The role of treasury bonds from a macroeconomic perspective


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Some general considerations about public debt

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The role of treasury bonds from a macroeconomic perspective

  1. 1. The role of treasure bonds from a macroeconomicperspective(see also )This consideration is limited to countries with strong economies, which can lentmoney in their own currency1) Debt and savings from micro-and macro-economic perspectiveFrom a microeconomic perspective the loan is paid off with the last installment anddebts disappear. If the expenses exceed revenues, we must start to save.From a macroeconomic perspective is it not this easy to save, because asset growthand debt growth are coupled together. Less debts means less growth of assets,means less profit and less economical growth1). This contradicts the logic of thefinancial markets which always strive for maximum returns.Money is always a narrow good, i.e. on the productive side is t the requirement ofmoney-capital always higher than the available amount of money-capital. The side ofdebtors can not escape the demand for credit, otherwise threaten bankruptcy.If the side of assets narrows the supply of credits (hoarding of money), the side ofdebtors will deprive needed money-capital and bankruptcies will increasing. Theresult of this process is called debt crisis or deflationary crisis.Conclusion:As long as we want to have interest on our savings, we have to accept theexponential growth in a monetary system, which is based on interest and credits(fractional reserve banking).
  2. 2. 2) the nature of public debtsThe total of all debts consists of the public debt, it is the debtor with the particularhighest value of debt and the debts of the private sector, which consists of the debtsof corporations, the group with the highest demand of debts and debts of privatepersons, the group with the largest number of debtors.Public debts can theoretically be decoupled from the total of all debts. But ifsimultaneous growth of asset is desired, the private sector must take over some ofthe debts.Conclusion:We can choose whether we or the state must make the debts.Public Debts are a part of public revenues. If the state reduces public debts, hereduces also the revenues and thus its performance. There are two possibilities:Either citizens give up some benefits of public welfare or the private sector has totakes over parts of the services.One example: Part of the public welfare is the maintenance of infrastructure like forexample public highways. If the state stops this service, the private sector mustovertake it. The investor will not buy the highway by cash. He must finance the dealby debts. The highway is then owned by a highly indebted private company, which forsure must refinance the investment by tolls and reduction of labor costs. A personwho is driving on this highway will not get into debt by these tolls, but the money willlack on other expenditures. What we don’t have to pay to the state (taxes), do wehave to spend to the private sector. But the costs are more individualized. The usesof these services are much more dependent from the individual income.As the states are the only institutions which can stabilize the deregulated financialmarkets, they must spend at least money in the next crisis. The saved debts must bereinvested for bank bailouts and the stimulus of economic cycles. Due to thisausterity measures are likely in vain. It simply dismantles public services and parts ofthe national wealth will be privatized.Conclusion:We have the choice between a highly indebted welfare state or a state that hasreduced its services and largely privatized the national capital, which will be exactlyidentical indebted like the welfare state.Laws for debt ceiling are in effect laws for privatization.Due to our monetary system is the increase of total debts and the redistribution ofmoney-capital inevitable!
  3. 3. 3) Function of treasury bonds from macroeconomic perspectiveTreasury bonds (and thus the national debt) meet from a macroeconomic perspectivetwo important functions on the financial markets.In periods of non-crisis periods excessive liquidity will find option of investment.Speculative money capital will return to real business cycle and ensures a constantstate demand.In times of crisis, the state must bail out the banks and invest into countercyclicalstimulus of economical cycles - funded by borrowing. It is the only effective measuresto stabilize deregulated financial markets. The only price that the financial marketshave to pay for this stability is to invest in these treasury bonds.In general public debts at maturity will be refinanced by new public debts. Thecreditors refund themselves. Their advantages are safe investment and safe returns.They investing in public infrastructure and benefits from a safe community based onwelfare.Conclusion:As most of the money-capital escapes taxation by fleeing into tax havens and thecreditors refund themselves, treasury bonds can be considered as taxation of the richman.This kind of redemption is neutral in revenue for the public and the citizens, as longas all debts will be refinanced. If the public debts will be lowered, a part of redemptionof debts must be substituted by taxes or by the reduction of public expenditures,which means reduction of public services. If the growth of debts is constantly higherthan money supply leads it to deficit spending.
  4. 4. 4) Purchase of treasury bonds by the central bankThe central bank usually deals only with banks and not with non-banks. This rule ifthe central banks buys treasury bonds the state, because the state is a non-bank.Orthodox economists, especially in Germany, see it as undue monetary expansion.They argue that it will lead to strong inflation.It is likely that this monetary expansion tends to be a zero sum game. In adeflationary crisis banks park a great part of the liquidity at the central bank. It is theliquidity which was intended for the purchase of treasury bonds. The monetaryexpansion of the central bank and the parked liquidity of the banks will balance eachother.Once the financial markets becalm themselves, the parked liquidity will be again usedfor the purchase of treasury bonds. The central bank takes back the additional moneysupply by the sale treasury bonds.5) Monetary expansion does not necessarily mean inflation(more details -click here)A large part of money does not affect demand, because it remains in the speculativetrading. Only a small portion of that money is used for trading in the real economy.Since a long time we can observe that monetary growth is higher than the inflationrate.The opposite of inflation must be expected. Despite rising money supply we mustexpect a deflation because the money is increasingly concentrated, which removespurchasing power of the 99% citizens of lower income groups. In the long termconsideration leads this to the decrease in aggregated demand, which we calldeflation.Conclusion:While the largest part of money-capital remains in the speculative space and financialmarkets tend to deregulate themselves further on, treasury bonds are the onlymeasure to return capital to the real business cycle.
  5. 5. 6) Why should Germany pay for other European countries?If we want to be a united Europe, we must find a solution to solve the problem oftrading imbalances which mainly causes the different indebtedness. As long as thepolitical hegemony keep our monetary system speculative, as long as they keep thespeculation against some European countries ongoing, as long we should share therevenues. It is a question of the perspective if we want to see it as costs or asinvestments.Germany is in the middle of Europe. Germanys is vice world champion in exportsand Germany exports most of its goods to other European countries. No othercountry is dependent on the welfare of Europe like Germany. If the Europeanneighbors go into recession, Germany will follow and the German mainstream mediaand the German orthodox economist will start to discuss about Germany’s wasteexpenses like they now do for Greece.
  6. 6. 7) How should we go on with the EURO crisis?(more details - click here)What should be the perspective? If it is a common, peaceful and united Europe, weshould change the behavior. It should be different to that what we may perceivethrough the German mainstream public media. Europe must speak with one voice.Which currencies are more sustainably and stable than the EURO? The financialmarkets are dependent on a stable currency like the EURO. If they speculate againstthe EURO, they speculate against themselves. So the financial markets will acceptthe measures which must be taken to stabilize the EURO zone. Speculators arewilling to pay a price for this stability. Europe can be confident to offer help to thefinancial markets in the way to them from themselves, by depriving them the object oftheir speculation, like: - purchase of treasury bonds on the primary markets by a European central bank (as long as the markets are demanding excessive interest rates) - introduction of EURO bondsAnd a serious discussion about: - Transaction (Tobin) tax, - Regulation of tax havens - Introduction of negative interest rates for parked liquidity at the central banks, if boundaries will be exceededThese are the answers the financial markets ask for!SummaryIn the current monetary system is it not possible to save ourselves out of debts, wecan only growth out of the debts. In a macroeconomic perspective is it only possibleto avoid the exponential growth of debt in a reasonable way if we reform our currentmonetary system (monetary reformation - click here) .