Randy Wray — WSJ Warning on Japan’s Fiscal Sphincter

Oh My Goodness: debt financing by the central bank! Could cause bond yields to rise! Vigilantes on strike.

No, you morons. Government deficits always increase reserves in the banking system. That places downward pressure on the overnight interbank lending rate. Selling bonds normally relieves that pressure. But if you’ve already achieved ZIRP (zero rate target) then you don’t need to sell them.

Economonitor
WSJ Warning on Japan’s Fiscal Sphincter
L. Randall Wray | Professor of Economics, UMKC