Re: Stiglitz

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

From:	pdavidso [mailto:pdavidso@xxxxxxx]

>if the nation n's debt service obligations is denominated in the nation's
own
currency -- the nation can ALWAYS meet its obligations by "printing" money
--
no reserves are necessary.

Paul, this is undoubtedly true. But my concern is that the costs of doing so
would be tremendous. Such a policy would forever (or at least for a very
long time) shatter dollar hegemony thus elimiating the possibility of the US
to borrow from the rest of the world in dollars. It would also result in
higher interest rates in the US, or, it would lead to hyperinflation.

A point that I have tried to have answered from the deficit proponents on
this forum for several years, and which I have never really seen answered is
"do you really believe the US can run huge **structural** deficits year,
after year, after year, without paying some price **IF** US dollar hegemony
is not maintained?

>For example what is the right amount of reserves
backing the US external debt currently?>

The right amount of reserves is whatever amount of Euros, Yen, Pounds, or
SDR's the US needs to insure the rest of the world has sufficient confidence
in the US dollar so as to maintain dollar hegemony.

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