Are bond vigilantes in charge?

[00:00:00] The fact of the matter is stunningly simple. If you had your financial house in order, then there would be no vigilantism. There would be no need to be worried about vigilantism. There would be no need to worry about people putting on the other side of the bond trade. And not one of these countries, not the UK, not Japan, not France, not the United States, not China, arguably Germany is a different case, but not one of these countries has got their fiscal and their

[00:00:29] debt to GDP house in order. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie. Well, that is one of the hosts of CNBC's Squawk Box saying that it's government debt that has been pushing bond yields higher and the bond vigilantes are making a judgment on them. So does that mean bond traders are in charge now, not governments? Is democracy in the hands of the trading room floor? That's this week on the Debunking Economics podcast.

[00:01:06] So Steve, I want to revisit bond yields again this week, only because they keep on rising. And in fact, they are rising to levels now that we haven't seen for decades, just about all over the world. And there's two reasons being given for this. One is obviously that they're rising because the market is following the central banks. The central banks are putting in interest rates because they believe that, spuriously, that they can control supply led inflation by increasing the GDP.

[00:01:35] Increasing interest rates. And maybe we can talk about that. But the other one is, but I mean, they've had interest rates higher before and bond yields haven't been this high. I mean, we're talking 30 or 40 years in some cases that bond yields have not been as high as they have been over the last week or two. And so the other reason that's been given is that it concerns about too much government debt. There's just too much issuance going on. That's the perennial mistake people make. But nonetheless, yeah, it's amplified in current conditions.

[00:02:03] Yeah, exactly. Rightly or wrongly. And you're saying wrongly. Yeah, I will. Because, I mean, you've got an argument. What controls the dog? Does the tail wag the dog or does the dog wag the tail? The tail wagging the dog, isn't it? Yeah. And in this case, the dog being the Federal Reserve, the dog being the central bank of a country which issues its own currency.

[00:02:24] And in that case, the mechanics of how government financing are conducted such that the apparatus of the central bank and the treasury together can guarantee that either the bonds will be sold in a primary auction or there'll be a backstop and the central bank will buy them. It's nothing like a situation where a private company puts out a bond, because private companies do, of course, as well, and they'll get them underwritten.

[00:02:53] But there'll be limits to what the underwriter will take on and there'll be cost concerns at the underwriting. In this case, the underwriting is done by the government apparatus itself and the charge they charge for that is zero. So to me, it's just not knowing that they think the secondary auction, which is the dog's tail, wags the dog. Right. But they do let the tail wag the dog. They do. We don't have to.

[00:03:18] But this is the sort of idiots we've got in charge of our central banks have been trained in neoclassical economics and thereby have had an intellectual lobotomy. Right. So you think that if they issued bonds at a lower rate, at a lower yield, at a low interest rate, they'd still get sold? Well, I mean, it's more complicated by the fact now that the parent of the Federal Reserve lays anybody bid in a primary auction. And Richard Vague told me of this recently. I don't keep up with the legal mechanics as much as I should.

[00:03:44] But it appears that the primary auctions used to be restricted to banks or then with institutions just with accounts at the central bank. Then it was opened up for non-bank financials. Now, apparently, you can just make a bid to buy them. So the people who are buying it do. And if you're a non-bank financial institution or you're a private individual, then you will be saying, what gives me a better yield? The primary market or the secondary?

[00:04:11] But isn't it the case of the secondary market has bond yields and 10-year treasuries have been up over 5% the last week or so, quite a bit over 5%. So if the secondary market is trading with yields of 5% and the central bank is saying, well, I'll tell you what, our interest rate is going to be following that. You know, we might be 4.5% or 4.75% or whatever.

[00:04:35] That 4.5% is what a commercial bank will get paid for the cash it keeps in reserves. So it's going to have no interest in paying less than 4.5% for a government bond, is it?

[00:04:50] So they sort of have to follow – and the central bank is also following the tail wagging from the secondary market because it's taking a leave from that and saying, well, this is our measure of how the economy is being seen by those people operating within it. Yeah, and this is the problem when you have people who manage the system but don't understand the system. And that's frankly the case of neoclassical economists, not necessarily people actually handling the formal exchanges inside the banks themselves.

