Multiplier Effect
The IMF as Deficit Owl? What’s Wrong with This Argument?
Jan Kregel | Professor of Finance and Development at Tallinn University of Technology, Tallinn, Estonia, adjunct professor at Johns Hopkins SAIS (SAIS), whose Bologna Center he co-directed in the late 1980s, visiting professor at the University of Missouri–Kansas City, and a Senior Scholar at the Levy Economics Institute of Bard College; formerly Chief of the Policy Analysis and Development Branch of the Financing for Development Office of United Nations Department of Economic and Social Affairs, High Level Expert in International Finance and Macroeconomics in the New York Liaison Office of UNCTAD, being in essence its chief economist, and Chair for Political Economy at the University of Bologna.
3 comments:
I don't understand Kregel's last two paragraphs. Someone like to explain them?
Low interest rates help some financial institutions, but for pension funds and insurance companies they can be a source of incipient financial instability. Jan Kregel
Welfare should be according to NEED, not account balance, and that includes pensions and insurance.
So let's quit hiding behind widows and orphans to justify positive yields and interest on the inherently risk-free debt of monetary sovereigns like the US but instead to provide welfare as needed and/or in a manner that does not violate equal protection under the law in favor of the richer.
@ Ralph
1. Total deficit = Primary deficit + interest payments on the debt
So higher interest rates increase the total deficit, since interest payments are greater. Austerity is imposed to reduce the primary deficit in order to reduce the total deficit. With low rates that is not an issue.
2. Interest payments are someone's income. This implies that higher rates = greater interest payments may be stimulative if they are targeted bbby likelihood of spending (rather than saving) that will increase demand directly rather than having to use fiscal stimulus.
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