Tag Archives: bonds

Where the Government’s money comes from, and who it goes to, makes a big difference

[Published 3 May at Independent Australia]

Stephanie Kelton, Modern Money Theorist

Why would the Government buy bonds as it sells bonds? Why would it borrow money when it has its own money?

Various explanations have been appearing lately that purport to explain how the Government is raising the money it is suddenly splashing around to support (some) people through the Covid-19 shutdown. There are also explanations of how the Reserve Bank of Australia is engaging in ‘quantitative easing’ (QE) to support the economy through the shutdown and beyond.

It seems there may be at least three things happening: the RBA is buying bonds in order to inject extra money (‘liquidity’) into the financial sector and keep interest rates low; the RBA is funding some spending by the Government; the Government is borrowing money from the private sector by selling bonds.

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