Our friend (friend, right...?) Brendan Greeley is back with his wonderfully apt, smart and informative FT columns #1561324, #823739 #850724

Here's one that could have been written by Nik Bhatia (#1477894, #1476043, #1471781): money market plumbing, treasuries and their moneyness!

"monetary dominance against fiscal dominance."

Under monetary dominance, the government is constrained as it spends money. It can’t sell more debt than the public demands. When the public stops demanding, interest on government bonds rises, and the government stops borrowing. This leaves the central bank a free hand to manage inflation by buying and selling government debt.
Under fiscal dominance, the government simply borrows what it wants, spends what it wants, and leaves the central bank with an unpleasant choice. It can buy bonds, bringing the government’s cost of interest down but risking inflation, as the Federal Reserve did during the second world war. Or the central bank can let the politicians fight it out with the market, risking collapse in the value of the bank’s own portfolio and . . . inflation.

Wonderful summary of Sargent & Wallace's Unpleasant Monetarist Arithmetic article... and the nothing-stops-this-train/fiscal dominance stuff.

PROBLEM?

there’s a wormhole the government can slip through. If the demand for sovereign debt can’t be sated, then the government isn’t constrained. It can borrow and spend and borrow and spend.

'Murica mastered that shit, as it mastered everything else:

Washington was both fiscally dominant and not constrained by the cost of debt, a condition so solid and stable it seemed like the result of a physical law, and indeed as it continued it encouraged a new discussion. Were Treasuries debt or money? Did the Treasury sell its bonds, like a security? Or did it simply issue them, like currency?

"Treasuries had what economists call moneyness."

• liquid (like money)
• risk-free (like money)
• traders even called them "cash" (when exiting another trade for Treasuries)

...historically a maddeningly flexible word that can accommodate anything in any century people think of as money. Commercial banks and the Fed haggled over whether Treasuries had the same secure status as America’s base money, the Fed’s own reserves.

(yes, we know; we read the book = #1561324)

"It was difficult to find the limits of global demand for dollar-denominated assets with moneyness, which gave economists and politicians the luxury of treating Treasuries like they were both securities and money, a special phenomenon with its own properties."

After various historical interludes (Civil War, Great Depression, early Colonies) of inventive and novel monetary arrangements

Each time, however, the old Hamiltonian system reasserted itself: bonds were securities, sold to investors for the ready cash of banknotes and bank deposits.

"There are many explanations for the rise in yields on Treasuries"

• Yields are going up for government debt around the world.
• The US has no apparent plans to reduce deficits.
• A war has raised the price of gas, feeding into inflation.
• Debt for data centres is competing for cash.

"All of these are real, but they don’t completely explain the slope of the rise in Treasury yields right now."

I like the explanation for yields going up being... "yields are going up for government debt around the world" oh yeah, cool, so that explains why they're going up, govnor?

One of the things that made Treasuries so money-like is that yields changed slowly, stabilising their value. It’s possible that after several decades, all of these problems together have suddenly eroded the money-like liquidity of US debt; the moneyness is getting squeezed out of Treasuries again.

===

"Sargent and Wallace were always right. Under fiscal dominance, inflation is coming one way or the other, and the central bank has no good choices."

archive fucked, here's gift link = https://giftarticle.ft.com/giftarticle/actions/redeem/b7523a97-5e09-4c66-8baf-765b60ffa905