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Nicholas Grossman
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So far we have these potential problems: -treasuries aren't cash (Krugman's objection) -assuming the Fed can and will make all the necessary bond purchases may not be reasonable (DeLong and others here) An additional one: IS/LM doesn't consider multiple national economies in a globalized world. If expectations of US default increase, many holders of US treasuries will just shift to German bunds or other assets they see as safer. If that were impossible, then rising default expectations could arguably incentivize potential savers to spend more in the US. But in the internet age, such a transaction is virtually frictionless.
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Jul 25, 2011