[00:05:18] They tend to be more intelligent people who did an accounting degree rather than an economics one. So they, generally speaking, know the part of the mechanics they're part of. They might not know the whole system but they're aware of the functionality. It's the economists who panic over this stuff and the economists who reckon they can control the rate of inflation by putting up the rate of interest. And the model they're using tells them that the interest rate simply discourages spending.

[00:05:42] It doesn't have the real world effect that when the government pays interest on bonds, it's actually creating money. And that has left out completely of the models that economists put together. So they don't see their primary role in that sense of driving the economic activity up, at least in the finance sector, by putting up the rate of interest.

[00:06:06] But it is a fact, isn't it, that a government will always get hammered if it ups its spending. If that's seen by bond vigilantes or by foreign governments, that's a problem as well, isn't it? A lot of the people in the secondary markets now who are buying U.S. Treasuries come from overseas. Same for the U.K. or all over the world. So they say, oh, you're spending recklessly. We want a premium for buying your bonds.

[00:06:34] So the yields go up to 5%, 5.5%. The central bank goes, well, we can't issue anything for less than that because no one's going to buy it. Because they've… Well, who cares? Who cares? And this has come down to the mechanics itself. If the market didn't buy the bonds, the central bank can buy the bloody lot. Yeah. Okay? And this is the point which just doesn't seem to get through people's heads. That's why I'm being quite brutal and stating it right now.

[00:07:01] If there was literally zero bids from the private market for… Like the American government has got a GDP of about $40 trillion. From the private market or from the commercial banks? Primary. Primary market. Primary market, yeah. In the initial auction, if there weren't enough bids, then the central bank can buy the lot. And it's only the legal restrictions that Congress and other idiotic parliaments around the world have passed that prevent the central bank from doing that directly.

[00:07:28] But there's absolutely nothing in the accounting to prevent the central bank from saying, okay, we'll have that lot. Thank you. 5% of GDP. No problem. Don't need to pay us interest, by the way, because, oh, looking at our card, it looks like you own us. You're the treasury. We're the central bank. We've got to either send our interest back to you or we don't charge your interest. Which one do we prefer, guys? And that is the… That's why I find this so ridiculous, all this panicking over the government not being able to repay its debt. Right. But there would be panic, wouldn't there? If there was that situation.

[00:07:57] Let the buggers panic. I mean, of course, no panic in the rest of the world. I'd like to do the bond market panic. Oh, my God, they're not selling us bonds. And that would be the fun bit because, of course, they want the bonds for their portfolio management and balancing and so on. And the enormous speculation that occurs in the bond market. And if they're going to get their knickers in a twist that they're not getting the rate they want, they say, well, we're not going to say, okay, we won't make – we won't sell them to you anymore. We'll hang on to them ourselves.

[00:08:23] Now, then, the people who'd complain about the non-issuing of government bonds would be the finance sector. Yeah. But also, I mean, if it – say, let's take 10-year treasuries as an example. Say the government issued treasuries or 10 or 30 or whatever duration, but they had an auction and there just wasn't the interest there and they couldn't sell. And they – at a rate that they were prepared to meet, the yield that they were prepared to meet. And so they go, right, okay, we're not going to sell.

[00:08:53] That would be seen as a complete measure of lack of confidence in the U.S. economy, wouldn't it? And the U.S. dollar would tank. I think it's only had lack of confidence in the bond market. But if I wasn't hearing fairy tales come out of bond market people all the bloody time, then – You want a fairy tale? I'm going to give you a Grimm's Brothers fairy tale, okay? You want to be Hansel and Gretel and go into the forest?

[00:09:16] I'm going to put you there without anybody to rescue from the sweet shop, what we call it, Hansel and Gretel and the evil witch. I'll let the Reserve Bank buy the lot and you can find your way back out of the forest. Watch out for the wolves. Are there examples where that's happened then, where a country has tried to issue bonds. They don't want to meet what the market rate is and they say we want to have a lower interest rate.

[00:09:41] So we've got a lower cost of borrowing and effectively – we'll just use that terminology – a lower yield on the bonds that we issue, which is way beyond the market, way below the market level. But that's what we're going to do. And if you don't like it – and banks won't like it because they'll be getting a higher interest rate from the money that's being paid for holding money in the Reserve. So they're not going to do it. So has that – so then the central bank – Not yet, but it should. Right. Not yet. Okay.

