The Japanese bond market has been very interesting in the last week proving yet again that private bond markets cannot set yields on government bonds if the government does want then too. Next time you hear some mainstream economist claiming a currency issuing government is running deficits at the will of the investors (read bond markets) politely tell them they are clueless. Japanese once again provides the real world Modern Monetary Theory (MMT) laboratory – every day it substantiates the underlying insights contained within MMT and refutes the core mainstream propositions. The financial media referred to the Bank of Japan as putting a whipsaw to the bond markets, which in context means that the BoJ is forcing the ‘markets’ into confusion (Source). The bond markets have misinterpreted recent Bank of Japan conduct in the JGB markets (less purchases than expected, and even missing a scheduled buy up) as a sign that the Bank was weakening on its QQE commitment from last September that it would hold the 10-year JGB yield to zero and thereby allow the longer investment rates to fall. Why they doubted that commitment is another matter but within a few days over the last week the Bank demonstrated that: (a) it remains committed to that target; and (b) it has all the financial clout it needs to enforce it; and (c) the bond market investors do not call the shots....Bill Mitchell – billy blog
More fun in Japanese bond markets
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
As Bill Mitchell has said, [positive] yielding sovereign debt is "corporate welfare" so it's no wonder that it's disposable.
ReplyDeleteNegative yielding* sovereign debt is the ethical way to go with a $250,000 or so individual citizen exemption at the central bank itself. (All citizens should be allowed to have inherently risk-free accounts at the central bank as a CIVIL RIGHT**).
If we are having problems in the world, a major cause is surely unethical fiat and credit creation.
*The shorter the maturity, the more negative the yield with on-demand accounts balances at the central bank costing the most.
**So we are not forced to work through a government-privileged cartel of depository institutions or be limited to unsafe, inconvenient physical fiat, a.k.a. "cash".