Is this an EU “we can’t set our own monetary policy, we have to ask the ECB nicely to do it for us” thing? Because the idea of a state [of a country whose populace are not, themselves, in an economic crisis] being unable to just make up some money to give people (in the form of e.g. T-bonds), sounds very strange to my ears—almost harkening back to a gold-standard era, where states that couldn’t find precious metals to dig out of the ground could run out of raw materials to mint new coinage out of.
Is it just that French treasury bonds aren’t valued at at-least-par on the market? Is the government of France a bad/risky investment in the eyes of mutual-fund portfolio managers, something not to base the stable part of their portfolios around? (If so, what do French portfolio-managers use as stability? Other governments’ T-bonds?)
(HN is probably not the place to get into an answer of the level of detail appropriate to these questions, so I’d appreciate links to resources answering them!)
> Is this an EU “we can’t set our own monetary policy, we have to ask the ECB nicely to do it for us” thing?
It's more of a "Screw you, we make the rules. What are you going to do, sue us?" thing. The French government is notoriously one of the worst employers in the country. Think unpaid overtime, hiring undocumented workers, low wages, arbitrary requirements, etc.
It's not all bad, but french government agencies notoriously have a bit of a "labor laws don't apply to us" attitude.
> It's not all bad, but french government agencies notoriously have a bit of a "labor laws don't apply to us" attitude.
That is sooo true. They give themselves exemptions on so many of their own laws and rules.
Just as an example, junior med students working all mornings in public hospitals are paid below both minimum wage and minimum internship compensation.
In some hospitals, students realised they were paid less than the bonus security guards had for having a guard dog.
They also run residents (7th+ years medical student) on schedules that violate both minimum recovery time and maximum weekly working hours. But they have their own special rule too.
And that’s just the public health sector.
It’s just so wonderful. I too wish I could make the rules for everyone.
Really kind of funny/interesting how the US Federal Gov/US private sector are exactly swapped. The federal civil service (the military/intel agencies are a different story) has a very strong union and gov workers are very well known for doing exactly what is required, but nothing more ("good enough for government work"). Meanwhile, wage theft in the private sector is rampant.
> The federal civil service has a very strong union and gov workers are very well known for doing exactly what is required
That's also something we have in France, with big unions like teachers' and railway workers unions (we've gotten a few nice strikes where all the trains stop for days and I think we're due one soon, I guess once covid's dealt with). And the good enough attitude certainly exists here too!
> It's more of a "Screw you, we make the rules. What are you going to do, sue us?" thing. The French government is notoriously one of the worst employers in the country. Think unpaid overtime, hiring undocumented workers, low wages, arbitrary requirements, etc.
I think you made the best answer to explain my mind, thanks!
> make up some money to give people (in the form of e.g. T-bonds),
That's borrowing money.
Making up money to give people is monetizing government finance (print money, spend money, no borrowing), which states with their own fiat currency can also do but traditionally refrain from and pretend to be using a commodity currency that needs to be borrowed because it makes people more comfortable (even when central bank operations end up amounting to just making up money and tossing it into the economy, in a more opaque manner; its kept both opaque and segregated from financing state operations.)
To make this more concrete, the money printer moment in the US is when the federal reserve (central bank) buys the treasury bonds. The cash spent is recorded as a liability, and the bond as an asset in the balance sheet. The cash is created out thin air.
It's all far more complex than needs to be, as PP says.
I like to imagine some Feynman diagram situation where electrons and positrons can spontaneously emerge in pairs. The circulating money and the debt in the central bank balance sheet are the complementary pairs.
The "quantity of money" is a non-concept because only the "net charge"---which is 0 (!) in theory---is preserved.
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The older mechanism is the treasury department making coins. The treasury department doesn't have any sort of corresponding "debt" written down when it does so. This is where the "trillion dollar coins" idea comes from.
I suppose the net money is not actually 0, but whatever it was when we came off the gold standard? Who knows!
Yes! There are soft-money types that criticize charlatanism for characterizing the the government as too distinct from other credit-granting institutions (descriptively, not prescriptively).
That said:
1. I am unaware of any fractional reserve requirement on the Fed, at least one that matters in practice.
2. I am unaware of any time frame in which the outstanding debt needs to be paid back.
All this stuff is quite confusing though, I hope to understand the epicycles here more completely someday, if only to better argue the complexity is accidental, not essential.
