Fear of Government Debt vs Private Debt

[Joe Leote]

Steve Keen explains why conventional economists are wrong about the respective fear of government debt versus private debt: 

Is government debt getting out of control? | Prof. Steve Keen

Joe

[Joe Leote]

The debate over bank reserves, primary auctions, and secondary markets injects some confusion in the talk. The main reason new Treasury auctions are better than secondary market purchases, both for banks and for non-banks, is that transaction costs are lower. Dealers in the secondary market impose transaction costs via the bid-ask spread.

When banks earn interest on reserves, the rate tends to be higher than T-bill rates, meaning rational banks don't want to hold T-bills as alternatives to the higher interest earning reserves at Fed. Primary Dealers are expected to "pay the tail" in a weak primary auction. The Fed ensures that there are always sufficient bank reserves to clear payment for Treasury auctions by doing repo with Primary Dealers or other firms who hypothecate existing Treasuries or other assets to obtain reserves when necessary for clearing the new Treasury auction.

Joe

[William Meyer]

Keen says governments are not constrained by the bond market?  Perhaps.

But are they not constrained by a combination of the bond and currency markets?

The history on overvalued currencies is interesting but not sure if I am in agreement.  The guilder/florin and the pound were pegged to gold so they couldn't be overvalued?  Instead perhaps he means the overall price level had gotten too high for their goods to be competitive or in other words they were too wealthy.  But people pursue wealth precisely because it allows them to get by without having to do as much of their own work as they did before.  Might as well just say 'wealth makes you lazy' which is true but it doesn't stop anyone from pursuing it.

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