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Printing bonds has the advantage over printing Greenbacks that bonds have lower liquidity, which means that they take part in fewer transactions and therefore cause less inflation than fully liquid forms of money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 12:33:19 PM EST
[ Parent ]
But you don't have to sell the bond. It is entirely sufficient if you visit your friendly bank and use it as security for a loan.
by generic on Sun Jun 6th, 2010 at 12:49:35 PM EST
[ Parent ]
Which is why when the stock market crashes what is lost is not wealth but loan collateral.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 02:20:03 PM EST
[ Parent ]
You could, but how does that differ in practise from selling the bond in the first place? Apart from increasing the gearing of your financial system, that is.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 6th, 2010 at 04:52:41 PM EST
[ Parent ]
If the only option were to sell the bond for existing money instead of monetizing it the overall amount of money in the system would stay unchanged. That would supposedly limit inflation.
by generic on Sun Jun 6th, 2010 at 06:19:32 PM EST
[ Parent ]
Liquidity is essentially the capability to transact, and it is true that a single class of one undated credit instrument will be more liquid than a myriad fragmented classes of dated debt instruments with different dates and rates.

But liquidity is not per se a reason to transact.

The reason why people may get shot of Greenbacks in favour of bonds or other asset classes - or just 'stuff', thereby causing inflation - is that Greenbacks carry:

(a) no right to income; and

(b) no right to anything with a use value.

What has happened at the moment is essentially that T-Bills at the Zero Bound are functionally equivalent to greenbacks.

So the huge amounts of QE dollars (Fed greenback clones) are going to investors who are using them to purchase of any financial asset other than T-Bills and thereby create parallel bubbles all over the place (eg WTI and S&P correlation).

Where they are not going is to people who will use them to buy stuff - investors have all the stuff they need, thank you.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 01:10:34 PM EST
[ Parent ]
But the Fed pays interest on excessive bank reserves. So even QE dollars may carry a right to income.
by generic on Sun Jun 6th, 2010 at 01:16:49 PM EST
[ Parent ]
I think it's fair to say that the dollars don't, but the clearing banks' relationships with the Fed do - at least for the time being.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Jun 6th, 2010 at 01:23:14 PM EST
[ Parent ]

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