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I mean, a government can always create its own fiat currency without borrowing it. The conventional mechanism is to issue bonds and have the central bank create new currency to buy them off the treasury. There is "debt" on paper only.

However, the conventional wisdom of central bankers is that this is inflationary. So, what they force governments to do is to issue debt to foreign or domestic creditors. If the government sells debt to domestic creditors it drains money away from the economy. Which is why a "fiscal stimulus" package funded by selling bonds domestically is taking money away with one hand to return it with the other. Unfortunately this is what some governments are doing.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Carrie (migeru at eurotrib dot com) on Thu Sep 3rd, 2009 at 08:56:56 AM EST
[ Parent ]
Migeru:
I mean, a government can always create its own fiat currency without borrowing it. The conventional mechanism is to issue bonds and have the central bank create new currency to buy them off the treasury. There is "debt" on paper only.

wouldn't that look bad?

is it a buck-stopping-elsewhere thing?

why go the bother making two stages out of one deal, ass-covering, deniability issues?

whom, exactly do they think they're fooling?

if enough of the public understood, would they be able to call it honest?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Sep 3rd, 2009 at 10:15:25 AM EST
[ Parent ]
You could always do it like Hitler.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Carrie (migeru at eurotrib dot com) on Thu Sep 3rd, 2009 at 10:21:30 AM EST
[ Parent ]
That is very similar to several local currencies in use in the USA, such as Amesbury Hours.  Most are denominated in terms of some common calculation of the worth of an hours labor.  I.E. an hour of time from a doctor or a lawyer would be worth more units than an hour of yard work. And the units are only accepted locally.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 6th, 2009 at 01:37:45 PM EST
[ Parent ]
Which is why a "fiscal stimulus" package funded by selling bonds domestically is taking money away with one hand to return it with the other.

But presumably money that is available to be put into bonds is of low stimulus multiplier value, whereas direct public spending on - say - railways (to pick a totally random example) has a high multiplier effect.

Besides, if the central bank is maintaining a bond rate target, then the bonds that the state sells will just be bought back by the central bank. Selling bonds depresses prices, which drives up interest rates. Central banks, wanting to lower interest rates during a recession, will buy up bonds (which raises the price of bonds, i.e. lowers the interest rate). (Assuming perfect, efficient markets, perfect, symmetrical information, yadda, yadda.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 3rd, 2009 at 11:10:16 AM EST
[ Parent ]

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