March 17, 2011
The Post noted that Japan’s central bank is buying government debt in order to hold down interest rates. While this is true, it is also worth noting that its holding of debt reduces the interest rate burden on the government.
Interest on debt held by the central bank is refunded back to the treasury, leaving no net cost to the government on this debt. Under some circumstances, this can lead to inflation. However, Japan continues to experience deflation, in spite of the fact that its central bank holds an amount of debt that is roughly equal to its GDP. This would be equivalent to the Fed holding $15 trillion in debt.
Comments