I read a report on the American news network CNBC the other day (November 15, 2016) – The bond vigilantes are back, and Trump better pay attention – which included some so-called experts in a video claiming to know something about bond markets. The report asserted that “bond vigilantes” might return to force the new US President to “tone down his spending” (as they allegedly did when Bill Clinton was in office). One expert said “we’ve got fiscal policy again and … the prospect of higher interest rates and inflation could even herald the return of the bond vigilantes”. Idiot is a polite term for him. The journalist and the commentators invoked should take time out and learn about what is happening in Japan, which remains the best Modern Monetary Theory (MMT) ‘laboratory’ there is. The Bank of Japan in now putting into operation the decision it took in September 2016 to buy unlimited amounts of Japanese government bonds at a fixed-yield. Which means? In short, it will control the yields across all bond maturities from 2-year out to 40-year and will set them at whatever level they choose. Oh, won’t the bond markets prevent that happening? How? For the bond markets it is a case of “like it or lump it”. Once again Japan demonstrates that mainstream macroeconomic theory is devoid of understanding....Bill Mitchell – billy blog
Bank of Japan is in charge not the bond markets
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
Instead of buying/selling whatever amount of bonds it takes to hit a targeted INTEREST RATE, as opposed to targeting a specified QUANTITY of bonds, the BOJ or any central bank could also buy/sell government bond futures. That way there would be no illusion of QE money creation to confuse the issue because all the bond futures buying/selling would be done on margin of say 1-3% of notional amount.
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