9 Comments

Surprised there are no comments yet. Please continue your hard work. Very enlightening.

Fiscal policy impact in the markets is not yet widely discussed, and your work provides a nice framework for it.

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Thank you, Cristobal! I am glad you enjoyed it. I am very excited putting this tool to work.

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Is treasury debt issuance creating net savings if those buying bonds have less net cash? Or is the idea that those treasury securities can now be pledged for more borrowing or activities so there really is no change in their balance sheet situation?

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The latter if I understand your question correctly. Savings can be held in claims against the treasury or in the form of claims against the Fed. For private sector consumption and investment decisions, it doesn't make much of a difference where those savings are. The interest rate balances preferences for either.

These savings can be pledged explicitly or implicitly. If your bank account is fuller, you will spend more or make more daring economic decisions in general. I wrote more about this here if you are interested: https://www.fallacyalarm.com/p/money-supply-liquidity?utm_source=substack&utm_campaign=post_embed&utm_medium=web

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Gotcha makes sense. Seems like the discrepancy comes from the view that treasury issuance is a drain on liquidity when it actually isn’t?

Just making sure I full understand. Really appreciate your views!

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Treasury issuance in isolation doesn't do much to liquidity as the money just ends up in the Treasury General Account. From the private sector perspective, it's merely a swap from bank deposits to Treasury securities. It becomes a liquidity injection in conjunction with deficit spending. That's the moment where the liquidity is printed.

Thank you, I'm glad you appreciate my work!

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Amazing

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Loved this piece. I've been combing through your articles and I felt my brain click on this one lol. Those color-coded tables made it very easy to see and understand the importance of fiscal flows and their seasonality and cyclicality.

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Thank you, Diego! I was also very happy with this article. Clarified a lot of my thoughts while working on it! :)

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