Robin Gothis Wigglesworth over at the FT wrote a piece last week on the boom in US commercial banks lending to shadow banks, and not direct to business. Well la-di-dah I thought, I know why. So in response to his promo on Link Din, I wrote the following:
There’s a simple explanation. Federal Debt issuance. A portion of the buyers of the debt are hedge funds buying to fund carry trades. They use margin and repo to fund the buying.
Not all of the carry trade funding is in this class. Some is repo and other sources. So it’s not 1 to 1, but the directional correlation is perfect.
This is how government debt is instant money, through the miracle of private debt financing government debt, which is then converted into deposits.
It’s borrowed into existence, funneled to the US government, which spends it in the ensuing weeks. Government payment recipients deposit the cash in their checking accounts or money market funds.
Depending on fiscal and monetary policy choices the result is always inflation. Sometimes consumer goods inflation, housing inflation, financial asset inflation, or 1, 2 or 3 of the above.
Government debt is money printing 101. It shows up everywhere. If you look for it, you’ll see it.
Robin Gothis Wigglesworth over at the FT wrote a piece last week on the boom in US commercial banks lending to shadow banks, and not direct to business. Well la-di-dah I thought, I know why. So in response to his promo on Link Din, I wrote the following:
There’s a simple explanation. Federal Debt issuance. A portion of the buyers of the debt are hedge funds buying to fund carry trades. They use margin and repo to fund the buying.
Not all of the carry trade funding is in this class. Some is repo and other sources. So it’s not 1 to 1, but the directional correlation is perfect.
This is how government debt is instant money, through the miracle of private debt financing government debt, which is then converted into deposits.
It’s borrowed into existence, funneled to the US government, which spends it in the ensuing weeks. Government payment recipients deposit the cash in their checking accounts or money market funds.
Depending on fiscal and monetary policy choices the result is always inflation. Sometimes consumer goods inflation, housing inflation, financial asset inflation, or 1, 2 or 3 of the above.
Government debt is money printing 101. It shows up everywhere. If you look for it, you’ll see it.
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