Anders, you do have their own currency, mate…
Sweden Shouldn’t Pay More to Borrow Than Germany, Borg Says
March 9 (Bloomberg) — Sweden shouldn’t pay more to borrow than Germany because of its strong public finances and low level of debt, Finance Minister Anders Borg said.
“Sweden will probably have a stronger recovery eventually than Germany and then interest rates eventually ought to rise above Germany’s due to, so to speak, economic-cycle reasons,” Borg said in an interview in Stockholm yesterday. “But in the long-term they ought to be on par or slightly below.”
He is a Borg and obviously assimilated Jurgen Stark or/and Hans Werner Sinn and maybe others as well. No his mental functions are severly affected by their thinking.
One can only hope that when enough damage is done the collective decides to cut off the non-functioning parts. Unless of course the German desease has already infected the whole collective…
What’s the link? Can’t find the story. Took it down?
@roger erickson,
At least they’re not likely to join the EMU zone any time soon.
Swedes and Danes more opposed to euro than ever
http://www.thenews.com.pk/PrintEdition.aspx?ID=84441&Cat=3&dt=3/3/2012
Sweden to Shun Euro for Long Time Amid ‘Severe’ Woes, Borg Says
http://www.bloomberg.com/news/2011-12-06/sweden-to-shun-euro-for-long-time-amid-severe-woes-borg-says.html
So why would a monetarily sovereign country want to borrow? If it wants to do stimulus it can print its own money. As to borrowing to fund infrastructure projects, that’s makes no sense. Borrowing only makes sense where the borrower does not have the resources to fund an investment, and building 50 miles of motorway is peanuts for a country with the population and wealth of Sweden.
The REAL reason politicians want to borrow is that it postpones the evil day when the taxpayer eventually has to cough up: i.e. borrowing enables politicians to buy votes. Which is an absolutely brillant reason to borrow – I don’t think.
Milton Friedman advocated a “zero borrowing” regime, as did Warren in a Huffington article. Quite right.
@Ralph Musgrave,
They don’t borrow anyway. The causality is people wanting to save.
Save and borrow are two sides of the same coin. The only issue is who initiated the deal.
MMT says the private sector pushes savings at their government. The government does not pull those savings away.
And the lack of private sector fiscal response to the austerity measures demonstrates that there is no pull going on.
@Neil Wilson,
I would help to understand this if they included manetary base in net public debt like Brazil does.
http://www.bcb.gov.br/ingles/FinPub/cap5i.pdf
Differently from other countries, one should also cite the fact that the concept of net debt used in Brazil considers Banco Central’s financial assets and liabilities and, therefore, includes the monetary base.
@Kristjan,
It certainly would help dispel the notion that there is something special about bonds over bank reserves.
@Neil Wilson,
are we talking about borrowing in foreign currency? Or the private borrowing?
I thought all the government “borrowing” in own currency is about interest rate management, according to MMT?
Private saving is unspent income, which is then either borrowed by private sector to spend, or to invest, or just stays in banking system. The amount equivalent to the one that stays in the banking system – can be spent by the government in order to buy all the output.
@Gary,
‘Staying in the banking system’ is pushing money onto the government by way of the central bank reserves that represents.
In MMT the central bank and the government are part of the same sector.
@Gary,
Sorry, I don’t understand what do you mean by “pushing”?
Do you mean it actually forces government to do something with that money?
I guess it so, if government is then forced to deal with the resulting unemployment (which that unspent saving caused).
right, except there is nothing ‘staying’ in the banking system any more than points stay with the score keeper until he uses them
@Neil Wilson,
I believe Greece has one of the biggest merchant fleet in the world too.
@Tristan Lanfrey,
Now that’s weird, I replied to your comment on the previous blog post (but I read posts on several tabs, so my browser probably screwed it up) 🙂
@Ralph Musgrave, Besides the role of debt in interest rate management, maybe a government needs to issue debt as a way of encouraging maximum participation in the nation’s economy? To buy and sell in the US economy, for example, people need to possess dollars – the US medium of exchange. For people doing business in dollars on an ongoing basis, the minimization of transaction costs and managing volatility requires not just acquiring dollars as needed to finance immediate purchases, but acquiring and holding dollars to finance purchases over longer terms. The relation of government debt securities to currency and reserves, as Warren has emphasized, more or less equivalent the the relationship of savings accounts to checking accounts.
