Amid
harsh discussions about FED’s new-type of bond buying, new concerns aroused on
the Bank of England’s unusual monetary policy. As Jo Owen writes:
“After
buying £325 billion of debt from the market, the public sector (the Treasury)
is paying interest to itself (the BofE) on debt that it owes to itself. It
makes no sense for the public sector to owe itself money.”
The two famous Economist.com
blogs host interesting discussions on the topic. Buttonwoods argues that this uncovers monetary repression
of the central bank. Commercial banks need bonds issued by the central bank for
beefing up their capital and liquidity ratios and furthermore, it serves as a
life vest in odd times when commercial banks need the lender of last resort.
Share of state bodies in bond markets are increasing contrary to decreasing
share of private sector which is the probably lowest since 1970. In her comment
on Bloomberg Carmen Reinhart closely focused on this:
“That,
too, was a period of rising oil, gold and commodity prices, negative real
interest rates, currency turmoil and, eventually, higher inflation.”
Another
blog from Economist –Free
exchange, recommends different point of view. It suggests to see “a
temporary bout of money-financed fiscal policy” as Milton Friedman’s
“helicopter drop” of money. When the policy rate is near zero and can’t be
reduced, for the sake of boosting the economy this kind of measures can be taken,
of course temporarily-argues the blog.
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