3 responses to “Are Government Bonds Just Another Form of Money?

  1. It’s the same with £50 notes tbh. You’d struggle to pay for your petrol with them.

    And of course if you take your deposit account pass book from your building society into the petrol station, they won’t accept that either. Does that mean that doesn’t contain any money either?

    Or the cash card from your basic bank account that you have because you are poor and have your benefits paid into it.

    Both of those could have more money in them today (because you received interest) or less (because you got charged for an unauthorised overdraft).

    Having to take a step to transform what you hold as money into something you can settle a debt with is a standard process. And as long as the process is fully liquid (an ATM cash machine, or holding a bond where there are statutory market makers that have to bid for your bond), then I would argue you have ‘money’.

    What stops people spending is perceived loss of liquidity – being asset rich and cash poor. Modern financial processes are all about increasing liquidity so that more and more assets result in actual spending power. You could argue that ebay and cash converters have turned garage junk into money.

  2. Peter-

    Let us not forget that other time deposits are included prominently in the money supply aggregates, M2 or M3 (depending on which country) include 6- mo CDs at private banks. CDs are even less “liquid” then T-bills, but the mainstream considers them “money”. Why on earth would my $1000 in my checking account be considered to have “disappeared” when I put it into a 6-mo savings account at the national public bank but not when I put it into a 6 mo savings account at some random commercial bank? It makes no sense whatsoever.

  3. What’s preventing you from “going shopping, bar-hopping, or on vacation to Miami” with your bank credit created out of thin air, backed by a bunch of T-bills?

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