If you could only do business in some town by acquiring the local scrip, and that currency was the monopoly issue of a single town bank, then if the bank did not offer interest bearing savings accounts that would be some degree of disincentive to doing business in that town.
None of this explains, however, why the Treasury should be doing the borrowing. My feeling is that each year the government should have a pure deficit target, and it should hit that target by being permitted a overdraft on its Fed account by precisely the amount of the target, with no requirement to pay back the amount of the overdraft.
The Fed should be the part of government providing interest-bearing savings accounts (government securities). They’re a bank after all.
why encourage ‘maximum participation?’
@WARREN MOSLER, Hmmm… not sure Warren. But if you are running a store, aren’t more customers generally better than fewer customers, whether the customers are from in town or out of town?
yes!
@Dan Kervick,
Dan, You say, “To buy and sell in the US economy, for example, people need to possess dollars…” Yes, obviously: the U.S. govt must issue enough dollars for U.S. citizens to do business. If not enough are issued, the private sector tries to save dollars, and you get paradox of thrift unemployment.
Re non-US entities thinking of doing business in the US, I don’t see why they are much influenced by the fact of the US issuing interest paying debt. If I think it makes sense for me to buy something from, or sell something to some country, I just go ahead. E.g. if I sell something, I get some of its currency in payment, I then convert it to the currency of my own country. End of story.
@Ralph Musgrave, I don’t know much about how importers do their business. But I imagine if you are a Spaniard who makes his living importing American goods, then you don’t just contact your bank and exchange some Euros for dollars every time you want to make a purchase. You manage your dollar holdings over time, so that you are not caught short when there is a sudden spike in Spanish demand for some American product, but exchange rates are less favorable. And so I’m thinking that requires buying dollars and then banking them somewhere, and that all those banked foreign dollars translate somehow into an additional demand for treasuries.
the reason for selling tsy secs would be to support long term risk free rates at something higher than otherwise.
not that i know any reason to actually do that
@WARREN MOSLER, and supporting the exchange rate higher than otherwise?
sorry, lost the context of this thread
Doesn’t it depend on Sweden’s GDP growth and inflation rates as compared to Germany’s?
This is not directly related:
“”Over time that will mean – and this is a good thing for the United States – more use of that currency and it will mean the currency will have to reflect market forces … So, I see no risk to the dollar in those reforms,” he [Geithner] said.
China is planning to extend renminbi-denominated loans to its fellow BRICS countries – a grouping that includes China, Russia, South Africa, Brazil and India – in an attempt to boost trade between the leading emerging market nations and promote the use of the yuan, according to the Financial Times.”
This is from here:
http://www.reuters.com/article/2012/03/08/us-usa-taxes-idUSBRE8271AZ20120308
I think Geithner is mistaken. It is a problem for dollar. If yuan is accepted more and more in international trade – dollar will be less in demand. Suddenly goods in American will become much more expensive.
Sure – that will revive manufacturing – but manufacturing will have to compete with all other established competitive manufacturing countries (Germany, Japan, China), in the meanwhile the demand will be pulled more and more towards China, so manufactured goods will get more expensive because of that too.
American standard of living is about to plummet.
@Gary, Plummet? We once got nothing at all from China.
Brad DeLong suggests that the world needs more U.S. govt debt:
http://delong.typepad.com/sdj/2012/03/greg-ip-the-world-needs-more-us-treasury-bonds.html#comment-6a00e551f0800388340168e89ba711970c
I suggest that hoarding cash / debt serves no public purpose, thus governments should aim to discourage the accumulation of cash / debt. I.e. governments should aim to profit from debt issuance by aiming for a negative real rate of interest.
@Ralph Musgrave, I think I agree Ralph. What we need is more government spending, not more debt.
hoarding cash allows for lower taxes for a given size govt
😉