# Tag Info

27

Some pictures and text are from Schroders, Marketwatch and other websites, but I don't remember all them. Of note, Germany first sold negative-yielding bonds in Aug 2019, €2bn worth of 30-year bonds that offer no interest payments at all. 1. Better than holding cash Cash is obviously most liquid, but some central banks like Japan impose negative interest ...

7

There are several reasons why it makes still sense. Nominal negative return does not mean that real return is negative. There is a difference between nominal interest rates and real interest rates which can be expressed by the Fisher formula: $$i \approx r + \pi$$ Where, $i$ is the nominal interest rate, $r$ is the real interest rate and $\pi$ is ...

5

The Treasury continuously issues new debt, and retires matured issues. (This is called “rolling over debt.”) The Treasury has no right to pay debt off early (“refinance”). The closest thing that can be done is to repurchase debt. The Federal Reserve - whose common equity is owned by the Treasury - is repurchasing debt during “quantitative easing” operations.

5

You answered question (1) with your own chart. The United States had a “high” debt-to-GDP ratio in World War II - and there was no subsequent depression. (There was a sharp recession as a result of demobilisation, but that was short-lived.) For a country that borrows in its own currency, there is no obvious reason how a high debt-to-GDP creates recession ...

4

If they invest in productivity-enhancing stuff, GDP could grow at a faster pace than the [increase in] debt. Then the debt to GDP would decrease.

4

There are some semantic issues here. A more careful statement of the MMT position is that there is no economic reason for the Treasury to issue bonds. However, there is a self-imposed institutional need to do so: the Treasury has a balance at the Federal Reserve, and the rules it follows appears to imply that the balance cannot go negative. Issuing a ...

4

Government can have savings while having deficit because we are just talking about savings not net savings. For example, imagine that government has zero tax revenue $\\\$10$spending and$\\\$10$ of public investment. In this case the government is running deficit of $\\\$20\$ yet it is also saving through investment. Due to the deficit being larger than ...

3

I agree with @BrianRomanchuk +1 answer which is written in the context of modern monetary theory (MMT), but an important thing to note here is that MMT is not widely accepted monetary theory in economics and in fact it has been criticized a lot by mainstream economists (See for example this paper, Krugman's blog, Cochrane's blog and so on). Since your ...

3

Firstly, the central bank doesn't issue bonds. The treasury (in the executive government) does, as a way to finance government expenditure, and make real investments in the economy. In modern economies, the central bank's primary focus is the interest rate at which they lend money to private banks. If they require more money in order to finance those loans, ...

2

According to the World Economic Outlook database (April 2018), in 2018, the "General government net debt" of these countries was negative: Kazakhstan, Norway, Trinidad and Tobago, Luxembourg, Botswana, Oman, Estonia. This database doesn't have this datum for Singapore, but I believe the Singapore government also has negative net debt.

2

An EME's government collects taxes in domestic currency. If it issues debt in foreign currency and the domestic currency depreciates, the value of foreign currency-denominated debt increases. For example 1 000 000 000 USD is due at some date. If the exchange rate is 1 peso per dollar the government has to collect 1 000 000 000 pesos to pay it off. If the ...

2

Federal reserve, has no limit on how much money they can print. Thus, when central banks buy bonds , new money flows into the system. Also, when federal reserve sells the bond , the money is taken out of the system.

2

Generally speaking, running up debt becomes a problem when your creditors no longer believe the debt can be serviced. For instance, an individual could keep running up credit card debt as long as they have the income to support the monthly payments. There are two main factors that affect the borrower's ability to keep this arrangement going. Interest ...

2

Government debt generally (not just for US) matters (but is not necessary a problem) for country's economy for several reasons: The most obvious one, generally speaking, debt is not just free money. You have to pay interest rate on debt which costs money that could be otherwise put to other uses. For example according to the US. Treasury the interest costs ...

2

It depends. Mathematically, you just need GDP to grow at the same rate as the debt grows, and then you can sustain deficit spending indefinitely. But this simply shifts the line of questioning to "can GDP grow indefinitely", and for most people the obvious answer is "no". Ironically, the band-aid solution that most developing nations have taken is to grow ...

