote:
>>
>> > 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.
>> ---------------------------------
>> While I will not agree that deficits necessarily
>> leads to higher interest
>> rates, I don't see why the Fed has full control over
>> interest or the
>> exchange rate.
>
>Interest rate, yes.  It's the 'monoopoly supplier'
>of reserves.  Single suppliers are 'price setters.'
>
>Exchange rate- not full control.  It can weaken
>it to its heart's content, just by buying any
>other currency it wants in any size it wants.
>However it is limited by fx reserves and ability
>to borrow fx as to how much of its own
>currency it can buy.
>
>And yes, full control of interest rates, for example,
>or full ability to weaken the currency doesn't mean
>the choice the make will necessarily optimize well
>being.
>



right on target Warren.

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
phone # (561)369-1951; fax #(561)369-1951;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html