Re: Fed vs White House - LT interest rate targetting

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From "Niggle, Christopher"
<Christopher_Niggle@xxxxxxxxxxxx> =====
>Gary, others interested.  I think that central banks such as the Fed could
>set long term rates directly if they purchased-sold longer Treasury
>securities with open market operations instead of dealing exclusively in
>short term securities as they usually do.  If inflationary expectations then
>caused speculators to sell off long term bonds the Fed could still keep the
>long rates low if they were willing to purchase as many as necessary, right?
>This was Keynes's view in the GT, I think, but I'll defer to the experts on
>that point.
>
Not only was it the message of the GT -- but, for those who do not study
history, until the "Accord of 1951" -- the Fed kept long term interest rates
very low -- so that Roosevelt financed the SEcond World War record deficits
--as high as over 40 per cent of GNP in one year [in those days it was GNP not
GDP]--- at interest rates of 4 per cent or below.

When I bought my first house in the 1950s I financed it at with a 4 per cent
mortgage and zero down payment!!

>Such a policy stance could lead to a very large increase in commercial bank
>reserves of course, and a potential large increase in bank lending and the
>monetary aggregates,

whats wrong with that -- in an economy that has LOST 2 million jobs since
2000?

 if the Fed had to buy a lot of bonds to keep their
>price up and rates low, but I think that the Fed could set long rates
>wherever they want them if they ignored the effects on reserves and
>potential bank lending.

I can't  believe that people on the pkt net  --esepcially people like Chris--
seem to implicitly accept the mainstream drivel about large increases in the
money supply and bank reserves is any threat  -no matter what the4
circumstances.

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-4221; office fax# (865)974-1686 or (865)974-4601
home phone and fax # (865)692-0802
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html