Almost all Swiss federal bonds issued by the Swiss federal gov’t have a negative yield, so do the Swiss people still think of those bonds as the federal gov’t ‘borrowing’ (?)
Do Swiss ‘deficit hawks’ think that further Swiss gov’t bond issuance that increases federal debt (that *literally* makes money for the Swiss gov’t)…is…’unsustainable’ (?)
Take a look at a bill from inside your wallet. You are staring at a zero-coupon perpetual bond issued by your federal gov’t. Do you consider that as your federal gov’t being in ‘debt’ (?)
A recent WSJ graph titled ‘Sub Zero Switzerland’ showed that yields on Swiss gov’t bonds were even lower than America’s, Japan’s and Germany’s gov’t bond yields.
Which one of the four countries is NOT like the other?
If you said ‘Germany’, no need to read any further—see you at the oceanfront luau buffet at sunset.
For the rest, may I explain, of those 4 countries, Germany is NOT a monetary sovereign…
Germany is a sovereign, yes, but not a monetary sovereign like Japan, the United States, or Switzerland…
Germany is like a U.S. state, sharing a currency with other sovereigns, within one federal monetary sovereign…
So for a non-monetary sovereign like Germany (a currency user),
to be included in the same graph with Japan, the US, or Switzerland (a currency issuer),
…is like comparing apples to oranges at best; or at worst it doesn’t give the credit that a Eurozone ‘member state’ actually being in the same ballpark as a monetary sovereign, is due. In fact, in the article, the WSJ narrative was that Germany was “outdone” by Switzerland. Here’s a reality check on that WSJ narrative: In 2015, Germany, a member state of the Eurozone, had the US dollar equivalent of $1T in government revenues, which worldwide, was ranked third, only behind China ($2T), and the United States ($3T), while Switzerland was way down that list at $175 billion.
The German federal government, a member state of the Eurozone, just like any US ‘member’ state or US state gov’t, just like any user of currency, needs to ‘get’ currency from someone else to finance deficit spending in that currency. Switzerland, however, an issuer of currency, unlike Germany, doesn’t need to ‘get’ that currency to finance deficit spending. The Japanese federal gov’t, the issuer of currency, unlike Germany, doesn’t have to ‘borrow’ currency to deficit spend in that same currency. The United States federal gov’t, the issuer of currency, unlike a US state gov’t, unlike Germany, unlike any users of currency, doesn’t have to ‘borrow’ that currency, from anyone, not anymore, not since become a monetary sovereign issuing a pure fiat currency.
Those German gov’t bonds are actual ‘debt’ (because they are denominated in a currency that, as a non-monetary sovereign, Germany cannot issue). Those Japan, US, and Switzerland federal gov’t bonds are not actual ‘debts’ (because they are denominated in a currency that, as monetary sovereigns, they can issue). Those Japan, US, and Switzerland federal gov’t bonds are nothing more than accounting entries, ledger postings, ‘debits’, that consolidate a balance sheet to simply keep record of the newly-created fiat currency that was added, that was ‘credited’, to the non federal gov’t. To help remove the specter of ‘debt’, so that policymakers can enact productive, desperately-needed, counter-cyclical fiscal measures that would stimulate their economies, perhaps Japan, the US, and Switzerland’s ‘debts’ should be called ‘debits’ (?)
Those German gov’t bonds are actually part of what is called the ‘credit markets’ because like the bonds of any other non-monetary sovereign, business, or household, those bonds could default, there is credit risk. As users of currency, any non-monetary sovereign, business, or household could become insolvent—it could ‘run out’ of currency. However, the federal gov’t bonds of Japan, the US, and Switzerland will not default, unless intentionally by nihilistic politicians, so there is practically no credit risk. Any monetary sovereign, as issuers of a currency that is not convertible and free-floating, could never become insolvent—they will never ‘run out of currency’. So that the people could stop seeing their federal gov’t less as ‘borrowing’ currency, and more as offering a service of ‘safekeeping’ currency, as a seller of term deposits, more like fully-insured central bank CDs, perhaps the marketplace for Japanese federal gov’t bonds, US federal gov’t Treasury bonds, and Switzerland federal gov’t bonds should just be called the ‘debit’ markets (?)
(So that people like central bankers, politicians—and WSJ reporters—don’t confuse them.)
Thanks for reading,
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