2

This is because in order for many business to stay liquid they often have to issue short term debt. Many financial firms need liquidity so much that they literally make loans that are for duration of only one day. However, the more people invest their savings in bonds which are usually long term debt (most bonds have maturity over 5-10y), the less money is ...

2

Data for the United States 1789 - 2019. The IMF has the Historical Public Debt Database. It has data for almost every country with varying starting dates depending on country. From my brief analysis France, Spain, Belgium, and Italy all appear to have exceeded 100% debt to GDP ratios before 1944.

2

Look at the implicit price deflator for GDP. Using the annual series, 1946=11.05, 1956=15.32, so 38.6% increase. (Source: FRED database) I don’t have time to look at the paper, but that’s possibly what was meant. Not an entirely convincing methodology, but you would have to do something with the deflator as well as nominal GDP to allocate changes.

2

The following link was provided: Link to Moroccan news article, in French My French is somewhat rusty, and I am completely unfamiliar with the structure of the Moroccan financial system. But I think I understood the basic idea. As a result of the worries around COVID-19, there was added demand for liquidity in the banking system. The Treasury sits on a ...

2

1) The phrasing you use is somewhat non-standard, but it seems close to the correct view. The U.S. Treasury borrows by issuing bonds. What people loosely call “printing money” (a badly defined phrase) is that the Federal Reserve buys those bonds from their owners. The original owners of the bonds “lent” the Treasury the money, and the Fed just takes the ...

2

I would just add to the +1 answer of @BrianRomanchuk that in past a good measure of whats the chance of country, especially USA, entering into recession was inversion of the yield curve which could correctly predict most of the US recession. However, as mentioned in the previous point obviously there is no indicator that can predict black swan events such as ...

2

Fed sends its net profits to the US treasury. Fed keeps portion of the money it earns to cover its operating expenses but everything above that is necessary for it's functioning and dividends to member banks is remitted back to the treasury see the explainer by Fed St Louis here. For example, according to ABA Banking journal the Fed net revenue in 2018 was ...

2

I assume this refers to the U.S. (Also, see this question/answer: link to question.) If so is the reason it is said that the government can always pay their debt because the primary dealers are obliged to always loan to the government? That’s one reason, but most people are unaware of this angle. I would argue that the usual reason given is that the ...

1

Here’s a website from the IMF that has guides on their definition of external debt: link to IMF webpage. In the 2013 guide, on page 5, the definition is debt owned by foreign entities. So foreign-owned bonds count as external debt. From a practical perspective, this definition has problems. Tax avoidance schemes typically rely on using international ...

1

The first statement is a result from an old economic model. The two views can be reconciled by the following argument: the central bank is constrained by the structure of the economy as to its choice of the policy rate. If persistently too low, inflation rises, and if persistently too high, the economy risks falling into deflation. In this case, the ...

1

There are several ways how central banks can still control money supply even if we assume the government does not issue any bonds. First, there is the discount rate at which other banks can borrow money form the central bank. The nominal interest rate throughout the whole economy depend on the discount rate as the rate at which banks are willing to borrow ...

1

Under most circumstances, bonds is the most secured asset deposit method. Physical cash storage is hard to implement securely. Theft and disaster damage are expensive to guard against. Real estate costs increases linearly with volume. Bank accounts are much cheaper and could be profitable (positive yield) and safe enough for most people (government ...

1

For the households it would through the savings arrow. Borrowing from macroeconomic perspective can be and in most advanced textbooks (such as Romers advanced macroeconomics) is often treated as a negative saving. Hence when the households and businesses borrow they incur negative saving and when they repay debts it can be viewed as a positive increase in ...

1

The Fed itself does not print anything that’s done by US treasury’s department Bureau of Engraving and Printing. It is true that Fed decides how much money should there be in circulation through its monetary policy. This also includes ordering treasury to print notes and mint to mint coins although it is worth noting that only small fraction of all US ...

1

There’s no formal meaning, but it would be the perceived safest government bonds. The quote indicates thar US Treasury bonds are part of that core. The 10-year yield fell, which meant that price went up.

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