The role of treasure bonds from a macroeconomic

perspective

(see also http://sehrglobal.blogspot.de/2013/01/the-role-of-treasure-bonds-from.html )

This consideration is limited to countries with strong economies, which can lent

money in their own currency

1) Debt and savings from micro-and macro-economic perspective

From a microeconomic perspective the loan is paid off with the last installment and

debts disappear. If the expenses exceed revenues, we must start to save.

From a macroeconomic perspective is it not this easy to save, because asset growth

and debt growth are coupled together. Less debts means less growth of assets,

means less profit and less economical growth1). This contradicts the logic of the

financial markets which always strive for maximum returns.

Money is always a narrow good, i.e. on the productive side is t the requirement of

money-capital always higher than the available amount of money-capital. The side of

debtors 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 of

debtors will deprive needed money-capital and bankruptcies will increasing. The

result 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 the

exponential growth in a monetary system, which is based on interest and credits

(fractional reserve banking).

2) the nature of public debts

The total of all debts consists of the public debt, it is the debtor with the particular

highest value of debt and the debts of the private sector, which consists of the debts

of corporations, the group with the highest demand of debts and debts of private

persons, the group with the largest number of debtors.

Public debts can theoretically be decoupled from the total of all debts. But if

simultaneous growth of asset is desired, the private sector must take over some of

the 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, he

reduces 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 to

takes over parts of the services.

One example: Part of the public welfare is the maintenance of infrastructure like for

example public highways. If the state stops this service, the private sector must

overtake it. The investor will not buy the highway by cash. He must finance the deal

by debts. The highway is then owned by a highly indebted private company, which for

sure must refinance the investment by tolls and reduction of labor costs. A person

who is driving on this highway will not get into debt by these tolls, but the money will

lack on other expenditures. What we don’t have to pay to the state (taxes), do we

have to spend to the private sector. But the costs are more individualized. The uses

of these services are much more dependent from the individual income.

As the states are the only institutions which can stabilize the deregulated financial

markets, they must spend at least money in the next crisis. The saved debts must be

reinvested for bank bailouts and the stimulus of economic cycles. Due to this

austerity measures are likely in vain. It simply dismantles public services and parts of

the national wealth will be privatized.

Conclusion:

We have the choice between a highly indebted welfare state or a state that has

reduced its services and largely privatized the national capital, which will be exactly

identical 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 of

money-capital inevitable!

3) Function of treasury bonds from macroeconomic perspective

Treasury bonds (and thus the national debt) meet from a macroeconomic perspective

two 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 constant

state demand.

In times of crisis, the state must bail out the banks and invest into countercyclical

stimulus of economical cycles - funded by borrowing. It is the only effective measures

to stabilize deregulated financial markets. The only price that the financial markets

have 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. The

creditors refund themselves. Their advantages are safe investment and safe returns.

They investing in public infrastructure and benefits from a safe community based on

welfare.

Conclusion:

As most of the money-capital escapes taxation by fleeing into tax havens and the

creditors refund themselves, treasury bonds can be considered as taxation of the rich

man.

This kind of redemption is neutral in revenue for the public and the citizens, as long

as all debts will be refinanced. If the public debts will be lowered, a part of redemption

of 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 higher

than money supply leads it to deficit spending.

4) Purchase of treasury bonds by the central bank

The central bank usually deals only with banks and not with non-banks. This rule if

the 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 a

deflationary crisis banks park a great part of the liquidity at the central bank. It is the

liquidity which was intended for the purchase of treasury bonds. The monetary

expansion of the central bank and the parked liquidity of the banks will balance each

other.

Once the financial markets becalm themselves, the parked liquidity will be again used

for the purchase of treasury bonds. The central bank takes back the additional money

supply 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 speculative

trading. 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 inflation

rate.

The opposite of inflation must be expected. Despite rising money supply we must

expect a deflation because the money is increasingly concentrated, which removes

purchasing power of the 99% citizens of lower income groups. In the long term

consideration leads this to the decrease in aggregated demand, which we call

deflation.

Conclusion:

While the largest part of money-capital remains in the speculative space and financial

markets tend to deregulate themselves further on, treasury bonds are the only

measure to return capital to the real business cycle.

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 of

trading imbalances which mainly causes the different indebtedness. As long as the

political hegemony keep our monetary system speculative, as long as they keep the

speculation against some European countries ongoing, as long we should share the

revenues. It is a question of the perspective if we want to see it as costs or as

investments.

Germany is in the middle of Europe. Germany's is vice world champion in exports

and Germany exports most of its goods to other European countries. No other

country is dependent on the welfare of Europe like Germany. If the European

neighbors go into recession, Germany will follow and the German mainstream media

and the German orthodox economist will start to discuss about Germany’s waste

expenses like they now do for Greece.

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, we

should change the behavior. It should be different to that what we may perceive

through the German mainstream public media. Europe must speak with one voice.

Which currencies are more sustainably and stable than the EURO? The financial

markets are dependent on a stable currency like the EURO. If they speculate against

the EURO, they speculate against themselves. So the financial markets will accept

the measures which must be taken to stabilize the EURO zone. Speculators are

willing to pay a price for this stability. Europe can be confident to offer help to the

financial markets in the way to them from themselves, by depriving them the object of

their 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 bonds

And 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 exceeded

These are the answers the financial markets ask for!

Summary

In the current monetary system is it not possible to save ourselves out of debts, we

can only growth out of the debts. In a macroeconomic perspective is it only possible

to avoid the exponential growth of debt in a reasonable way if we reform our current

monetary system (monetary reformation - click here) .