pet rock

It can't be repeated enough: Believing federal taxes are used to finance spending leads to fear-driven politics, misinformed policy, unnecessary austerity, rising inequality, economic stagnation, and poor inflation management. All based on a false household budget analogy.

@bigpicturepol @worstall @PatriciaNPino @yuanyi_z Regardless, stopping issuing bonds isn't any more inflationary than issuing them.

@petrock @worstall @PatriciaNPino @yuanyi_z I'm not aware of any central bank of a developed economy which is contemplating massive QE at this point, nor any which is contemplating ending issuance. Either therefore feels existential for the pound & therefore inflation expectations.

MMT is brain rot

@bigpicturepol @worstall @PatriciaNPino @yuanyi_z Do you want to discuss massive QE or stopping new bond issuance? Buying existing bonds is an asset swap. Ending new issuance means the usual swap from reserves into Treasuries doesn’t happen. Different policies.

@petrock @worstall @PatriciaNPino @yuanyi_z Argument is shifting. CB's could step in and buy every bond in existence. What would that do to the currency and inflation expectations?

@bigpicturepol @worstall @PatriciaNPino @yuanyi_z 30-year yields rise because the central bank permits that rise within its policy framework.

@petrock @worstall @PatriciaNPino @yuanyi_z Exactly that, inflation expectations. They want their money back in real terms. Why therefore do you think 30 yr yields have been rising? Because markets expect a bigger spending left wing Labour government. One which, frankly, isn’t interested in real resource limits.

@bigpicturepol @worstall @PatriciaNPino @yuanyi_z Inflation expectations, expected Fed policy, term premium, portfolio rules, etc. A 30yr yield reflects many things. It's not a direct measure of real resource capacity.

@petrock @worstall @PatriciaNPino @yuanyi_z What do you think an investor is thinking about when they buy a 30 yr bond?

@bigpicturepol @worstall @PatriciaNPino @yuanyi_z They price yields, not inflation. Yields also reflect Fed policy and market conditions. That's not the same as measuring real resource capacity.

@petrock @worstall @PatriciaNPino @yuanyi_z They price inflation.

@Purson773 @MWAAndrews @yuanyi_z Maturity is just the reverse swap: Treasuries become reserves/deposits. Principal repayment changes form. Interest adds income. Inflation depends on spending vs real capacity.

@petrock @MWAAndrews @yuanyi_z Then all the implicit money emitted via bonds would be turned into liquid money set into the economy, thus becoming de facto the equivalent to just having printed the money+interests (albeit at a later time). In that scenario bonds *would* be more inflationary than "printing"

@Purson773 @MWAAndrews @yuanyi_z In fact, if IOR < Treasury coupon, monetization pays less interest income to the private sector than bond issuance.

@Purson773 @MWAAndrews @yuanyi_z "Repayment" isn’t the issue for a USD issuer. Treasuries are paid in USD. The real question is whether fiscal policy creates excess demand/inflation. That constraint exists with or without bonds.

@petrock @MWAAndrews @yuanyi_z That said, I think the US should get their fiscal mess fixed because that risk goes from 0 to 0n't when people start believing there's no real way of repayment outside of debasing the currency.

@Purson773 @MWAAndrews @yuanyi_z So what if they all "cashed out"? That's just the reverse asset swap.

@petrock @MWAAndrews @yuanyi_z It does, but most of that money remains "implicit" and generally gets rolled over. If everyone cashed out on maturity (which is why I mentioned Argentina's leliqs), then yeah I'd agree. But on the US that seems like a not particularly real risk for a while.

@Purson773 @MWAAndrews @yuanyi_z What evidence suggests bond issuance is "less so"? And why are you a fan of fiscal surpluses?

@petrock @MWAAndrews @yuanyi_z Oh no, my point isn't "it is non-inflationary" (I'm a big proponent of running fiscal surpluses), but they are certainly less so (even if **potentially** more due to interests if people just choose not to rollover at all) than just adding liquid money to the economy.

@bigpicturepol @worstall @PatriciaNPino @yuanyi_z Who decides resource limits now? Not bond markets. They price financial assets.

@petrock @worstall @PatriciaNPino @yuanyi_z In your world where we have dispensed with bonds, who is going to be trusted to establish exactly which resources are available and which aren’t and how will they do it? What about the many resources we import? At what USD price level will they be considered “unavailable” ?

@Purson773 @MWAAndrews @yuanyi_z Treasuries are not a spending lockbox. They're highly liquid, interest-bearing govt liabilities. Bond issuance changes the form of NFAs. It doesn't reverse the deficit or make excess spending non-inflationary.

@petrock @MWAAndrews @yuanyi_z If everyone just cashed out on maturity I guess you could argue they are inflationary (something like leliqs in Arg comes to mind), but given the fact there's almost always a decent chunk of rollovers it kinda (in practice) reduces money supply even if the implicit is growing.

@Purson773 @MWAAndrews @yuanyi_z Issuing bonds doesn't reduce/reverse the fact that NFAs were added.

@petrock @MWAAndrews @yuanyi_z Making money more available with no real production changes (and no demand side shock) is bound to push the equilibrium value of money (vs any other goods) down, and thus make the price of those goods go up (when measured in that currency).

@Proton_Pass Nope.

Have you ever gone back to a less private option? Why?

@worstall @PatriciaNPino @yuanyi_z Then say that next time. Ok good, now we can work from there. So the question of inflation is about real resources, not whether bonds are issued or not.

@petrock @PatriciaNPino @yuanyi_z MMT does indeed say inflation results from new money issuance over and above resource availability.

@Purson773 @MWAAndrews @yuanyi_z The inflation constraint is real resources. Bond issuance just changes the form of NFAs.

@petrock @MWAAndrews @yuanyi_z ???

@Purson773 @MWAAndrews @yuanyi_z I used to believe that nonsense too.

@petrock @MWAAndrews @yuanyi_z The alternative way to finance deficits, just "printing the money" (albeit with how the FED works it probably isn't even an actual alternative) accelerates inflation.

@bigpicturepol @worstall @PatriciaNPino @yuanyi_z Bonds aren't the limit. Real resources are the limit. Bond issuance just swaps reserves for treasuries.

@petrock @worstall @PatriciaNPino @yuanyi_z Remove the bonds remove the limits. A bit like taking a speed limiter off a car. The driver will be tempted to go a lot faster.

@worstall @PatriciaNPino @yuanyi_z MMT doesn't say, "inflation results". Bond issuance is just an asset swap.

@PatriciaNPino @yuanyi_z Walk through it. Spending, tax, as currently. No bonds. Govt financing is through money printing. OK. This increases money supply, inflation results - as MMT says. Which part of this do you disagree with?

@MWAAndrews @yuanyi_z So you believe the issuance of bonds keeps inflation in check?

@yuanyi_z I don’t really understand how they hand wave away the consequential inflation but it must be me, not them, as they’re so certain.