Wednesday, September 4, 2013

Governments shouldn’t borrow.

Warren Mosler suggested that ANY BORROWING by government raises interest rates, and raises them permanently. See second last paragraph here.
These are his actual words: “Issuing Treasury securities only serves to support the term structure of interest rates at higher levels than would be the case. And, as longer term rates are the realm of investment, higher term rates only serve to adversely distort the price structure of all goods and services.”
I agree. And Milton Friedman advocated a “zero government borrowing” regime. See paragraph starting “Under the proposal…” (p.250) here.
Now will someone explain where Mosler, Friedman and Musgrave have gone wrong?

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