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Which is why a "fiscal stimulus" package funded by selling bonds domestically is taking money away with one hand to return it with the other.

But presumably money that is available to be put into bonds is of low stimulus multiplier value, whereas direct public spending on - say - railways (to pick a totally random example) has a high multiplier effect.

Besides, if the central bank is maintaining a bond rate target, then the bonds that the state sells will just be bought back by the central bank. Selling bonds depresses prices, which drives up interest rates. Central banks, wanting to lower interest rates during a recession, will buy up bonds (which raises the price of bonds, i.e. lowers the interest rate). (Assuming perfect, efficient markets, perfect, symmetrical information, yadda, yadda.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 3rd, 2009 at 11:10:16 AM EST
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