Money

James Baird jlbaird3 at yahoo.com
Sat Sep 1 21:08:11 PDT 2001



> > >care?
>
> The government should care because the preference
> for cash (over bonds) is
> not costless. In a growing economy, the cash
> preference may reflect
> expectations of debt-inflation, or help trigger it.
> In a slowing economy,
> the preference for cash over bonds leaves you with
> Japan.
>

Yes, it means problems for the larger economy if no one wants to buy the gov's bonds. My point, though, (lost in the noise) was that it doesn't make a difference to the government's own operations. Bond sales are a way to withdraw reserves from the system in order to regulate short-term interest rates, not a means of funding government.

And as for Japan, I say if they want cash, give 'em cash! The problem with Keynesian solutions is that people don't really, truly believe in them. So in major depressions like Japan's or the U.S. in the 30's, politicians always try half-assed measures, and the moment things start to get better, they do the "responsible" thing and balance the budget again, bringing everything crashing down. Just the other day, Krugman was musing on the fact that, with Japan's debt at such-and-such a level, there was nothing more that could be done on the fiscal side. Why not? What hard limit exists on a nation "borrowing" it's own currency?

It's scary: the last go around, the only nation that managed to pull itself out was the one headed by a madman completly uninterested in being "responsible". I wonder what's going to happen this time?


> I though1t this kind of high-handed, technocratic
> rhetoric (let them eat
> dollars!) died in the 70's.
>

What can I say, I'm a throwback: for every economic problem I see an elegant, simple solution that doesn't have a chance in hell of happening.

I mean, if I can't even convince a bunch of self-proclaimed leftists that deficits are good, this Depression is gonna be a lot worse than I thought!

Jim Baird

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