Re: DeLong On Deficits, Interest Rate

[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.

Warren Mosler


For them to maintain both rates when
> the market is headed for
> the opposite direction seems to me only to be done
> at great, great cost. It
> will be counter-productive.
>


=====
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