On Monday, August 1, 2011 at 09:02:23 (-0700) Jim Devine writes: >Bill Lear wrote: >> My brother has advanced the novel idea that borrowing at negative real >> interest rates is what brought on the inflation of the 1970s. > >Negative expected real interest rates encouraged high demand during >the 1970s (with rising fixed investment relative to the 1960s) which >happened despite the stagflation of that period but that says nothing >about the supply-side reasons for the inflation (oil shocks, low >profit rates, etc.)
It seems that "negative expected" must be different than "negative real". From what I can see, say by taking Mankiw's Dept. of Treasury and Dept. of Labor data in his book "Principles of Economics" (p. 677), real interest rates did not turn negative until well after inflation hit hard somewhere in 1972. So how could this have caused the inflation that preceded it? >> Also, how is a sovereign borrowing money different than it printing >> money? > >it's almost the same if the sovereign's currency is used as the world >currency (as with the US$) but they're very different for other cases, >especially that of countries with non-convertible currencies. Hmm --- let's stick with U.S. case. If the government issues debt (I suppose that would be T-bills?) and people purchase it with dollars then that new debt (T-bills) increases the money supply. Is that the idea here? That sovereign debt (U.S. --- T-bills) is effectively liquid enough to be part of the money supply and thus an increase in debt could (theoretically) trigger inflation? Bill _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
