tag:blogger.com,1999:blog-5908830827135060852.post2632510578333915559..comments2024-03-29T02:54:56.523-04:00Comments on Bond Economics: Government Bonds As MoneyBrian Romanchukhttp://www.blogger.com/profile/02699198289421951151noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5908830827135060852.post-77366086274371317212023-03-01T12:21:59.143-05:002023-03-01T12:21:59.143-05:00There are some who no longer bother liquidating $1...There are some who no longer bother liquidating $100 million in 10 year treasuries when purchasing some asset. No point was the counterparty will most likely just stick most of it right back into treasuries. So at BNY Mellon or another custodian bank $100 million or $1 billion or whatever in treasuries gets moved from one account to to another. https://en.wikipedia.org/wiki/Custodian_bank Sure seems like monetization. I know years ago the Saudis liked be paid for oil by such a mechanism. Cannot imagine it has changed much.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-39178081774588622502023-02-28T10:07:39.177-05:002023-02-28T10:07:39.177-05:00In the context of the United States I recall some ...In the context of the United States I recall some arguments by MMT proponent Warren Mosler. As I recall he argues that reserve balances, issued by Fed, are non-interest bearing Sovereign government liabilities, and government bonds, issued by Treasury, are interest bearing government liabilities. He argues that these financial instruments (which we recognize under commercial, legal, and accounting customs) are direct analogs for checking and saving accounts, respectively, issued by a bank. The money supply issued by banks has been characterized as M1, M2, M3, M4, etc. A Treasury security, viewed in this context, is an economic substitute (financial asset) similar to a marketable certificate of deposit, and the CD is considered to be the money supply but the T-bonds are considered to be potentially harmful government debt. Mosler has proposed his ideas for eliminating (the concept of potential harmful) government debt from the system. Fed would give up trying to regulate interest rates, and set the policy rate to zero. Treasury would not have to help Fed regulate interest rates and could stop the issue of Treasury bills. Federal spending to non-banks, under the federal deficit, would increase the reserve balances and deposits in the aggregate bank sector. Instead of the issue of Treasuries the private sectors would hold bank money in their savings portfolio. As I recall Mosler does not discuss how the lack of Treasuries would likely disrupt the global money markets and shadow banking system at this time in history where Treasuries are the best collateral in repo deals. The government would guarantee more bank savings and inflation would be regulated by fiscal stabilizers. I think these proposals and other thoughts are posted up on Mosler Economics website.<br /><br />Joe LeoteAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-66663775037288805472023-02-27T16:58:46.956-05:002023-02-27T16:58:46.956-05:00"It is easy enough to identify a unit of acco..."It is easy enough to identify a unit of account, such as dollars, pounds, pesos, which qualifies as money."<br />A unit of account is unit of measurement. It is not "money" under standard definitions. Money is an instrument that is measured in a unit of account.<br /><br />Saying that debt valuation is important for inflation is a debateable statement, but it tells us nothing about *money* and inflation. As such, in what sense are you pushing back on the argument that money is not important?Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-58198963056087061712023-02-27T11:18:01.486-05:002023-02-27T11:18:01.486-05:00I want to push back a little bit, on the idea that...I want to push back a little bit, on the idea that "what is money?" is not particularly important. But first, it is 100% true that in any technical discussion of finance the word "money" is not a particularly helpful or enlightening term. I would guess this is because credit is commonly used for payments.<br /><br />For finance discussions at least, the unit of account aspect may be the important part of "money". Even though people disagree on the specifics, there are three common features attributed to money: unit of account, store of value, and medium of exchange. The disagreements about money are largely in the periphery.<br /><br />It is easy enough to identify a unit of account, such as dollars, pounds, pesos, which qualifies as money. What is not so easy is whether any particular "financial thing" fits the bill. You have cash dollars, and even among cash, different denominations.<br /><br />As for monetary aggregates, those have proven to not be useful, which should not surprise us because payments technology has constantly changed. But for the questions which monetary aggregates seek to answer, "debt valuation" is the way I approach the problem. Debt has fixed appreciation but market driven depreciation. The valuation of debt perhaps should not be seen as a market determination of "surplus or net worth", but rather, when debt valuations decline becomes a functional "credit limit", and their value becomes dynamic driven by markets, not a fixed appreciation. <br /><br />I have frequently compared bonds to money and money/bonds to equity. The comparison to money is made because they are issued by the same entity. I think Kelton's phrasing is a little better, calling bonds a "savings account".<br /><br />To me, the purpose of such comparisons is to highlight why interest tends to be inflationary. Equity shares never would pay a dividend in their "own unit of account", as this would simply amount to a continuous stock split or re-denomination. I mostly find myself making this comparison with people stuck in a rut of the old way of thinking, as an attempt to "flip the script". But sacrificing accuracy is not helpful or necessary.<br /><br />Financially educated people understand how equity offers flexible financing, through operations like capital raises, stock buy backs, and also the dynamic nature of share price.<br /><br />Lay people can easily understand how swapping between different denominations of cash is not itself an inflationary operation, hence some MMTers like myself will try to draw a comparison between bonds and currency, to highlight the "asset swap", or "transfer of money" from a savings account to a checking account.Derekhttps://www.blogger.com/profile/11265404998402355578noreply@blogger.com