Arlingclose’s Post

The borrowing mix is a delicate balancing act of the government. There is a need to better manage foreign exchange risks entailed in foreign borrowings. Local borrowings may still be optimized for as long as the national government does not crowd out other borrowers from the private sector. External borrowings may still be needed in the mix to diversify funding sources. Tthe market is still relatively liquid as manifested by the continued growth in M3 or domestic liquidity. https://lnkd.in/g3T4ZeSZ

#CentralBank Finance Minister Ahmed Shide's report to Parliament on the introduction of five-year treasury bonds to curb the widening budget deficit should have ignited debate. With a deficit surpassing four percent of GDP, the shift towards mandatory domestic borrowing should have concerned MPs about the sustainability of his policies. Is his strategy a prudent fiscal management move or a precarious path to macroeconomic instability? READ MORE https://ow.ly/i9PJ50QRXvZ

GDP, Public debt, Foreign investment, Car industry support, Markets, the BOE financial stability report, mortgages, tax, insolvencies & more business news that we thought would interest our members. https://lnkd.in/eANc-nfp #businessNews #creditmanagement #finance #smallbusiness #latepayment #insolvencies #economy

From a macro perspective, this announcement by policymakers to borrow Rs. 6.61 trillion from the market for H2 FY25 gives investors an excellent chance to diversify from an equity-led strategy to one that is sustainable and more long-term, while also ameliorating the imbalance in the liquidity landscape. https://lnkd.in/dcNAvRDb #Economy #Growth #Investment #Liquidity

This makes for slightly gloomy reading. Not sure what impact this will have on the expected reduction in interest rates, but let's hope everyone sees an improvement on this financial squeeze which we are all feeling. #erbinsurance #commericalinsurance #insurancebroker #localbusiness #localbusinesses

Fiscal Dominance ... ... There’s no single best way to quantify it, but if I had to point to one set of charts, I would say that fiscal dominance occurs when annual public deficits exceed the sum of annual net bank lending and annual net corporate bond issuance on a sustained basis, especially without having been caused by a recession. Fiscal deficits can temporarily exceed bank lending and corporate bond issuance after major recessions and times of crisis, but where it really becomes sustained in a developed economy is typically when public debt gets to over 100% of GDP, interest rates reach zero and start to trend sideways or up, and thus the government’s interest expense starts to become rather large even at modest interest rate levels. It becomes a slow-motion fiscal spiral at that point, unless or until the debts are significant devalued vs other assets. The only times that U.S. fiscal deficits exceeded private sector credit creation outside of a post-recession period within the past 70 years were in the recent green boxes in the charts above (Lyn Alden). see: https://lnkd.in/gEhKDNAp

MMT (Modern Monetary Theory) argues that in "monetarily sovereign countries" government spending is not constrained by immediate revenues but is managed through fiscal tools to ensure economic stability and control inflation. This challenges traditional views that prioritize balanced budgets and debt aversion. Below is the framework of money creation and flow according to MMT: 1- Spending First, Funding Second: The traditional view is that the government needs to raise funds via taxes or borrowing before spending. However, the Modern Monetary Theory (MMT) perspective suggests that government spending actually creates money first, and then the government can manage this by taxing or borrowing. 2. Balance Sheet Mechanics: When the government spends (e.g., stimulus checks), it effectively credits bank accounts, increasing reserves at the Fed. This increases the net worth of the private sector as the government’s debt grows. 3. Treasury Securities and Asset Swap: Issuing treasury bills (T-bills) is viewed as an asset swap. The government exchanges cash in the economy for T-bills. This doesn't create new net worth but changes the composition of assets in the economy. 4. Primary Dealers: Primary dealers are banks that facilitate the initial purchase of T-bills during Treasury auctions. They often need to secure funding for these purchases. 5. Repo Market: Repos (repurchase agreements) are short-term loans where T-bills serve as collateral. Primary dealers use repos to obtain the necessary funds to buy T-bills. This can involve creating new money if banks are involved in providing the funding. 6. Reserve Transfers: The actual transaction with the Treasury involves reserves. When the Treasury receives payment for T-bills, these payments are made in reserves, which are the central bank's liabilities. 7. Bank Balance Sheet Expansion: When a bank creates money through lending, it expands its balance sheet. This means both its assets (loans) and liabilities (deposits) increase. In the context of funding T-bill purchases, this expansion facilitates the necessary liquidity. This framework shows how fiscal actions (spending and borrowing) intertwine with monetary mechanisms (creation and transfer of reserves), illustrating the critical role of both the Treasury and the Federal Reserve in managing the economy’s money supply. #Monetarypolicy #Fiscalpolicy #Banking #Saudivision2030