[00:10:10] I think it might have happened in – did it happen in – I think it might have happened for a period in Japan. I have a funny feeling. There may be a couple of instances where, okay, they're undersubscribed. In that case, the central bank can buy the ones that aren't purchased. And we all know that the central bank in Japan owns what, about two-thirds of government bonds in existence? It owns about half of them. It was getting close to all of them at one stage. Yeah, the central bank can buy all the bonds. Okay.

[00:10:37] And then if they do that, there's no interest paid to be paid by the treasury to the central bank because the central bank is owned by the treasury. Okay. So this is why it seems so – you know, you get all this – the ringing of hands, all the bond vigilantes, and the government's got to follow what the bond market tells them to do. Garbage. Garbage. If the government decides, okay, we're going to issue bonds to finance – to make sure that the government account at the central bank doesn't go into overdraft because that's the real practical effect of bond sales.

[00:11:05] So if you won't buy them, we'll buy them ourselves. Bye-bye. And then there'd be all the institutions that usually buy the bonds and shuffle around between bonds and shares and so on. They won't get the supply they want. They'd be the first ones to complain. So is it the bond markets that we have to complain about or is it the central banks? Because it seems quite crazy of them. Bit of both. Because right now they're pushing up interest rates for a supply-led problem. Yeah. And that's – How is that going to fix the issue?

[00:11:34] It's going to make it worse, okay, in a whole lot of ways. The central bank is staffed by neoclassical economists. The bond market is popular by people who swallowed that stuff at university. And maybe they know it's garbage now, but they're happy to exploit it because it gives them better returns, okay? They're selling a fairy story. As a result of the fairy story, they get a few more subscriptions. Well, as you say, in a way, they're just accountants, aren't they? They're just looking at where they're going to get their yield, where they're going to get the best return. So they don't really care whether the system is right or wrong. They're just playing it.

[00:12:03] Yeah, they're playing it for the best return for themselves, and they're doing a bloody good job. Congratulations. But I would love to have some central bank governor saying, okay, we're going to call your bluff. We're going to issue bonds at 1%. We know the market rate is 5%. You don't want to buy them. That's okay. We'll sell them to the central bank. We're financed government spending. We'll see you next year. Now, in that result, there would be absolute panic on the finance market because they need the bonds. Okay? So in this sense, the dog is letting the tail wag the dog, but the dog wants to wag the tail.

[00:12:30] You actually almost can bite the tail off and say, like, I'm going to go tailless from now on. No bond market. How terrible. It could be done. But all the bonds... Yeah. Yeah. What would happen to all the bonds on the secondary market, though? They'd be so complete... They'd expire and the government would ultimately, when they expire, they'd pay them back and the people would get the money back rather than the bonds and we'd stop having these ridiculous conversations. Well, I mean, though, quite simply, the government could actually just issue itself a $1 trillion note, couldn't it really? Yeah, absolutely. People might not remember.

[00:13:00] I mean, back in the days when we actually talked about the real financial system that matters, the private financial system. Then there was talk about the government deficit at that stage and people were suggesting the $1 trillion coin. Now, people might not remember this, but the reason those coins are being spoken about in America's constitution or its legal arrangements for its financial system, the Treasury issues the coins and the central bank issues the notes.

[00:13:28] So if it had been the other way around, they could have said a $1 trillion note because the Treasury can do it. They can say, here's a $1 trillion coin. We're going to sell it to the central bank for a trillion dollars. The central bank says, oh, that's good. We'll put that in our account. We've got a trillion dollar coin now. Here's a trillion dollars in your government Treasury account for your spending. See you next year. So it is a ludicrous failure to understand the accounting. And the accounting is so obvious, it irritates me. So all those people selling bonds who may get it, but they're just playing the game because

[00:13:58] that's how they make a living, would use the argument if the government said, right, we're going to issue at 2% if you don't want it and you won't. We know that. So we'll get the central bank to buy it. The bonds which are in existence in the secondary market, which is still the majority until they expire. But, you know, that could be 30 years away. Those bonds will everyone all of a sudden say, oh, my God, this government is behaving irresponsibly. There's no controls. What they're actually saying is we're not in control. So there's no control.

