Re: New CBO chief Elmendorf gets it wrong

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(email exchange)


In case you thought the new head of the CBO understands the way the monetary system works…

>   On Sat, Mar 21, 2009 at 1:37 AM, Scott wrote:
>   FYI . . . from page 43 of CBO’s 10-year projections published
>   today…influence of CBO’s new head Doug Elmendorf (co-author a few
>   years ago of a widely cited paper on the effects of deficits on interest
>   rates) is pretty clear . . . .
>   ”Capital accumulation is affected because the increase in government
>   debt is expected to displace, or “crowd out,” a smaller amount of private
>   capital.

There is no such thing.

>   That result occurs because the reduction in overall national saving
>   dampens spending on business fixed investment and the construction of
>   housing.

Non-sensical rhetoric. ‘National savings’ as he is using the term is a relic from the gold standard when there were hard supply side constraints on reserves.

>   Although the size of such displacement is very uncertain,

Yes, in fact it doesn’t exist.

>   CBO assumes that, in the long run, each dollar of additional federal debt
>   crowds out about a third of a dollar’s worth of private domestic capital
>   (with the remainder of the rise in debt offset by increases in private
>   saving and inflows of foreign capital).”

Ridiculous empty rhetoric from yet another deficit terrorist.