Re: NYTimes.com Article: A Fiscal Train Wreck

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Javier Finkman <finkman@xxxxxxxxxxxxx> =====
>Essentially, Mosler reply to Krugman´s article disputes how interest rates
would react to higher fiscal deficits presumably financed with debt. The rest
follows from the different conclusion about rates behaviour (for both sides).
>
>Krugman was too mechanical in his reasoning: rates could go up but not
necessarily. The same applies to Mosler: rates could stay down but not
necesarily. None of them had provided the dynamics (short pieces not
incompetence, obviously).

While all your statistics is interesting, you miss Warren Mosler's point --
namely that the Federal Reserve can always control short-term interest rates--
and if it wanted to deal with longer term government debt -- all interest
rates.

All you have to do is look at World War IUI whewre Roosevelt fought the war
with very low interest rates -- despite annual federal government deficits
that reached over 40% of the GNP at the time.


Again today is a much mor complex economy and with free international capital
mobility the problem for the Fed can be somewhat more difficult than in the
1940s -- but it is not beyond the abaility of the US government to handle such
problems.

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