At least part of the ECB has repeatedly shown they do understand monetary operations and that it’s about price and not quantity.
Subject: RTRS-ECB LIKELY TO EXTEND LENDING UNLIMITED FUNDS AT FIXED
RTRS-ECB LIKELY TO EXTEND LENDING UNLIMITED FUNDS AT FIXED
RATES INTO START OF Q3 AT MARCH MEETING-EURO ZONE MONETARY
SOURCES
RTRS-SOME AT ECB CONCERNED ABOUT KEEPING LONGER-TERM OPS AT
FIXED RATES FOR TOO LONG- EURO ZONE C.BANK SOURCES
RTRS-IMPORTANT TO PROVIDE INSTRUMENTS TO COVER 12-MONTH TENDER
MATURING ON JULY 1
on the back of above headlines
-curve steepening back, 2bps move
-front end bid
-pers better bid (Greece 5bps move)
Dear Warren Mosler
You are the second Warren that I find intellectually very interesting.
I have 3 questions and I would be very pleased and thankfull if you could give me an answer, your opinion:
– What if foreigners decide neither to save in US Dollars, nor to buy from to U.S, in order to narrow the trade deficit? Would that make imports for the US impossible? Is there a scenario for this, I mean what if foreigners think the dollar becomes worthless?
– You wrote that the natural interest rate is zero. That makes sense. But in my eyes this is only the interest rate for the gov, what about the private sector, they cannot print money, what is the natural interest rate there? is there a difference? where is my misunderstanding?
– If the economy is working at full employment, and interest rate still zero for the gov, what is the risk of having politicians spend to much money because its basicly free? Would that create inflation?
Thank you sir
best regards
Laurenz Seiger
(Austria)
Dear Warren Mosler
You are the second Warren that I find intellectually very interesting.
I have 3 questions and I would be very pleased and thankful if you could give me an answer, your opinion:
– What if foreigners decide neither to save in US Dollars, nor to buy from to U.S, in order to narrow the trade deficit? Would that make imports for the US impossible? Is there a scenario for this, I mean what if foreigners think the dollar becomes worthless?
– You wrote that the natural interest rate is zero. That makes sense. But in my eyes this is only the interest rate for the gov, what about the private sector, they cannot print money, what is the natural interest rate there? is there a difference? where is my misunderstanding?
– If the economy is working at full employment, and interest rate still zero for the gov, what is the risk of having politicians spend to much money because its basicly free? Would that create inflation?
Thank you sir
best regards
Laurenz Seiger
(Austria)
yes, a nation can import only if non residents one way or another want to accumulate the importer’s financial assets (or domestic real assets).
the central bank has to set an interest rate, usually the ‘risk free’ rate which in the US is for all practical purposes the fed funds rate.
i’m saying the cb should set that rate at 0. other rates will be a function of perceived risk.
even now politicians are constrained by fears of inflation
ECB updated it’s schedule for collateralized operations today. (Covers period thru October 2010)
Link here.