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Email this4:21 pm
September 11, 2013
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It was post WW I Germany (and note inflation peaked in October 1923), and the money printing was not the problem, it was a symptom. The problem was the country was in poverty trying to pay debts it could never pay, and the money printing was just one of various futile techniques used to fix things domestically. That's why the idea posited here that gov't money printing in an environment of ever-growing debts is benign if not helpful is so interesting to me. Plus we need to remember that federal gov't debt is only part of the picture here in Canada, need to add provincial gov'ts debts too.
I do agree the current inflation seems more due to supply problems.
5:59 pm
March 15, 2019
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mordko said
Late 20s, early 1930s Germany was a special case.
Other countries have also suffered double digit inflation. U.S. for sure in 1980 and probably Canada as well at that time.
Brazil, Mexico, Argentina, etc in the 1980's all defaulted on their USD debts.
Printing money is not the solution to anything. If it is, why bother with income taxes? We can print all the money we need/want.
5:13 am
March 30, 2017
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In the past, printing money was a big problem due to its only a particular country doing it. And those are not the strongest economies to begin with.
This time, every single "strong economy" country is printing money, so the new standard is high debt, print money is totally acceptable.
I will bet while inflation will be higher the next 10 years compare to the last 10, the impact is not as fearful as some thinks. When every body is doing it, it becomes acceptable to society and no longer an issue to all.
5:36 am
April 27, 2017
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savemoresaveoften said
In the past, printing money was a big problem due to its only a particular country doing it. And those are not the strongest economies to begin with.
This time, every single "strong economy" country is printing money, so the new standard is high debt, print money is totally acceptable.
I will bet while inflation will be higher the next 10 years compare to the last 10, the impact is not as fearful as some thinks. When every body is doing it, it becomes acceptable to society and no longer an issue to all.
Not sure why everyone printing money would be better. Intuitively it should make the problem worse.
More money burning pockets, same number of desirable assets = you need more $s to acquire an asset.
7:33 am
September 11, 2013
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Not all countries have high debt, when you scan a list of the world's countries you'll see range of debt to gdp ratio ranging from about 240% (Japan) to single digits (Russia in that group) with "strong economy" countries at all different places on the list.
Money printing is one thing, not sure it can be conflated with incurring debts by issuing bonds to lenders. If money printing is ok then I'd just do that, why borrow from others, i.e. promise to repay, if you can just print money instead? I suspect the answer is because money printing leads to bad things, so it's a last resort when lenders shun you.
5:30 pm
April 6, 2013
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mordko said
… Of course given the fast growing structural debt, the government will need to borrow quite a bit above and beyond the face value of maturing bonds. We don’t know if the current 4% CPI is a “blip” or not. If not, the interest rates and cost of servicing debt could jump substantially from the current 2%. Thats not a certainty but a major risk given our debt and deficit. Do you not agree?
I don't agree as the bonds can be issued now to lock in the current rate for the next 30+ years. Bank of Canada was prepared to buy at least $5 billion per week.
5:45 pm
April 6, 2013
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Bill said
So if money creation is cool (and why would a gov't ever borrow on the markets if just creating money is the way to go?), Norman1, what did countries that have experienced severe inflation do wrong? Is it that they left it all out in the economy instead of (eventually) just letting it "sit in an account"? If I understand what you're saying looks like I can drop my fear of inflation, and for me that would be cool!
The Canadian governments are still borrowing on the markets. Just that the Bank of Canada is creating some money to buy any leftover bonds when there isn't enough bond buyers that week.
Any money created will eventually be returned to the Bank of Canada when the bonds mature or someone buys the bonds from the Bank of Canada's inventory.
Creating controlled amounts of money for bridge financing is very different from creating money and spending it with no intention of repaying it.
6:22 pm
October 29, 2017
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Norman1 said
Bill said
So if money creation is cool (and why would a gov't ever borrow on the markets if just creating money is the way to go?), Norman1, what did countries that have experienced severe inflation do wrong? Is it that they left it all out in the economy instead of (eventually) just letting it "sit in an account"? If I understand what you're saying looks like I can drop my fear of inflation, and for me that would be cool!The Canadian governments are still borrowing on the markets. Just that the Bank of Canada is creating some money to buy any leftover bonds when there isn't enough bond buyers that week.
Any money created will eventually be returned to the Bank of Canada when the bonds mature or someone buys the bonds from the Bank of Canada's inventory.
Creating controlled amounts of money for bridge financing is very different from creating money and spending it with no intention of repaying it.
Yes, that was what I was trying to get at in my post! I got the war wrong, but we aren’t just printing money uncontrolled. As long as the economy produces and we have stuff that others want, we will be fine.
8:11 pm
April 27, 2017
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Creating controlled amounts of money
Here is the money supply story: https://take-profit.org/en/statistics/money-supply-m1/canada/
Is this “controlled”? Is this supported by corresponding increases in the quantities and quality of assets, goods and services that people want to buy?
The Canadian governments are still borrowing on the markets. Just that the Bank of Canada is creating some money to buy any leftover bonds when there isn't enough bond buyers that week.
