Re: Starting Point

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

the BOJ would not be
> able to find as big a market locally. They would
> have to find a market
> somewhere else and compete with higher rates.

To keep rates at 0, the do their deficit spending
and then don't need to sell jgb's.  they can simply
leave as much as they want as excess reserves at the
boj.  'compete' doesn't enter the process.


> ------------------------------------
> Recent Philippine experience is interesting. The
> weekly auction for 90-day
> bills was cancelled twice because the submitted bids
> were deemed too high by
> the Central Bank. "Let them drown in their
> liquidity," said Edeza the line
> person in the CB in the news. I found that funny but
> right to the point.
> There was a meeting called among the banks and the
> CB to thresh things out
> as it would have gotten "out of hand" if this public
> incident turned into a
> war which would attract international attention
> obviously -- banks drowning
> in liquidity. Tests one's theory of private and
> public choice and rational
> expectations, doesn't it? Anyway, rates are inching
> up now as it turns out
> all the CB wanted was a more gradual increase and
> not 100 basis point jumps.
> Inflation is also inching up by the way.

Yes, but a different point entirely!

> > And, I would think that employment will not
> necessarily be a sign of
> saturation of net financial assets as stagflation is
> increasingly a credible
> scenario.<
> > >Hard for it not to be, pretty much by
> definition.< <
> > (see "Full Employment and Price Stability)
> -------------------------------
> Please elaborate. Definitions are subject to
> realities. I think were are
> going to experience cost push inflation and
> unemployment will not improve as
> there is overcapacity.

The govt can always offer paid work to anyone willing
and able to work.  Under most definitions of
unemployemnt that would make it 0.  And we know the
govt checks won't 'bounce' or drive up rates, etc.
They could push up prices, but unemployment as
defined is people looking for work for a wage, etc.
as above.
 >
> > In fact,
> > > all countries seem to
> > > be in a situation where it will be fiscal
> suicide to
> > > raise interest rates.
> >
> > Why not leave them a japan-like 0 permanently?
> ------------------------------------
> Because I'm still stuck on the paradigm that
> interest rates must reflect the
> risk in the economy at least on the long term.

'must'???

 The
> future is too full of
> uncertainty for a zero interest rate. One has to set
> aside some money to
> answer for bad debts. Otherwise, we would have to
> keep on recapitalizing the
> banking sector. Or, merge it with the central bank.

Sorry, can't follow this!

>
>
>
> >
> > > And, if inflation does show itself by cost push
> in
> > > defiance to all efforts
> > > to contain it, one will just have to wait until
> the
> > > storm passes. Makes one
> > > want to buy gold and real assets, huh?
> >
> > Not until govts monetize it again, or agg demand
> > comes back.
> --------------------------------
> Agree. And, why not since interest rates are so low
> anyway?

low interest rates don't seem to increase agg demand
now a days.  more $ saved than borrowed in non govt
sector means lower rates reduces income, and the
propensities to spend apparently aren't different
enough to make
up for all that.

warren
>
>
>


=====
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