What is the ECB thinking?

[Kidlicious]

Originally posted by DAVOUT
Kidicious, thanks.

Excellent links.

In the Digital Economist : in fiscal 2002, Interests 332 billions (19% of the Federal budget).

That's a big decrease from the 1990s. I'm not sure what your point is. Is it just that governments have a lot of debt? Or that governments like low interest rates so that their debt costs less?

[DAVOUT]

Considering the low inflation of 2002, I am not sure the decrease is so big. Anyway, the total debt in % of GNP was 55% en 1990 and is 59% in 2002, and the charge of interests is equivalent to the defense budget.

If I have a point, it is that a monetary policy aiming to minimize inflation is not consistent with a budget policy resulting in huge deficit increasing consistently the debt.

I observe that the publicly held debt which was 75% of the total debt in 1990, is now only 54%. Any clue of which part of the federal institutions took the share previously bought by the public?

[Spiffor]

Originally posted by DAVOUT
If I have a point, it is that a monetary policy aiming to minimize inflation is not consistent with a budget policy resulting in deficit

We agree on this. I doubt we share the same conclusions though

[DAVOUT]

Originally posted by Spiffor

We agree on this. I doubt we share the same conclusions though

This is only technical, not political. Difficult enough.

[Spiffor]

My conclusion is that we shouldn't have a monetary policy aimed at limiting inflation

[DAVOUT]

If you read my post page 4, you will see that I am not that far.

But I would rather say that I am for a controled inflation, and that cannot be summarized by a maximum figure.

[Spiffor]

Well, then we are agreed. An uncontrolled inflation can have even worse effects than an anti-inflation fundamentalism. But I still think price stability should be only a remote aim of the Central Bank, with growth being the main concern by far (this implies some cohesion with the budget policy, something we direly lack in Europe :sigh: )

[DAVOUT]

Inflation is the consequence of some unbalanced part of the overall economy, and a global monetary treatment is not often appropriate. For instance, in 2002 the US inflation was very low (about 1%), resulting of an increase of all goods and services, offset by a huge decrease of energy prices (for a significant part imported). The Fed decided nevertheless to lower the interest rates in order to help the economy, and particularly the capital expenditures to recover (and subsidiarily - or primarily? - to give some happiness to the stock exchange). This could have no effect on the imports of energy, could marginally further the price-increases of goods and services already increasing, and extremely marginally help the capital expenditures. And additionnally, considering that the rates were already extremely low, the impact was and is still not visible. The end result is that the monetary policy for regulating the economy has reached in the US (but it is not significantly different in Europe) its level of absolute inefficiency : there now only one way for the rates, up.

[Kidlicious]

Originally posted by DAVOUT
Considering the low inflation of 2002, I am not sure the decrease is so big. Anyway, the total debt in % of GNP was 55% en 1990 and is 59% in 2002, and the charge of interests is equivalent to the defense budget.

Hmmmm.. I don't know about those numbers. Are you sure. The US economy grew a lot during the 90s and we had surpluses during a lot of those years.

Originally posted by DAVOUT
I observe that the publicly held debt which was 75% of the total debt in 1990, is now only 54%. Any clue of which part of the federal institutions took the share previously bought by the public?

I thought this meant the amount held by Americans. Maybe not.

[DAVOUT]

Originally posted by Kidicious

Hmmmm.. I don't know about those numbers. Are you sure. The US economy grew a lot during the 90s and we had surpluses during a lot of those years.


I thought this meant the amount held by Americans. Maybe not.

Grew a lot for sure (90% from 90 to 02), but the debt grew more (103%).

I suppose that publicly held means private individuals, enterprise or whatever is not a federal institution, American and foreign.

I wonder what is the share of the FED in the non-publicly held, and its evolution.

[Kidlicious]

Originally posted by DAVOUT
Inflation is the consequence of some unbalanced part of the overall economy, and a global monetary treatment is not often appropriate. For instance, in 2002 the US inflation was very low (about 1%), resulting of an increase of all goods and services, offset by a huge decrease of energy prices (for a significant part imported). The Fed decided nevertheless to lower the interest rates in order to help the economy, and particularly the capital expenditures to recover (and subsidiarily - or primarily? - to give some happiness to the stock exchange). This could have no effect on the imports of energy, could marginally further the price-increases of goods and services already increasing, and extremely marginally help the capital expenditures. And additionnally, considering that the rates were already extremely low, the impact was and is still not visible. The end result is that the monetary policy for regulating the economy has reached in the US (but it is not significantly different in Europe) its level of absolute inefficiency : there now only one way for the rates, up.

Are you saying that things would be better if the Fed didn't lower rates? The lower interest rates are keeping us stable for now.

[Kidlicious]

Originally posted by DAVOUT


Grew a lot for sure (90% from 90 to 02), but the debt grew more (103%).

I'm sure the debt didn't grow that fast. Where are you seeing that at?

[DAVOUT]

I am saying that the last decreases of interest rates were useless or even counter productive. The interest rates (real interest rates) have probably a range of effectiveness, and the US are certainly now outside, as the Japan put itself sooner.
The religion of the rates which are supposed to solve all economic problems is dangerous, and I am quite concerned that it seems to spread in Europe.

[Kidlicious]

Originally posted by DAVOUT
I am saying that the last decreases of interest rates were useless or even counter productive. The interest rates (real interest rates) have probably a range of effectiveness, and the US are certainly now outside, as the Japan put itself sooner.
The religion of the rates which are supposed to solve all economic problems is dangerous, and I am quite concerned that it seems to spread in Europe.

I think that they should have already started purchasing bonds instead of the short term securities. I don't think inflation is as dangerous as deflation. I like a nice cusion of inflation. Once prices start falling your in big trouble, because consumer behavior has been altered. It's too hard to change consumer behaviour not to take things seriously when there is danger.

[DAVOUT]

Originally posted by Kidicious


I'm sure the debt didn't grow that fast. Where are you seeing that at?

You gave me some good links : Economic report of the President - Government Finance