To supply the world’s risk-free asset, the country at the heart of the international monetary system has to run a current account deficit. In doing so, it becomes more indebted to foreigners until the risk-free asset ceases to be risk-free. HereLet me translate this brilliance with a metaphor. If you pour water into a glass, it eventually fills up. OK, let's go on:
a point made recently by David Andolfatto:This is a difficult concept, let me help. If you empty the glass of water, eventually the stream dribble down to nothing. The he says:
[G]iven the huge worldwide appetite for U.S. treasury debt (as reflected by absurdly low yields), this is the time to start accommodating this demand. Failure to do so at this time will only drive real rates lower.
Both the Fed and the ECB need to return aggregate nominal incomes in their regions to their pre-crisis trends and do so using a nominal GDP level target.OK, why are pre-crisis risk premia better than the post crisis risk premia? Supply and demand both meet, what business is it for DC bureaucrats to decides on another price/supply equilibrium? The only thing I can figure out is that some buyers of safe assets are friends of DC bureaucrats and need to be satisfied.
I have news for economists, about 40% of voters in the USA could care less whether rich bankers and Congress control the price of safe assets.
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