Oddbean new post about login | logout Can you explain how t-bill issuance is pro-liquidity via reverse repo reduction? I understand that as reverse repo is reduced, dollars flow into the market. But if those dollars are used to buy t-bills, doesn't that absorb the dollar flow? Thanks.
Issuing excess tbills rather than bonds allows the Treasury to pull money out of reverse repos (which is basically a void of capital outside of the financial system) and spend that money back into the financial system. If they instead issue more things, reverse repo capital can’t be used for it, so it gets sucked out of the financial system and then spent back into the system.
So, fair to say it has the same effect as money printing to finance deficit spending? Ie, the deficit spending itself is the liquidity injection but whereas normal bond issuance to finance the spending would draw dollars out of the market, these t-bill issuances are bought with dollars that were outside of the market so to speak. Thanks again, Lyn.