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Is it too high? These rates tend to track inflation pretty closely, to the extent the former has a definition. The short-dated government stuff (and the floatin
by fdr 4y ago
Is it too high? These rates tend to track inflation pretty closely, to the extent the former has a definition. The short-dated government stuff (and the floating price of repurchase agreements) is probably roughly maintaining consumptive power, perhaps even a little less since everyone wants to buy it. The time value of nominal money at the risk free rate is set both at auction and moment to moment via these mechanisms, so I'm not sure what "too high" means here.
- bradleyjg 4y agoToo high in this context means not socially optimal. To the extent there’s hard, inelastic demand for an absolutely safe place to park cash perhaps it is more efficient to have the government offer such instruments than any other entity. However, to the extent the terms are more attractive than they “should” be, and satisfying soft, elastic demand, that’s money that’s being pulled away from productive investments.
- fdr 4y agoWhile very few arrangements are optimal, I personally don't see how this is a good example. It seems like your assessment, as so far elaborated, is equivalent to "the government should not issue bonds." My opinion on equilibrium: government should always be providing the most secure credit, at some level of issuance, that wouldn't be true, best not to get there.