Re: Fed vs White House - LT interest rate targetting; response to Paul D.

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From "Niggle, Christopher"
<Christopher_Niggle@xxxxxxxxxxxx> =====
> Paul: In response to your remarks toward the end of your post, I DON'T
>think that it would be a bad thing for the Fed to target LT interest rates
>and I WOULDN'T  worry if that resulted in bank Reserves and the monetary
>aggregates getting larger....I just made that remark because it is the one
>usually advanced in debates over whether or not central banks can control LT
>rates in an environment in which inflationary expectations might be linked
>to growth in the monetary aggregates.  If the Fed had to purchase say $30
>billion worth of long bonds to keep the price up, and rates down, then
>reserves would grow by about the same amount and that would probably trigger
>speculators to sell bonds anticipating inflationary expectations increasing.
>

All right Chris.  but I remind you that the Federal Reserve added much more to
bank reserves etc until the 1951 Accord without triggering the speculative
activity you mention.

>I agree that an increase in R or M's are probably a false signal re
>inflation and expectations but that is the usual mind set of those
>discussing the issue of LT rate targetting, so I mentioned it.

iT IS ONLY THE MINDSET OF MAINSTREAM ECONOMISTS-- those talking (vacant)heads
on TV .  There was no set off of speculative activity in Japan in the 1990s
How come?

Paul

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
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email pdavidson@xxxxxxx
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