Sunday, April 2, 2017

Currency-issuing governments never have to worry about bond markets

How many times have to heard a politician claim they had to cut government spending and move the fiscal balance to surplus because they had to engender the confidence of the bond markets. Apparently, this narrative alleges that if bond markets are not ‘confident’ (whatever that means) then they will stop begging treasury departments for more debt issues and the government, in question, will run out of money and then pensions will stop being paid and the public service will be sacked and public trains and buses will stop running and before we know it the skies will blacken and collapse on us. The narrative ignores the usual statistics that bid-to-cover ratios are typically high (hence my ‘begging’ terminology) which are supplemented by well documented cases where the bond dealers (including banks etc) do actually beg central banks to stop driving yields down in maturity segments where these characters have pitched their “business model” (read: where they make the most profits). The facts are exactly the opposite to the neo-liberal pitch. Currency-issuing governments never need to worry about how bond markets ‘feel’. Essentially, the bond markets are irrelevant to the ability of such a government to design and implement its fiscal plans. And, the central bank always can counteract any tendencies that the bond markets might seek to impose where governments do actually issue debt.…
There are no bond market vigilantes.

Bill Mitchell – billy blog
Currency-issuing governments never have to worry about bond markets
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Andrew Anderson said...

Yet bond issuance by the monetary sovereign is useful so the central bank may have proper assets to back its liabilities - for credibility and sterilization purposes if need be.

However, to avoid welfare proportional to account balance, sovereign debt should yield at most 0% (and that for the longest maturity, e.g. 30 year Treasury Bonds). But who will buy sovereign debt yielding at most 0% if they may have zero maturity wait account balances at the central bank with 0% or even positive interest (interest on reserves, IOR)?

Hence the need, if we are to maintain sovereign bond issuance yet avoid welfare proportional to account balance for negative interest on account balances at the central bank (a.k.a. "reserves" when the account holder is a depository institution) with a, say, $250,000 individual citizen account exemption.

An added bonus is that the negative interest collected on account balances at the central bank may be distributed equally to all citizens as a "Citizen's Dividend" without violating equal protection under the law wrt fiat creation.

Another bonus is that citizens might rent their unused negative interest free account space to those subject to negative interest - for a price - and further reduce unjust wealth inequality.

Matt Franko said...

"unjust wealth inequality."

Where does it say that wealth inequality is unjust?

Chapter and verse please....

Andrew Anderson said...

Andrew Anderson said...

Some wealth inequality is just, some isn't.

Our fiat and credit creation system is unjust and has produced a lot of unjust wealth inequality thereby. By reforming it, we can simultaneously reverse a lot of unjust wealth inequality - e.g. by properly eliminating government-provided deposit insurance, as I've described elsewhere. That alone might require $trillions in new fiat to be equally distributed to all US citizens without a corresponding price inflation risk*.

But if we won't have a just system, then dull, gray socialism with ITS injustices is waiting on the sidelines.

*Because banks would be more hesitant to create new liabilities if those liabilities were genuine wrt to the non-bank private sector.

Matt Franko said...

"properly eliminating government-provided deposit insurance"

Because the depo insurance fonents deposits?

You think bank deposits are bad?

Andrew Anderson said...

You think bank deposits are bad? Franko

If they are not 100% voluntary, bank deposits are a form of embezzlement for the sake of the banks themselves and for the sake of the more so-called credit worthy at the expense of the less so-called creditworthy.

What is "fonents"?

Matt Franko said...


Andrew Anderson said...

Btw, I submitted my first comment (at the very top above) to Billy Blog but it was not published.

I wonder why not?