COVID-19 QE money never needs to be repaid

[Frank de Jong]

Here's the explanation why much of the COVID-19 QE money never needs to be repaid. Fun with numbers, eh. Frank

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"Depending on how much quantitative easing the central bank does, the money so created can take the form of either government bonds or central bank reserves. ... 

Central bank reserves are different from government bonds in one crucial respect: while a government bond typically has a maturity date, making it look like it has to be repaid, central bank reserves never have to be repaid, in the same way that the government never has to repay a dollar bill.

In principle, a government, via the central bank, can always convert bonds into reserves, rendering moot the notion that it needs to repay its debt. Society generally curbs the government’s ability to do this, but that is a constraint to be loosened when it makes sense to do so.

But just because governments never have to repay their debt, does not mean they can run budget deficits and print money as they please. There is no fiscal free lunch when it comes to real resources. The government still faces the constraint that, if it creates too much purchasing power relative to the economy’s capacity to produce, it will cause high inflation.

The money that governments are creating runs no risk of causing inflation any time soon. Output has collapsed due to the pandemic-induced shutdown and much of the fiscal red ink is being spilt to buoy private sector incomes."

Source: https://www.omfif.org/2020/07/dont-lose-sleep-over-government-debt/

Don’t lose sleep over government debt - OMFIF Deficits are policy instruments www.omfif.org

[Jassal Devpreet]

Hi Frank,

I agree with what you wrote....................But just because governments never have to repay their debt, does not mean they can run budget deficits and print money as they please. There is no fiscal free lunch when it comes to real resources. The government still faces the constraint that, if it creates too much purchasing power relative to the economy’s capacity to produce, it will cause high inflation.

I add..............The government can print money based on ability of people to work and increase the GDP or factors of GDP.  People's willingness to work is the economy otherwise it would be stagnant.  So far the amount of money printed is speculative, the issuance of targeted bonds removes the speculation on printing money.  

Thanks for bringing in a nice topic, a topic of my interest.

As always with due respect,

Devpreet Jassal

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