[00:14:27] Then no control means we're not controlling it. That's pretty much the summary. So then they would say, right, OK, well, we're going to penalize you. We want a premium for those bonds that we currently hold. And so the yields would go up in the secondary markets. But of course, again, this is what people don't realize. It doesn't change one zot what the government actually pays because what happens is the price of the bond falls, but the dollars paid on the bond are set by the bond itself. Yeah, sure. It's just that, yes, people trading next themselves. No change in the government financing whatsoever.

[00:14:55] Again, that's another bloody fairy tale they tell. Right. Yeah. No, they are just paying the amount that they set. The coupon rate. The coupon rate for the entire duration of the bond. Yeah, exactly. That doesn't influence them. But the markets would go crazy. The central, so the bond yields. But I think they already are crazy. But they would go crazier. I mean, can you imagine? Can I sell the popcorn? All right.

[00:15:20] Look, we'll look at a better system and ask the question, who's winning in all of this? Because that's a big question. Who are the winners and who are the losers, ultimately? Because I think it's a challenge to democracy, this whole thing. And I think that's why we need to examine it a bit more when we come back on the Debunking Economics podcast. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie.

[00:15:49] So, Steve, these bond traders who, as we say, are making very nice money from all of these transactions. And it is a complex game, isn't it? Trading bonds. Extremely. Because there's so many other factors. And the other factor which is pushing up yields right now is because there's so many other bonds available, not just from the government. But there's all of this whole load of new debt which has been issued by the big tech players as well. That'd be great. Buy AI tech. Much better for your health. Yeah, you can watch. Now, that'd be fun.

[00:16:19] We're going to take on AI bonds because they're safer than government bonds. Oh, boy. I need a popcorn franchise, not just a popcorn. I'll sell a franchise to other people to watch the fun. But that is the belief, isn't it? It is the belief. But it's garbage, like most economics. This is less risk. This is about the same risk as government bonds. And then they're looking and they're saying, well, actually, you know, the government is becoming more risky now because they're carrying so much debt. Whereas these companies have got revenue streams and so fantastic. What could possibly go wrong?

[00:16:49] Too big to fail. That wasn't a popcorn. That was a joint. But that is the belief, isn't it? That is the... I should go to some of their parties again. I mean, I used to send them up when I had friends working in bond trading and share trading in Australia back in the 80s. You know, and I just sort of said to you guys, if you had too much cocaine before yesterday's trading session. And they wouldn't laugh because I was watching them pass it around at the time. Yes, indeed. Sniff, sniff, sniff. Yeah. You think they're back on that, do you? So... Back?

[00:17:19] Do you think they stopped? Well, I don't know. Maybe not. Maybe not. Maybe that's all the evidence. But the issue is in all of this, isn't it? That the... Because the governments are so fearful of bond markets now that they try and reduce their spending. The bond market... Which is exactly what the bond markets want, of course, given the ideology of most people in the bond market. But why do they... Okay. Well, first of all, why do they want that? Why do they want to see government spend less? Because again, they've got...

[00:17:47] They've been lobotomized by learning mainstream economics and they think the government can run out of money. And they've got... And they think the government has to... Well, they know they can't because they know... Well, they know they can't because they know they can just issue more bonds if they want to. And then they... Well, they think, we won't buy them and that's going to... That'll stop you. We're not going to buy them. So, okay, I'll buy them myself. Huh? Central Bank, you know? But yeah, it's a scare campaign which has been extremely effective and I'm sick of it.

[00:18:13] So, they're doing well and meanwhile, the rest of the world isn't because governments are spending less. So... That's the fundamental thing. There's not enough fiat money being created and the reason for it is this paranoia about the bond markets. But in fact, and this is why, I mean, when I do the fundamental accounting, which I keep on emphasizing, Rebell is the only software package that lets you do this. When you do the accounting, it's obvious the first thing, the government creates money by running a deficit.

