A response to David Beckworth

From Free exchange
January 16, 2013 - 2:20pm

LAST month, I joined an ongoing conversation within the blogosphere about the shortage of safe financial assets. My conclusion was that the shortage exists for good reasons and that certain governments could help alleviate it by issuing more bonds. David Beckworth, an economist who writes the Macro and Other Market Musings blog, disagrees. This week he posted his rebuttal. As I read it, his argument can be broken down into two claims. First, Mr Beckworth argues that much of the current shortage of safe assets can be explained by forces that would disappear if the economy fully recovered. Second, he argues that governments, even ones with their own currency, could not issue enough safe assets to satisfy investor demand. I disagree with both claims.The collapse of real yields in countries with their own currencies clearly shows that investor appetite for safe financial assets increased in ...

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