There's so much to unpack here. I think the first thing to agree is that we don't need a model when we can just look directly at the law.
This goes in the bin:
>> recommend learning traditional macro
It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions.
So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws.
Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference.
With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in?
Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy)
Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?)
So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this.
The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.
> Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy)
Yes, it comes in at the 'fair market bids' part. When yields spike, the mechanism still “works” legally, but the government’s interest costs and financial stability risks explode in real terms.
The “law” doesn’t immunize you from inflation, balance sheet stress, or a collapsing yield curve. The Fed can’t conjure real resources; it can only reprice claims on them. Monetizing debt isn’t free. Ask the U.K. gilt market in 2022 how far “sovereign currency issuer” logic got them before the Bank of England had to step in. The government isn't immune from market forces.
>> Yes, it comes in at the 'fair market bids' part
No, you’re confused. The legally obligated “fair market bids” - a tongue in cheek term - isn’t conducted in dollars. I believe you’re thinking of the secondary market activity which occurs at a later time - where private buyers purchase from the primary dealer banks and those txns are in dollars.
At the primary dealer purchase stage, the fed provides the funds to purchase via the PDCF. “The market” has precisely zero influence over this process.
You’re kind of randomly firing in different directions with the last paragraph, its too removed from reality to make much of a useful comment on.
This goes in the bin:
>> recommend learning traditional macro
It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions.
So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws.
Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference.
With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in?
Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy)
Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?)
So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this.
The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.