Tuesday, November 13, 2018

Clint Ballinger — Decouple Spending From Bond Sales

I would suggest considering limiting federal government "bond" sales — with "bonds" meaning term secretaries — to short term notes that are essentially cash equivalents that pay a bit of interest. Longer term government securities can be issue without a term limit, which makes them appear to be "debt" comparable to private debt.

The UK has already done this with "consoles."
Consols (originally short for consolidated annuities, but subsequently taken to mean consolidated stock) was a name given to certain government debt issues in the form of perpetual bonds, redeemable at the option of the government. They were issued by the U.S. Government and the Bank of England. The first British Consols were issued in 1751.

In 1752 the Chancellor of the Exchequer and Prime Minister Sir Henry Pelham converted all outstanding issues of redeemable government stock into one bond, Consolidated 3.5% Annuities, in order to reduce the coupon (interest rate) paid on the government debt.

In 1757, the annual interest rate on the stock was reduced to 3%, leaving the stock as Consolidated 3% Annuities. The coupon rate remained at 3% until 1888. In 1888, the Chancellor of the Exchequer, George Joachim Goschen, converted the Consolidated 3% Annuities, along with Reduced 3% Annuities (issued in 1752) and New 3% Annuities (1855), into a new bond, 2¾% Consolidated Stock, under the National Debt (Conversion) Act 1888 (Goschen's Conversion). Under the Act, the interest rate of the stock was reduced to 2½% in 1903, and the stock given a first redemption date of 5 April 1923, after which point the stock could be redeemed at par value by Act of Parliament.

In 1927 Chancellor Winston Churchill issued a new government stock, 4% Consols, as a partial refinancing of the National War Bonds issued in 1917 during World War One...
Consols were created to retire the stock (tally sticks) issued by the Crown and accepted in payment of taxes. They are fully negotiable in markets and are issued with a permanently fixed rate of interest.

Such securities can be considered as a form of equity ("stock") that pays a fixed "dividend" instead of as "debt" that pays interest. They would function in markets in essentially the same way as "bonds" of indefinite term. They could even be inflation-protected.

While this is essentially only an institutional change in legal verbiage, word do matter in persuasion. 

Would you feel safer owning "a piece of the country," or "government debt"? (rhetorical question.) Of course, then the claim would be "selling the country" to pay for whatever rather than "blowing out the debt" that "our children have to pay."


Andrew Anderson said...

Previous market achieved negative yields on the debt of monetarily sovereign (Swiss) and near monetarily sovereign (German) countries have already revealed what that debt is: A risk-free or near risk-free fiat storage system that people will PAY to use.

Thus sovereign debt is an extension, in the case of the US for example, to the $250,000 limit on insured deposits and, as such, NEGATIVE yields should be the norm for the ability to escape that limit.

I'm disappointed that others can't see this. Is welfare for the rich that hard to perceive? In other words, the rich should be investing, not hoarding fiat risk-free.

Andrew Anderson said...

Moreover, hoarders desire scarcity while investors desire prosperous customers. Why then reward the former with risk-free gains rather than penalize them beyond legitimate savings?

Footsoldier said...


Footsoldier said...


Andrew Anderson said...

Thanks for the Neil Wilson links. Though I can only stand so much defense of government privileges for the banks at a time, it's encouraging to see how weak his and Mosler's positions really are, e.g.

Depositors are protected 100% at all amounts. A depositor in a commercial bank is holding nothing more than an outsourced central bank account. They are not investors in the bank and should never be treated as such. Neil Wilson [bold added]

Then why not simply allow all citizens, their businesses, State and local governments. etc. to have accounts at the CB itself?

Because Neil knows that allowing citizens equal rights with the banks would severely crimp the ability of the banks to steal purchasing power from the poor, the least so-called "credit-worthy".

Neil Wilson is thus a defender of injustice and a hypocrite to pretend otherwise.

AXEC / E.K-H said...

The MMT defenders of interest on public debt: stupid or corrupt or both?
Comment on Clint Ballinger on ‘Decouple Spending From Bond Sales’

MMTers tell everyone that public debt is nothing to worry about and that deficit-spending/money-creation is the method of choice to do away with unemployment and most other social ills.

One critical argument against a permanently rising public debt is that interest payments to the holders of the public debt rise automatically depending on the current rate of interest. This interest effect could, in principle, be greatly reduced if the government/central bank (i) does not issue bonds to begin with, and (ii) keeps the interest on bonds as close as possible to zero.

What exactly happens if the government runs a deficit in an elementary production-consumption economy? From the general macroeconomic Profit Law Qm=Yd+(I−S)+(G−T)+(X−M) follows that Public Deficit = Private Profit if all other variables are taken out of the picture.

So, at the end of the first period, the business sector’s deposits at the central bank are equal to the government’s overdrafts. If deficit spending is repeated period after period, then the government’s debt in the form of overdrafts grows permanently and the same holds for the business sector’s deposits. Under the assumption that the interest rate is zero for overdrafts and deposits at the central bank, there is NO interest effect and no interest burden on public debt.

However, if deficit up ⇒ profit up ⇒ cash up ⇒ the business sector’s need for interest-bearing/riskless/liquid assets goes up under the condition that profits are not distributed or reinvested. Solution: the government/central bank issues bonds. Extra benefit: interest on Gov-Bonds redistributes income from WeThePeople via taxes to the Oligarchy.

Needless to emphasize that the useful idiots of WeTheOligarchy have any number of arguments why riskless Gov securities with a juicy return are good for the economy, the proletariat, and the little man who needs to beef up his pension.

There are two factions among MMTers: one is content with the profit effect and opts for the abolition of bond issuance which amounts to the limitless growth of zero-interest overdrafts at the central bank, the greedy faction wants all, that is, profit plus permanent interest on a permanently growing debt.

Clint Ballinger and Richard Murphy are two of the really hard pushers of Wall Street’s agenda.#1

Egmont Kakarot-Handtke

#1 Richard Murphy: the MMT fraudster dressed up as realist

Ralph Musgrave said...

As usual, I pretty much agree with Andrew Anderson. My only slight quibble is where he says "it's encouraging to see how weak his (Neil Wilson's) and Mosler's positions really are." Mosler actually advocated the abolition of government debt. That's in the 2nd last para here:


The only good reason for government bonds that I can see is (as others have suggested) as a means to assist those saving for retirement. I.e. I'd back bonds which are inflation proofed, but pay no interest, with the amount per person obviously being limited.

Andrew Anderson said...

I.e. I'd back bonds which are inflation proofed, but pay no interest, with the amount per person obviously being limited. Ralph Musgrave

All citizens should be allowed inherently risk-free debit/checking accounts at the Central Bank anyway and those accounts should be negative-interest-free up to a reasonable amount that might be used for retirement too.

But rather than inflation-proof only some, the entire citizenry can be inflation proofed by:

1) Letting all fiat creation be via equal fiat distributions to all citizens.
2) By abolishing all other privileges for the banks.

Then who should care much about price inflation since their income would have increased to match it?

Clint Ballinger said...

Andrew - retirees etc wouldn't have increased income to match. (no disagreement, just pointing that one thing out. I still like the tontines idea, Creative, and brings the "fun" back to retirement insurance and death ! lol :)