Public Debt, Monetary Policy and Financial Stability

The Banque de France’s Financial Stability Review has a set of essays on this topic from a range of experts – here.

3 replies on “Public Debt, Monetary Policy and Financial Stability”

interesting turn of phrase “range of experts”.

Perhaps commentators would be a less contentious description

In Section 5 of the document the author gets close to the root of the debt crisis problem.

”What ultimately secures the risk-free status and hence
the liquidity of sovereign debt?…the sovereign
always retains control over the money printing
press and therefore cannot default on its debt…
sovereigns that have transferred their monetary
sovereignty to a supra-national central bank (as in
the euro area) cannot issue intrinsically safe debt…”

The ability to print money used to be a real benefit to Governments. The Central Bank’s ability to create money through ledger entries was less significant.

However, with only 3% of the Eurozone M3 money supply existing as cash the Governments ability to print money and issue it free of debt is negligible while Central Banks, and commercial banks, can only issue new money by recording a corresponding debt.

This is a hugely significant detail and yet it has happened through arbitrary advances in our electronics payments system and not through careful consideration by economists.

However we could replace the Government’s lost ability to issue debt-free money with a modern day digital equivalent. This could be done by carefully creating debt free digital money directly into Government’s bank accounts.

Paul Ferguson
Sensible Money

Central bank independence also means political independence and thus ultimate political power.
CBs at least in theory only control the credit system , they do not or should not control the money system as it is the Treasuries that print.

Turning states into creatures of the bond market is a abomination , if these people want a extractive rate of return they need to stay away from public goods & services……money is the ultimate public good.

Money expressed as a recognized medium of exchange is a political construct.

If the CBs won’t play its the duty … I repeat the duty of exchequers to print fiat paper independent of the banking system and make it the sole vehicle for payment of taxes.
This will cut the banking system off from the state……they appear to want this but lets see how they can function when the money power is also the states power.

We are dealing with a den of vipers here.

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