The Natural Rate of Interest Is Zero

by Mathew Forstater and Warren Mosler, This paper argues that the natural, nominal, risk free rate of interest is zero under relevant contemporary institutional arrangements. However, as Spencer Pack reminded us, “[n]atural and nature are complex words, fraught with ambiguity and contradiction” (1995, 31). The sense in which we wish to employ the term …

The U.S. China Economic and Security Review Commission 2011 Annual Report to Congress

by Dirk Ehnts The U.S.-China Economic and Security Review Commission released its 2011 Annual Report to Congress on November 16, 2011.Below I discuss some paragraphs where I think the authors are mistaken in their beliefs. China’s foreign currency reserves are skyrocketing. A major contributor to this phenomenon is China’s continued policy of maintaining closed capital …

China: Will Increasing Wages Lead to Rebalancing?

Slow productivity growth and high inflation are denegrating real rebalancing for China. Internal Chinese consumption must increase to offset these effects. Demand for workers is driven primarily by unsustainable and unhealthy increases in the past two years in real estate and infrastructure development, and so is itself unsustainable. But, regardless of the cause, this is unquestionably healthy for China’s rebalancing process. As long as it continues, one of the main causes of China’s economic imbalances – the lagging wage growth relative to productivity growth – has been eliminated and even reversed.

Is Exact Size of China GDP Really Important?

The size of China’s GDP is debatable and it is pointless to speculate about when China (or any other economy) might surpass the U.S. The point is that China’s GDP is growing rapidly, fueled by massive investment, and all the rest of the discussion is just noise.