Yes, the government is manipulating prices of bonds. Exactly because there are no real goods and assets to support increases in money supply. Its an experiment. Which resulted in an apparent bubble: buying a 10 year bond today will mathematically assure you end up with a loss in real terms.
This is MMT. Latin America tried it numerous times. Yes, it did lead to inflation.
Inflation is “sticky”. Peoples’ experiences and expectations play a part. Most of us only ever experienced prudent monetary policy (last 40 years in N America). Our central banks are supposedly independent. There is still a residual amount of trust. But if central banks continue uncontrolled emissions as inflation escalates above target, this trust will eventually break. And then high inflation will become “sticky”.
10:19 pm
October 29, 2017
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Government can’t manipulate bond prices because investor sentiment does.
4:25 am
April 27, 2017
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Vatox said
Government can’t manipulate bond prices because investor sentiment does.
Governments are the largest “investors”. They are, through central banks, huge buyers of own bonds. Price is heavily impacted by bank’s decision on how much to buy. Banks are supposedly independent but not quite.
5:29 am
March 30, 2017
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Vatox said
Government can’t manipulate bond prices because investor sentiment does.
Its called quantitative easing and the central banks have "experience" since 2009. With 12 years under their belts, they have "perfected" it. 🙂
Re other's post about not all countries have high debt, what really matters in my mind is "all G7s have high debt" and that will make matters less worse. believe it or not. Russia low debt irrelevant as its a communist country. Also are smaller countries / economy such as Maldives or even Thailand (just quoting a size example, not even sure what their actual debt are).
If anything, this may give China the best opportunity to be the new superpower of the world decisively, who knows.
9:24 am
October 29, 2017
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Yes and quantitative easing reduces the load off the government. But how does this “manipulate the price of bonds”and why is that a benefit to the government. If anything QE just makes prices rise, the price is of no consequence to the government so why are they “manipulating the price”?
9:32 am
April 14, 2021
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Russia low debt irrelevant as its a communist country.
While Russia is no longer communist, I agree that it is somewhat irrelevant as so much of the economy is underground and unreported. Someone once described it as a kleptocracy.
9:37 am
October 29, 2017
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The statement was made that “the government will manipulate bond prices”. So that statement implies that the government is pushing prices to a level that is in some way a benefit to them. Where is the benefit in manipulating the price.
11:46 am
April 27, 2017
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Vatox said
The statement was made that “the government will manipulate bond prices”. So that statement implies that the government is pushing prices to a level that is in some way a benefit to them. Where is the benefit in manipulating the price.
They are buying own bonds, thus jacking up the price and pushing interest rates down, way below inflation. In normal circumstances one would have to be nuts to buy an asset which promises negative returns. From a market perspective current bond prices make no sense. They artificially created a bubble. Thats what I mean by “manipulation”.
1:47 pm
October 29, 2017
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mordko said
They are buying own bonds, thus jacking up the price and pushing interest rates down, way below inflation. In normal circumstances one would have to be nuts to buy an asset which promises negative returns. From a market perspective current bond prices make no sense. They artificially created a bubble. Thats what I mean by “manipulation”.
Interest rates are not affected by bond buying. You are referring to bond yields and the government does not benefit in any way whether yields rise or decrease.
So I’ll say again that bond prices are not manipulated by the government and quantitative easing by the BoC is for “easing” the government debt load. Even if they wanted to manipulate bond prices, what gain would there be in doing so?
1:59 pm
April 27, 2017
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Vatox said
Interest rates are not affected by bond buying. You are referring to bond yields and the government does not benefit in any way whether yields rise or decrease.
So I’ll say again that bond prices are not manipulated by the government and quantitative easing by the BoC is for “easing” the government debt load. Even if they wanted to manipulate bond prices, what gain would there be in doing so?
Yields are a factor of current and future interest rates. Its interest over a given period of time. Bond price and yields are inversely correlated. Buying bonds by the government depresses yields. So interest rates absolutely are affected by bond buying. Buying bonds and increasing supply of money lowers interest rates. That makes loans cheap and stimulates economy. For a time. Ok?
2:14 pm
October 29, 2017
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mordko said
Yields are a factor of current and future interest rates. Its interest over a given period of time. Bond price and yields are inversely correlated. Buying bonds by the government depresses yields. So interest rates absolutely are affected by bond buying. Buying bonds and increasing supply of money lowers interest rates. That makes loans cheap and stimulates economy. For a time. Ok?
That’s incorrect, I think that you believe the government pays yields or that yields determine rates for newly issued bonds. That’s incorrect.
3:48 pm
April 27, 2017
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Vatox said
That’s incorrect, I think that you believe the government pays yields or that yields determine rates for newly issued bonds. That’s incorrect.
Lets take a newly issued government bond and assume that interest rate stays constant. Interest, coupon, yield will be the same. And it will be the government who pays them.
As the current interest rate changes, it impacts price and yield of previously issued bonds.
Bottom line is that bond buying by the government impacts bond prices, yields and interest rates.
Please write your comments in the forum.