Wednesday, 20 August 2014
What will Rogoff make of Germany’s 0% bonds?
Kenneth Rogoff, Carmen Reinhart and a variety of other ignoramuses (most of them at Harvard) have spent years warning about the alleged perils of excessive national debts. But what is “debt”?
Well it’s simply a liability of the state, or a debt owed by the state to the private sector on which interest is normally paid. But then base money is exactly the same thing, i.e. a liability of the state, except that no interest is paid on it.
So the lower the rate of interest on debt, the more do “debt” and base money become the same thing. Put another way, the more it becomes a nonsense to distinguish between the two. And that’s all very much a statement of the obvious for advocates of Modern Monetary Theory (MMT).
But now Germany has issued 0% bonds. Which will have Rogoff and Reinhart completely baffled. A 0% bond is essentially base money and not debt. Indeed, if Germany carries on this way, it’s debt will disappear. And that will have R&R baffled.
I’ve no doubt they’ll be scratching their tiny heads over this right now, plus I predict they’ll publish an article in a month or two which will consist of nothing more than an illustration of the fact that they’re stumbling and fumbling their way towards an MMT view of the world. Or perhaps they’re so utterly hopeless that they’ll never get there. We’ll see.