[00:18:42] If it does not run a deficit, it doesn't even make the prerequisites for creating fiat-back money. And this is what's not understood by the mainstream. They think the government, the central bank has to print paper notes to actually have fiat money. The understanding that I can glean from what I read in these... These people had a different term in mind. But what I read from them, they seem to believe that the government only creates money when it prints notes and coins. Okay? And therefore, you get this argument that 97% of the money is being created by the private

[00:19:12] sector. Now, the vast majority of money has been created by the private sector. But not because the government only creates money when it prints notes. The government creates money when it spends more than it takes back in taxation. But if it allows the bonds to be sold to the private sector, that cancels the government money creation. And that's the aggregate figure right now. This is where Richard Vague's research is so useful. He finds that in between 2000 and 2024, 92% of the money created was created by the private

[00:19:41] sector, not because the government didn't run deficits, which it did, obviously, but because it then allowed the bonds to be sold to the non-bank private sector. And that canceled the money creation. So, vast majority of government is canceled by these bond market sales. And I would rather stop that and enable fiat money to be created in what should be a mixed fiat credit system. And that's what we've undermined. So, did the bond market have less influence in the past? It feels like... Yeah. And so, what's changed?

[00:20:11] Well, just the politics. The bond market had no influence at all in the 50s and 60s and 70s. You've got to go back and look at a period when government debt was extremely high. Of course, at the end of World War... The middle of World War II, that was the highest ratio in America, at least, of government debt to GDP. And then the government continued issuing bonds because it continued running a small deficit most of the time. The deficit was actually, on average, quite small between 1950 and 1970.

[00:20:40] But the government's issuing running deficits and nobody ever complained. The bonds were just sold. Okay? The process worked. And at that period of time, the ratio of government debt to GDP dropped dramatically while the government was still running a deficit. And the bonds were being purchased and the bonds were equivalent to the deficit. And yet, the ratio of bonds to GDP was falling across that whole time because, at the same time, of course, they were ignoring the rise in private debt.

[00:21:08] So, it's a simplistic, non-systemic way of thinking about the economy that led to this panic becoming mainstream. And the panic began pretty much in the 1970s. Now, ironically, the result is the lowest level of government debt to GDP occurred the year before this paranoia started. And I doubt the paranoia from 1975.

[00:21:33] So, obviously, it's undemocratic for the decisions of a government to be determined by bond traders. Absolutely. So, very wealthy people are determining, actually, how the economy should function rather than the government. And they, of course, will say, well, better us than the government because if the government doesn't follow our system where we are controlling the economy, we're going to be able to do that.

[00:21:57] The government's spending by the way that we buy and price bonds, then the government will just go crazy and they'll just spend. Yeah, it might do crazy things like build roads and create schools and educate people and construct hospitals. That'd be absolutely appalling. God, imagine the world that'd be like if we actually had hospitals and roads and schools rather than bombing the shit out of other countries. But, Steve, they'll do it without fiscal discipline. So, what we're doing as the bond traders is we are creating a – it's a bizarre system when

[00:22:27] you think about it, actually, isn't it? If you wanted fiscal discipline, surely you'd just say, well, tell you what, let's just have a certain amount of money that the government has. And, you know, by issuing this trillion dollar note, or it might be a half trillion dollar note or whatever it is, and you could say, well, it's going to be tied to a metric like GDP or whatever. Or the – actually, it should really be tied to the GDP rate, shouldn't it, really? To the growth rate. So, you get money that's in line.

[00:22:54] The growth of the money supply is in line with economic growth. They're the two things that should be following each other, presumably. Yeah. And when you see the government doesn't do that, then you get periods like the 1920s when the government deliberately ran a surplus of 1% of GDP every year, reduced government debt from 30% of GDP at the beginning of the 1920s to 15% by 1929. Calvin Coolidge goes out that year and his final State of the Union address brags about having

[00:23:23] reduced the debt from 30% to 15% and said, this is the foundation of our prosperity. It must be a misaned. And eight months later, the financial crisis of the Great Depression begins. Because what he'd ignored, and the mainstream still ignores it, when he'd paid down government debt from 30% to 15% of GDP, that was actually reducing the liquidity of the non-bank private sector. Okay? Because the government – when the government spends, it puts money into people's accounts

[00:23:52] without giving them an equivalent level of debt. So, if the government runs a deficit, it's actually creating money for the private sector. Now, when the government destroys money, it's removing money from the private sector. And so, the private sector's normal response then is to go and borrow money from the banks again, get more into debt, because they gamble on rising prices of non-financial assets, and that's things like houses and shares. The distinction I make is that a financial asset is a claim on somebody else, a financial liability is somebody else's claim on you. The sum of those two is zero.

