The bond market doesn’t control anything, the national government does

Extracted from an article by Ellis Winningham

Ellis Winningham is a retired US-based economist, Modern Monetary Theory advocate and campaigner who works with relentless passion through his web blogs and and social media work to inform and raise public awareness of MMT. In this reblog Ellis discusses what treasury bonds are, their function in the gold standard era, how they operate in today’s floating fiat currency regime, and why they should no longer be issued. Originally posted on Ellis’s website, which is no longer online.

“The mistakes made by the public with regard to public debt (national debts) are threefold. In the first instance, the public relies heavily on politicians and the media to tell them what to think.

Secondly, the assumption is that the national government is no different than a household, and so, if the government goes into debt it must earn enough income to pay off that debt with interest, or it will become insolvent. This mistake is known as “the Fallacy of Composition” wherein the person is assuming that what is true for them in their individual case (the micro-level) must also be true for everyone including the national government (the macro-level). Thirdly, the assumption is that treasury bonds are issued to conduct fiscal policy; that is, to fund deficit spending.”

“The truth of the matter is that, though they are not aware of it, much of the politics-following public is utterly unqualified to assess any information given to them by the media concerning treasury bonds and national debts. The media feeds them information based on false assumptions …”

“If we follow the errant thinking to its totally absurd conclusion, we conclude that since most national governments have a national debt, and that since private debt levels are rising higher each year world-wide, then the whole world is in debt up to its eye-balls. We must then ask, “The whole world is in debt to whom?” and then the mass delusion reveals itself.”

“Other …. absurd conclusions are reached as well. For instance, the assumption is that since both the US government and the UK government have huge national debts, they are both broke. Yet, the assumption is also that somehow the broke UK government is lending the broke US government money at interest. Furthermore, it is assumed that China is lending the broke US government money at interest and that China does so knowing full well that the US government will spend that money to build up its military.”

“Stated plainly for the benefit of the public, without the national government issuing bonds and without the national government also giving investors the money to purchase the bonds through deficit spending, the bond market would not exist. The bond market exists only because the national government causes it to exist. As the national government is the monopoly supplier of currency for the nation, and as that currency is inconvertible and floats freely on an exchange, if the national government chooses to issue treasury bonds, then it alone controls the interest that it pays on its bonds, not the bond market. However, as we now understand, treasury bonds in the modern era are an anachronism and currency-issuing national governments should cease issuing them.”

Source: The GIMMS, 6 January 2019 https://gimms.org.uk/2019/01/06/bondmarket-doesnt-control-anything/