Of that purchase package at least €10 billion is German government debt, and the simple fact is that there’s not enough of it around to make that an easy task.
This though is potentially just the start of the problem of a shortage of high quality government debt. As I noted a while ago, the same debt that governments are buying using largely misguided QE policies that have little sign of now working are exactly the same assets that much of the world’s capital is looking for as a safe haven. QE is then spiting the market that wants more debt by going out and cancelling it.
The answer is, of course, obvious. First, we need more quality debt. That means government must create more.
So, the point of QE is to raise the value of government debt in order to lower the yield on it. This lowers long term interest rates by restricting the amount of zero risk assets (OK, low risk, but that’s the jargon term) and thus forces investors to move out along the risk curve in search of yield. This is the point and purpose of QE: to stop people buying government debt and force them to buy riskier assets.
Ritchie’s solution to this is to insist that governments should issue more government, ie zero risk, debt in order to force down the price and up the yield so that people will come in along the risk curve and thus long term interest rates will rise.
You’d think none of this should be rocket science. Apparently it is to those spending billions. Which is probably the most worrying thing.