PKT message, Re: on Stiglitz - "idle reserves" etc.

Paul:

I concluded my message of September 11 as follows:

As for Keynes, his views on related issues were predicated on technical
monetary considerations which do not relate in any manner, shape or form to
post-Bretton Woods world monetary arrangements.

Your reply message of the same date did not address this key point.

Therefore, let me spell out the grounds for my assertion.

First. In your original message on Stiglitz' proposal for "global greenback" creation through the SDR mechanism, you quote Keynes: "We need a quantum of international currency... [which] is governed by the actual current [liquidity] requirements of world commerce, and is capable of deliberate expansion.... "

In the post-Bretton Woods era, "the actual current [liquidity] requirements of world commerce" have been amply met - with the US creating "a quantum of international currency" as required to finance the deficit in its "world commerce", and the rest of the world accumulating "international currency" far beyond "the actual current [liquidity] requirements" of their "world commerce".

In the post-Bretton Woods era, in other words, the "quantum of international currency" has been "capable of deliberate expansion."

Second. Again, you quote Keynes: "We need a method by which the surplus credit balances arising from international trade, which the recipient does not wish to employ can be set to work... without detriment to the liquidity of these balances".

As indicated above, no such "method" has been 'needed' in the post-Bretton Woods era insofar as "the actual current [liquidity] requirements of world commerce" are concerned.

Instead - and this is where, in my view, Stiglitz' proposal breaks important new ground - the distribution of US-deficit-generated "international currency" among countries in the rest of the world has left many of them critically short of funds with which to finance the foreign exchange costs of urgently needed economic and social infrastructure investment projects.

That is why, in my opinion, Stiglitz' proposal merits serious consideration as a contemporary version of the Marshall Plan.

Gunnar