There is a shortage of government bonds – and the way to solve it is for governments to borrow
Hmm, the FT:
A wide variety of investors and corporations prize the highest-quality government bonds for their cash-like qualities — and the near certainty of getting their money back. This demand has grown since the financial crisis as central banks hoover up a hefty slice of bond markets under quantitative easing programmes.
So why’s there a shortage? Because the central banks have a stock of bonds through QE. So, what should we do? Issue more bonds so that the central banks have to buy more to keep interest rates low? Or, if we need more bonds, why don’t they sell off their QE bonds?
Or, even, how can we say there is a natural shortage of government bonds when we’ve that artificial, engineered, shortage from QE?
Someone has got something wrong here. And let me suggest it is the politicians. The reality is that the demand for government bonds is real, continuing and unlikely to dissipate for a long time, with QE as a back top if it ever does.
But QE is the cause of the shortage……