Very oversimplified is that the Fed is basically nowadays does "NGDP targeting" with a huge emphasis on as close to full employment as possible.
If the Fed would "pay back" its liabilities (loans), almost all money would disappear. (AFAIK there are some old legal tenders that are not Fed issued.) The central bank is there to supply the money needed to maintain a steady money supply. It's designed to hold that debt.
The basic formula is MV=PQ (money supply * velocity of money = price * quantity). As the economy expands it's natural that it needs more money to maintain the same price level. The central bank then targets a slight increase in prices (to have the steady ~2% inflation) and issues money accordingly.
The Fed transitioned to a zero fraction regime on 2020 March ( https://www.federalreserve.gov/monetarypolicy/reservereq.htm ) It was an unused tool anyway. Now the Fed uses interest on reserves (IOR) and discount rate to guide the fundamental rate. (Discount rate is the rate at which the Fed gives a loan. IOR is the minimum rate, literally free money from the central bank, discount is the maximum of the range. Banks call each other up to get loans, obviously they will ask for rates above the IOR/free-money rate.)
I get that's it's a bit different that what GP said, but isn't that also a viable solution for the problem of "not enough money right now to pay wages but in a few months there will be so wait for then." ? Borrow money, pay wages on time, when that lump of money comes in that would allow the paying of back pay, use it to pay off loan (or set it aside to pay off portions as they come due).
This seems deeply misguided if that’s the reason the are delaying, because owed payroll is also a debt. If you can sell bonds with a negative interet rate, issuing bonds to pay your payroll debt whole makes you richer!
> Yes, they are free to sell debt. Doesn't mean it's a good idea to just get yourself in ever increasing debt.
A state is not a person and can get in debt indefinitely without never reimbursing capital since a state is immortal and can easily reimburse its previous debts with new credit.
The only reason you, as a person, can not have that much debt is because the bank knows that you'll die, but rest assured they would gladly loan you millions if they knew you'd have revenues (taxes) forever.
As a rule of thumb, it's wrong to think that a state should be managed like a home budget or like a company. They are very different (and complementary) economical actors with extremely different properties and goals.
One could even argue that a state with too much spare assets can be seen as morally incorrect as long as unresolved socioeconomic issues exists. And they exists everywhere.
States are no more "immortal" than corporations. Plenty of states have either ceased to exist or repudiated their debts, leaving their creditors without recourse. If a state allows its debt to keep compounding, eventually it will find itself spending every cent of taxes it's capable of raising just to service the interest on that debt—and if anything should happen to shake creditors' confidence in its ability and/or willingness to repay those loans then the government becomes unable to borrow new money to repay its old debts and the entire Ponzi scheme collapses in on itself.
Oh, and issuing new currency to repay the loans is functionally equivalent to defaulting on the debt. Creditors will not lend to you if they expect that you may attempt to pay them back with money which is worth significantly less than what you originally borrowed. A smart creditor will just index the payments to something you can't easily manipulate.
> Because the idea of a state [of a country whose populace are not, themselves, in an economic crisis] being unable to just make up some money to give people
but, it's a debt, it increases how broke is the state (in France it's super super badly seen to have any debt, even if financially it is considered an asset, socially the word "debt" is considered as an absolute evil)
as French, I don't really see debt as an evil word (well, depends on the debt, perhaps: debt to buy an asset or realize a project, no, but debt that's taken on to pay for normal operations, like most of the debts of the French state, that's a little more problematic).
Is this an EU “we can’t set our own monetary policy, we have to ask the ECB nicely to do it for us” thing? Because the idea of a state [of a country whose populace are not, themselves, in an economic crisis] being unable to just make up some money to give people (in the form of e.g. T-bonds), sounds very strange to my ears—almost harkening back to a gold-standard era, where states that couldn’t find precious metals to dig out of the ground could run out of raw materials to mint new coinage out of.
Is it just that French treasury bonds aren’t valued at at-least-par on the market? Is the government of France a bad/risky investment in the eyes of mutual-fund portfolio managers, something not to base the stable part of their portfolios around? (If so, what do French portfolio-managers use as stability? Other governments’ T-bonds?)
(HN is probably not the place to get into an answer of the level of detail appropriate to these questions, so I’d appreciate links to resources answering them!)