[00:24:22] But a non-financial asset, like a house or a share, is your asset and nobody else's liability. You can't – you go shopping with it, but that's how you value it. So, you get a positive value for your non-financial assets. But in the aggregate, your financial assets sum to zero. So, if the government's trying to reduce its financial liabilities, it's increasing the financial liabilities for the private sector and making things worse. And that's what happened during the 1920s. People responded by borrowing money to gamble on rising share prices.

[00:24:50] The level of private debt went from 80% of GDP roughly to 140%, 150%. So, as the government debt's reduced by 15%, private debt rises by 60%, and then the private debt bubble burst, and bang, we go into a Great Depression. So, this sort of logic leads to financial crises, and I'm sick of the buggers getting away with it. So, the only way for fiscal discipline from the government is actually if they wanted to build more railways, they'd need a certain amount of steel, they'd need a certain amount

[00:25:20] of people. They couldn't build any more railways than they could get hold of steel, or there were people to do that. That's the constraint, isn't it? The actual constraint is the physical – That's what we – we should be using the financial system to create non-financial assets. If you want a very brief summary of my overall perspective, that's it. Because financial assets necessarily sum to zero, okay? Now, that's not known by mainstream economists. You read a mainstream economic textbook like Mankiw or Samuelson or any of them, they'll tell you that public savings and private savings can be added together, okay?

[00:25:50] So, if the government spends more than it takes back in taxation, runs a deficit, according to textbook economics, that reduces the amount of money in existence. Now, you do the accounting, that is 100% wrong. A government deficit creates money. It doesn't destroy it. It creates it. So, they're thinking everything is absolutely ass about tit in their fundamental thinking. And that leads to ass about tit outcomes, like you try to be fixedly responsible and you create a Great Depression.

[00:26:18] So, the government spending is – the constraint on it, which is what the point I was trying to make, is actually those physical assets. It's whatever you can actually – it's the resources that you have available to produce that, which people would then say, ah, but that creates inflation because they're going to put pressure on – Yeah. Look at all the inflation in China right now. Yeah. Okay. What is it? One and a half percent? Two percent? Not even that. Deflation applying and lots. So, it's a question of if you're using the government's capacity to create long-lived

[00:26:48] assets, that reduces costs for the private sector. And this, again, is why it's so frustrating. I love what Marx had to say about the financial sector. Judge your productivity as well, of course. Yeah. Yeah. If you're educating people, you've got a better educated workforce, you've got better roads, you pay less for rail to transport people around the country, you have bridges that connected cities, which nobody would ever put the bridges for the sake of the profit of enabling two impoverished towns to trade with each other, but the government builds it and lets the transport build up their prosperity over time.

[00:27:17] We are deconstructing the physical world to try to avoid financial liabilities for the government when the government should have financial liability. This, again, is the frustrating thing about it. If the government doesn't create liabilities on itself, then we don't have a monetary system that enables us to undertake normal commerce. So, we can't do all of that with all of that money covered by bond issuance, is what we're saying, isn't it? Well, I say you can just sell the bonds to the central bank. Unless the – yeah, exactly. End the debate. Right.

[00:27:48] That's how it ends the debate. Right. So, there's no bonds in the open market. Ultimately, once those 30-year bonds have expired, you're saying there's no bonds. Those days are gone. And then, well, you'd have the bonds owned by the central bank to be used in the event that they actually think there might be too much money in the economy, then they sell it into the economy to take that demand away. And that was what was done during World War II. The war bonds – and John Harvey is probably better on this than I am, by the way.

[00:28:13] So, my good mate, John Harvey, the cowboy economist, as he calls himself. John's done the research reading things like Charlie Chaplin's speeches and stuff like that in the 1940s. And all the people selling war bonds, especially the government officials involved and also some of the celebrities, realised they were selling the bonds not to raise money for the war, but to make private money, which could no longer be – you couldn't buy cars. Cars were not manufactured, period, during World War II.

