Thread

1. mono442 · 1790969976 · focus · HN ↗

   Technically bond markets with fiat currencies are unnecessary but for some reason they still exist.

   1. smallmancontrov · 1790975780 · focus · HN ↗

      "Some reason" is Separation of Power applied to money printing. The Federal Reserve is an independent body guarding the money printer from the politicians.

      Congress (and, increasingly, the executive) can't simply choose to print and spend. They can choose to spend in excess of revenue, but to do this they must sell treasuries, they must borrow and spend, but the bond market is allowed to say "no." We are seeing this in real time as interest rates rise. In contrast, if the politicians want to print and spend they have to beg/pressure/persuade the Federal Reserve to run the money printer and buy the treasuries.

      Whether this is good or bad depends on your politics. I like separation of powers. I'm not keen on the idea of handing congress/executive the power of the printer, people in the US are very sanguine about how that can go. I'm also not keen on destroying the money printer, because the events of 100 years ago showed us what deflationary shocks look like (even worse than the inflationary shocks) and unlike my goldbug relatives and crypto-pilled friends I payed attention. The mechanism of having an independent body that guards the printer is the best compromise I have heard, so personally I'm glad it's the one we have.

      Challenge: propose something better.

      1. dmix · 1790998428 · focus · HN ↗

         > I'm also not keen on destroying the money printer, because the events of 100 years ago showed us what deflationary shocks look like

         It's a useful safety latch where you break the glass in emergencies. Except the glass gets broken once and used like a day-to-day gas pedal after that. Which has been well reported shift in monetary policy since 2008, and again after COVID, where QE is just regular business. There's a serious lack of reduction following the crisis and a lack of long term preparation for future shocks. While markets get inflated and other foreign competitors do it too, which creates perverse incentives to maintain it.

         I'm strongly in favour of separation of power, but the separation is much weaker in practice. Mostly due to as you said, politics. It still requires a culture of fiscal responsibility at multiple levels which is rare these days.

         Maybe a serious debt crisis and high inflation might help remind politicians of why that culture is needed.

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