Paul B, I hate to say it, but your excellent response proves my point. See how productive it has proven to have engaged Fine's criticism. Your reply is truly stimulating. Yet because of the complexity of the issues and you did add quite a bit of complexity to the discussion, I find that I cannot make a reasonable response at this time. I do hope others engage you. I'll just make a short off the topic comment. > > >WHILST THE STATE DEFICIT EXPANDED AND THE PROPORTION OF STATE >EXPENDITURE TO GDP ROSE, THE KEY TO THE INFLATION WAS THE INCREASE >IN COMMERCIAL DEBT AS PROFITABILITY COLLAPSED. THE STATE WAS AND IS >ALWAYS A SECONDAY MOMENT. OF COURSE THE BANKS TEND TO BE IMPORTANT >HOLDERS OF STATE DEBT NOTES AND THESE BANKING 'ASSETS' ALLOW THE >FURTHER EXPANSION OF NEW CREDITS. HOWEVER FOR YEARS IN THE UK , AS >PROFITABILITY BECAME MORE DIFFICULT, THE STATE RELAXED ITS >RESTRAINTS ON BANK LENDING, REDUCING LIQUIDITY AND CASH RATIOS. THIS >WAS AS A RESULT OF THE BANKS OWN DEMAND TO BE FREED TO MEET THE >NEED FOR CREDITS BY THE NON BANKING SECTOR. THE IMPETUS IS ALWAYS, >AT BASE, FROM THE NEEDS OF CAPITAL TO CIRCULATE. IN ORDER TO >ACCUMULATE. One interesting development in the US is that the Treasury Dept through the OCC (office of comptroller?) seems to have been forcing banks to tighten up their lending criteria in this downturn. This has led to howls of a credit crunch by small and medium sized business in the pages of the Wall Street Journal. The OCC has justified itself by pointing to the damage done by the piercing of the tech bubble to the banks' asset sheets. But the tightness imposed by the OCC seems to have counteracted to some extent Greenspan's monetary stimulus. >SO YES OF COURSE THE STATE PLAYS 'A MAJOR ROLE' IN DEFICIT >FINANCING. THE SECTION YOU QUOTE BELOW IS A DESCRIPTION THAT >SUMMARISES THE ANALYTICAL PARTS OF THE LONG ARTICLE. Now I think you are giving too small a role to central bank accomodation of govt deficit financing in the runaway inflation of the 70s. But this is a specialist topic for you and others on the list to pursue.. All the best, Rakesh
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