This matters because treasury bonds are exactly like corporate bonds, these are in the first instance transfer payments between balance sheets of the existing monetary stock, unlike bank (including central bank) money which involves money creation through crediting of accounts.
This is the key because a ‘Central Bank bond’ adds to monetary base and so the net credit induced demand {change in debt – change in saving)(this is a simplification as any increase in bank lending may require additional capital which requires saving which must then be leveraged) whereas a treasury bond is simply a transfer payment, there is no net increase in money or effective demand. There is no net change in the monetary base – the increase in debt is exactly offset by the increase in saving to purchase the bond.He mistakes the function of the monetary base and tsys as a reserve drain having to do with central bank interest rate setting and doesn't take into account the difference between consolidated non-government net financial assets in aggregate and endogenous credit-debt relationships in non-government, which necessarily net to zero.
Decisions, Decisions, Decisions,
Government Debts and Treasury Bonds – Neither Keynesian or Inflationary
Andrew Lainton
Various mix-ups like demand and money etc.
ReplyDeleteLainton: "(private spending+public deficit-private saving on purchasing treasury bonds)=private surplus"
Strange accounting relation!
The annex has various mixups of stocks and flows.
Ramanan,
ReplyDeleteon your blog you say:
"Even if monetary aggregates increase – at least at the time of the purchase, it isn’t a cause for concern because the Monetarist causality from money to prices doesn’t apply. Now once the security is sold to the central bank, the seller may “rebalance” his portfolio and this will again affect the money supply and even affect equity market prices".
Isn't this 'rebalancing' effect a case of increased money (as a result of QE) leading to higher asset prices (such as corporate bonds, equities, etc)?
y,
ReplyDeleteOh thanks for spotting that. By price I meant prices of goods and services. Should correct it.