Mathias dispatches the natural rate of interest (there is none) and discusses the "normal rate" as proposed by Mat Forstater and Warren Mosler in "The Natural Rate of Interest is Zero."
Naked Keynesianism
On the natural rate of interest one more timeMatias Vernengo | Associate Professor, Department of Economics, University of Utah
I have plenty of respect for Matias Vernengo, but he goes off the rails in his 3rd last paragraph where he says, “the point of State money is that the State does provide an asset free of risk (government bonds) that allows financial accumulation..”.
ReplyDeleteWell “state money” IS AN ASSET FREE OF RISK, isn't it? So that particular argument for bonds (i.e. the payment of interest to those who accumulate state money) doesn’t hold up. And that flaw in his argument largely undermines his last and 2nd last paragraphs.
Ralph, inflation is a "risk", which can be offset with interest payments on a bond.
ReplyDeleteY,
ReplyDeleteRisk is something that cannot be predicted or quantified. Inflation (at least two or three years down the road) is fairly predictable. Plus interest on say 10 year Treasuries won’t protect the saver/investor against serious inflation in 5 – 10 years time.
Also you seem to suggest that the state OUGHT TO supply interest paying assets for those who want same, or at least inflation protected paper assets for those that want them. And that’s the central argument addressed by Vernengo.
Vernengo says the state should provide interest yielding securities, while Warren Mosler says it shouldn’t. It’s a complicated argument this. I’ve been scratching my low IQ head about it all day, and am getting a post on the subject ready to put on my blog tomorrow.
ralph, why do you argue (elsewhere) that if the government issues bonds when it deficit spends, this causes interest rates to rise from where they currently are?
ReplyDeleteI think the basic question is whether a government issuing own currency should subsidize savers in the currency by also issuing interest bearing securities in addition to the currency it issues. The criterion is pretty evidently whether it serves public purpose.
ReplyDelete