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Tom, This is sort of related, but mostly I'm just curious what policy advice MMT would advise a treasury minister when their sovereign fiat currency denominated bond auctions begin to fail. I was thinking the countries should be offering shorter duration bonds so the central banks would be forced to intervene to defend their rate targets?
Debt can be welfare but it can serve a purpose, at times, when the convertible currency assumption isn't completely met, as we currently see in places like South America. Food and commodities priced in dollars or Euros essentially act like a gold standard. I've been watching the South American countries respond to prices and capital flight and I think when their currencies are falling and inflation high, debt sales offset cyclical capital flight and alleviate pressures on government. The debt issuance, especially when marketed to foreigners, causes the currency to strengthen which lowers prices of commodities like oil and food that are priced in foreign currency. Since those prices are essentially a tax on the poor when they rise, political turmoil results when they rise in the same way raising taxes would.
When inflation is low and fx is high maybe they should not issue debt as it exacerbates the problems.
Guess I should read some Wray instead of trolling the blog for easy answers. :\
I'm just curious what policy advice MMT would advise a treasury minister when their sovereign fiat currency denominated bond auctions begin to fail. I was thinking the countries should be offering shorter duration bonds so the central banks would be forced to intervene to defend their rate targets?
IN the general case, the Treasury and cb are government agencies, so the Treasury and cb need to coordinate ops to ensure that auctions don't fail. The cb can always expand its balance sheet to ensure this.
In special cases, there need to be work-arounds in place as the primary dealer system in the US, where the primary dealers can borrow from the Fed against the bonds it purchases at auction, if need be. While auctions may not be completely subscribed, the Fed working with the PD's can ensure they don't fail with the PD's expanding their inventories with a Fed assurance to expand its balance sheet later as needed.
Of course, it is conceivable that political restraints could be put in place by choice to limit the ability of the cb in doing this. That would be a case of shooting oneself in the head, like voluntary default by setting a debt ceiling and refusing to raise it.
Where a govt is not the currency issuer, then its auctions can fail unless supported by the currency issuer, as the EZ has been learning the hard way.
Ryan Harris, Here’s a short answer: if you can’t borrow money, and stimulus is in order, then print it.
In fact what’s the point of borrowing something you can produce yourself for free? Darned if I know. Warren Mosler and Milton Friedman both advocated zero government borrowing. And Keynes was happy with the “print” option.
"if the Treasury has to finance a heavy deficit, the Reserve System creates the condition in the money market to enable the borrowing to be done, so that, in effect, the Reserve System indirectly finances the Treasury through the money market, and that is how the interest rates were stabilized as they were during the war, and as they will have to continue to be in the future".
6 comments:
Tom, This is sort of related, but mostly I'm just curious what policy advice MMT would advise a treasury minister when their sovereign fiat currency denominated bond auctions begin to fail. I was thinking the countries should be offering shorter duration bonds so the central banks would be forced to intervene to defend their rate targets?
Sovereign debt is "corporate welfare" according to Professor Bill Mitchell. Who cares if a bond auction fails? There should not be any to begin with!
Debt can be welfare but it can serve a purpose, at times, when the convertible currency assumption isn't completely met, as we currently see in places like South America. Food and commodities priced in dollars or Euros essentially act like a gold standard. I've been watching the South American countries respond to prices and capital flight and I think when their currencies are falling and inflation high, debt sales offset cyclical capital flight and alleviate pressures on government. The debt issuance, especially when marketed to foreigners, causes the currency to strengthen which lowers prices of commodities like oil and food that are priced in foreign currency. Since those prices are essentially a tax on the poor when they rise, political turmoil results when they rise in the same way raising taxes would.
When inflation is low and fx is high maybe they should not issue debt as it exacerbates the problems.
Guess I should read some Wray instead of trolling the blog for easy answers. :\
I'm just curious what policy advice MMT would advise a treasury minister when their sovereign fiat currency denominated bond auctions begin to fail. I was thinking the countries should be offering shorter duration bonds so the central banks would be forced to intervene to defend their rate targets?
IN the general case, the Treasury and cb are government agencies, so the Treasury and cb need to coordinate ops to ensure that auctions don't fail. The cb can always expand its balance sheet to ensure this.
In special cases, there need to be work-arounds in place as the primary dealer system in the US, where the primary dealers can borrow from the Fed against the bonds it purchases at auction, if need be. While auctions may not be completely subscribed, the Fed working with the PD's can ensure they don't fail with the PD's expanding their inventories with a Fed assurance to expand its balance sheet later as needed.
Of course, it is conceivable that political restraints could be put in place by choice to limit the ability of the cb in doing this. That would be a case of shooting oneself in the head, like voluntary default by setting a debt ceiling and refusing to raise it.
Where a govt is not the currency issuer, then its auctions can fail unless supported by the currency issuer, as the EZ has been learning the hard way.
Ryan Harris, Here’s a short answer: if you can’t borrow money, and stimulus is in order, then print it.
In fact what’s the point of borrowing something you can produce yourself for free? Darned if I know. Warren Mosler and Milton Friedman both advocated zero government borrowing. And Keynes was happy with the “print” option.
"if the Treasury has to finance a heavy deficit, the Reserve System creates the condition in the money market to enable the borrowing to be done, so that, in effect, the Reserve System indirectly finances the Treasury through the money market, and that is how the interest rates were stabilized as they were during the war, and as they will have to continue to be in the future".
Marriner Eccles
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