At 03:19 AM 12/8/00 +1000, you wrote:
>Er, any takers on that question about seignorage?
the US is still able to print dollars to take advantage of the fact that
the US dollar is used as the main instrument of international liquidity (or
to respond to the growth of the world market and thus of the demand for
US$). That's what seineurage is about. However, there are limits. Too much
might encourage a shift toward the Euro, or less likely, the Yen.
>Can big Al mess about with interest rates as the occasion demands, or not?
he can vary interest rates, but he has to deal with the politics of the Fed
and its main constituencies (banks, the Bond Market, Wall Street). He might
also have to deal with anger from Congress, which could decide to limit the
Fed's autonomy from control by elected officials.
Further, he may not know what to do. He may have a hard time if inflation
still threatens (due to oil prices) at the same time that recession hits.
Also, cutting rates to stimulate the domestic economy might encourage a
steep fall in the dollar, since it means that US foreign creditors would be
getting much less income, which would put a damper on their optimism about
further purchase of US assets. A steep dollar fall would actually hurt the
US balance of trade in the short run (the J curve effect) while causing an
inflationary shock as imports, including raw materials, become more
expensive and exports face less competition.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
