5 ms·

Well, strictly speaking, the money is backed by the promise to repay the bond with interest. At that point in the future, the money will disappear from existenc

Well, strictly speaking, the money is backed by the promise to repay the bond with interest. At that point in the future, the money will disappear from existence.

nly 5y ago
The bonds in question are Treasuries, so when the money is repaid it is repaid by the Treasury. Every one of these bonds represents future borrowing (if rolling over the debt) or future tax revenue. It's the secondary effects of buying these bonds that is stimulative. Lower treasury yields means investors seek higher yields elsewhere (e.g. in stocks, corporate bonds etc etc.). They buy those, driving up prices, which in turn drives down yields there too. In any case, bond yields have been falling for decades, so if anything the GFC and COVID have just nudged things along. People are now questioning whether it's even worth owning investment grade bonds. People who want a hedge against the stock market are beginning to look at other asset classes. The wealthy are moving in to increasingly exotic and diversified asset classes. Things like forestry, commodities, private equity etc are now becoming accessible to the moderately well off and not just the super wealthy. Money managers are pushing ever more speculative investments to retail (crypto, ARK funds etc)
- neilwilson 5y ago
  Ever dollar in existence represents future tax revenue. It quite literally wouldn't be there otherwise. And spending that dollar causes the tax revenue to arise, which means all dollars and all bonds are the source of their own funding. It's basic monetary maths. https://new-wayland.com/blog/why-tax-matches-spending/ https://new-wayland.com/blog/why-tax-matches-spending/
  - nly 5y ago
    This math just showing that total State/Government nominal spend must equal the total take through taxation, which is obviously correct and fine. However, currency is a medium of exchange that facilitates trade in place of barter. It's the oil in the engine, not the fuel. It's important to remember that transactions aren't just abstract financial events, they involve the exchange of time (labour) for some good or service. If you assume that all transactions in the economy ultimately deliver some fractional quantity of 'real wealth' (production of new goods and services, entertainment, knowledge, infrastructure etc), at some rate, then a similar geometric progression can be calculated for that. The thing is that a lot of that wealth creation depends on things that don't scale with the money supply. Simply put, no matter how many trillions of $'s you create there's only one Apple to buy with them. Tax on the other hand scales perfectly since it's just another economic lever. Low rates/yields are still a wealth inequality problem because bank deposits and, to a lesser extent, public equities are ways average people have been able to reallocate some of their idle funds to capture some of that value. Right now it seems an excessive amount of money is flowing to the few with the big ideas, good or bad, in desperation to spur further growth and there's lots of discussion about the 'everything bubble' because most assets are inflated.
    - neilwilson 5y ago
      Trade has never had anything to do with barter. It’s always promises “Here’s a chicken, owe me one” Until you get that clear, you’ll not realise that the monetary circuit and the real circuit are only inductively connected. Money is the charger. Production is the toothbrush
- mdavidn 5y ago
  The majority are Treasury securities but the Fed has also purchased other assets under quantitative easing, like mortgage-backed securities.

Well, strictly speaking, the money is backed by the promise to repay the bond with interest. At that point in the future, the money will disappear from existence.

nly 5y ago

The bonds in question are Treasuries, so when the money is repaid it is repaid by the Treasury. Every one of these bonds represents future borrowing (if rolling over the debt) or future tax revenue. It's the secondary effects of buying these bonds that is stimulative. Lower treasury yields means investors seek higher yields elsewhere (e.g. in stocks, corporate bonds etc etc.). They buy those, driving up prices, which in turn drives down yields there too. In any case, bond yields have been falling for decades, so if anything the GFC and COVID have just nudged things along. People are now questioning whether it's even worth owning investment grade bonds. People who want a hedge against the stock market are beginning to look at other asset classes. The wealthy are moving in to increasingly exotic and diversified asset classes. Things like forestry, commodities, private equity etc are now becoming accessible to the moderately well off and not just the super wealthy. Money managers are pushing ever more speculative investments to retail (crypto, ARK funds etc)

neilwilson 5y ago
Ever dollar in existence represents future tax revenue. It quite literally wouldn't be there otherwise. And spending that dollar causes the tax revenue to arise, which means all dollars and all bonds are the source of their own funding. It's basic monetary maths. https://new-wayland.com/blog/why-tax-matches-spending/ https://new-wayland.com/blog/why-tax-matches-spending/
- nly 5y ago
  This math just showing that total State/Government nominal spend must equal the total take through taxation, which is obviously correct and fine. However, currency is a medium of exchange that facilitates trade in place of barter. It's the oil in the engine, not the fuel. It's important to remember that transactions aren't just abstract financial events, they involve the exchange of time (labour) for some good or service. If you assume that all transactions in the economy ultimately deliver some fractional quantity of 'real wealth' (production of new goods and services, entertainment, knowledge, infrastructure etc), at some rate, then a similar geometric progression can be calculated for that. The thing is that a lot of that wealth creation depends on things that don't scale with the money supply. Simply put, no matter how many trillions of $'s you create there's only one Apple to buy with them. Tax on the other hand scales perfectly since it's just another economic lever. Low rates/yields are still a wealth inequality problem because bank deposits and, to a lesser extent, public equities are ways average people have been able to reallocate some of their idle funds to capture some of that value. Right now it seems an excessive amount of money is flowing to the few with the big ideas, good or bad, in desperation to spur further growth and there's lots of discussion about the 'everything bubble' because most assets are inflated.
  - neilwilson 5y ago
    Trade has never had anything to do with barter. It’s always promises “Here’s a chicken, owe me one” Until you get that clear, you’ll not realise that the monetary circuit and the real circuit are only inductively connected. Money is the charger. Production is the toothbrush
mdavidn 5y ago
The majority are Treasury securities but the Fed has also purchased other assets under quantitative easing, like mortgage-backed securities.