This is the final part of a two-part discussion about the consequences of a currency-issuing government exercising different bond-issuing options. The basic Modern Monetary Theory (MMT) position is for the currency-issuing government to abandon the unnecessary practice of issuing debt (which is a hangover from the fixed exchange rate, gold standard days). Currency-issuing governments should use that capacity to advance general well-being and providing corporate welfare to underpin and reduce the risk of speculative behaviour in the financial markets does not serve any valid purpose. However, when we introduce real world layers (politics, etc) we realise that some pure MMT-type options are not possible. This question introduces just such a case in Japan. Given the political constraints, we are asked to choose between two options for central bank conduct, when the government does issue debt: (A) Buy it all up in the secondary bond markets. (B) Leave it in the non-government sector. In this final part, I go through some of the considerations that might influence that choice....
Bill Mitchell – billy blog
Q&A Japan style – Part 5b
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
Still no inclusion of what effect large Reserve Asset increases have on the regulatory leverage ratio(s) at the Depositories...
ReplyDeleteInstead we are treated to platonistic arguments back and forth about "Ricardian Equivalence!" and they get NOWHERE as usual....
"The reason that the commercial banks were reluctant to lend much during the late 1990s in Japan was because the potential borrowers had become risk averse and were not presenting themselves to the banks.
ReplyDeleteIt had nothing to do with a lack of ‘reserves’. Adding more reserves by quantitative easing was never going to alter the pessimistic outlook."
they continue to appear ignorant of leverage regulation...