There was a "clear change of heart" among G10 central bankers late last month, TD's James Rossiter said, while documenting an epochal policy pivot which, for better or worse, will be enshrined in tomorrow's economics textbooks. Like all simultaneous shifts in developed market monetary policy, the events of the past six weeks are the subject of conspiratorial narratives. But, as Rossiter wrote, no such speculation is necessary. "The conspiracy theorists would go so far as to say the hawkish pi
4 thoughts on “‘Actual Damage’”
“..it seems especially peculiar that the very same policymakers watched it unfold right in front of them and only acted on a lag.“ – if you have a massive debt and inflating it away is one way of dealing with it, is it really surprising that central banks act with a lag when dealing with it?
Treasurys, gilts, JGBs, etc. aren’t “debt.” They’re interest bearing dollars, pounds and yen. This is another positively maddening aspect of popular discourse around markets and economics. Nobody on any side of any debate tells the whole truth. The US doesn’t have “a massive debt.” It has a bunch of interest-bearing dollars outstanding and paying interest on them will never be a constraint because the US government can issue as many dollars as it pleases. This a continuum where DMs are on one end, EMs in the middle and corporates/private citizens on the other. You (not you personally, but “you” as in private citizens) have “a massive debt” because you can’t print money. The US government has no “debt.” It has an obligation to pay out interest in dollars on dollars. But is that “debt”? Can you “owe” a sum denominated in a currency you issue? Not really. You don’t need to “inflate it away” or at least not where that means letting exogenous factors drive consumer prices through the roof. Someone will argue with me here and I won’t respond because it’s not a debate. It’s a fact.
It’s hard to argue against that. When people borrow money and have to pay it back with interest that’s debt. Same for businesses. So it’s not hard to get to the notion that it’s the same for governments. It doesn’t help when everyone on the media also calls it debt. Maybe part of that is the lack of a widely understood term that defines that well – “interesting bearing dollars’ doesn’t have the same ring to it 🙂 or maybe most people aren’t interested in thinking about it much…
You are correct, especially for the amounts held by the Federal Reserve. What would really be cool is to have the Fed transfer most of the debt on their books to the social security and medicare trust funds- so instead of book entries those balances would be fully funded and the debate about cutting benefits or folks worrying about the fund going bust would be over. The most laughable misuse of the facts would be when Standard & Poors cut the debt rating of the USA- they had the wrong metrics and the cause of the deficits was the meltdown of the financial system that S&P had a hand in causing. And when they cut the ratings rates dropped and bond prices for US debt rallied.