[00:28:41] So, the money people would have used to buy cars was floating around, and the worry was that that would cause inflation like it did in the first World War. So, the government sold the bonds to take money out of the private sector while giving the private sector, therefore, the reality of an interest rate pay on those bonds. Which is quantitative tightening. Yeah, quantitative tightening to reduce the potential for inflation in the consumer market. That's why the bonds were sold during World War II. And it was incredibly successful.

[00:29:06] If you look at the level of government, the deficit in World War I was half – the deficit in World War II was twice the deficit in World War I. The rate of inflation in World War II was half the rate of inflation of World War I. So, and this was back in the days when sensible people did this stuff, not bloody economists, but people who, you know, professionals in government finance, they learned from the First World War, and they instituted both price controls and bond sales in the Second World War. Well, the buying and selling of bonds, of course, is, you know, is their burden.

[00:29:36] But most central banks have been engaged in quantitative tightening, not necessarily for any other reason than they just didn't like having all those bonds sitting on their balance sheet. But interestingly, this week, the Bank of England stopped that. They've put a pause on their quantitative tightening because they're worried about the impact it's having on the economy, and they didn't want to push up interest rates. So none of this is alien to central banks, is it? It's just the idea that they don't – The summit that it's confused by the economists. Kick the economists out of central banks, and the people who do the practical management would

[00:30:05] have a much better time. And of course, you know, the Bank of England, and this happened all over the world, the Bank of England bought bonds from the government on the same day that they were issued during COVID. I mean, that – you know, it was – and two announcements. Oh, the government's issuing all these bonds. Second announcement, oh, the central bank's buying them all. Yeah. They didn't have the time, given how urgent COVID was at the time. They complete – Boris Johnson and idiots like that completely stuffed up the response.

[00:30:32] But given the urgency, you wanted the money in circulation rapidly, rather than having to waste the time going through the usual formal channels that the central bank buy the lot and on we go. And the world didn't end because of that, okay? It ended because we had Boris Johnson in charge and bloody Donald Trump, rather than people actually understand epidemiology and how pandemics spread. So, do you think it will change? Do you think we will get – because the approach is off. Yes, I do. Yes, I do. When and how quickly? And do you think it will be that?

[00:31:01] As soon as the world starts to fall into climate catastrophes. Right. Okay. It's going to take that. We'll need the money straight away and fuck, bugger, bugger wasting our time going through the bond market. We need that money now. Let's create it, step out to the central bank, and we'll talk about it later. Another COVID situation, in other words. Sorry? No, COVID on steroids. Yeah. COVID on steroids. And like what's happening right now with the destruction that the ridiculous war in Iran is doing and that the spread of that now have got basically cutting off almost oil,

[00:31:30] all energy coming out of the Middle East, all the fertilizer. We're going to have catastrophes starting in the next three to six months. Famines are quite likely. And any country experiencing that where they want to spend to be able to buy food off the farmers and then distribute using rationing systems, they'll go ahead and do it. And the bond sales, if they're necessarily made. To speed things up to the central bank rather than the private sector. So do you think this rise in bond yields right now is the beginning of all of that?

[00:32:00] Well, I think what people are doing, they've got to be seeing the reason the yields are rising because people are selling bonds. That's easy. You know, bond price there. Bond sales up, bond prices down. And people need to sell those bonds to buy what remains of the oil that's available at the moment and the fertilizer and so on. And their AI shares. Don't forget those, Steve. The AI is absolutely vital. We've got to make sure we waste as much energy as possible before the crisis hits. So AI is a great idea. All right. Okay. Well, so you think it will happen.

[00:32:30] It's just not going to happen overnight. I've heard that line before. But yeah, we'll talk soon. Thanks, Steve. Okay, Matt. Yeah. The Debunking Economics Podcast. If you've enjoyed listening to Debunking Economics, even if you haven't, you might also enjoy The Y Curve. Each week, Roger Hearing and I talk to a guest about a topic that is very much in the news that week. It's lively. It's fun. It's informative. What more could you want?

[00:32:58] So search The Y Curve in your favorite podcast app or go to ycurve.com to listen.