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January 25th, 2019, 07:48 AM   #1
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Macro-economics

Hello

I'll be happy if you will help me please about the next sentence: The bank bought a bond from the public.

What does it mean? I mean, what will happen after when the bank will buy a bond from the public? And what does "public" mean? People? Companies?

I'm sorry if it's a stupid question, I know several basic things about economy like taxes and more. The same things (or half of these) which people experience in their life.
I'm student in accounting, so Macro-economics isn't that interesting for me (Except for the subject of national accounting).

Thanks!
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January 25th, 2019, 08:11 AM   #2
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I have been a banker for most of my adult life and been reading economics since college.

It is not clear what that sentence means without context.

Banks do buy bonds, both governmental and corporate. Some bonds once issued trade in very active markets. If a bank buys a bond when issued, it transfers purchasing power to the issuer. If the bank buys a bond after issuance, it transfers purchasing power to someone other than the issuer.

If a central bank buys bonds from the government, it is "monetizing" the debt, increasing the money supply by the amount that the government borrows.

Without more context, it seems to be saying that a bank buys a bond from someone else. So what?
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January 25th, 2019, 08:20 AM   #3
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Quote:
Originally Posted by JeffM1 View Post
I have been a banker for most of my adult life and been reading economics since college.

It is not clear what that sentence means without context.

Banks do buy bonds, both governmental and corporate. Some bonds once issued trade in very active markets. If a bank buys a bond when issued, it transfers purchasing power to the issuer. If the bank buys a bond after issuance, it transfers purchasing power to someone other than the issuer.

If a central bank buys bonds from the government, it is "monetizing" the debt, increasing the money supply by the amount that the government borrows.

Without more context, it seems to be saying that a bank buys a bond from someone else. So what?
Thanks for explanation!
About your second paragraph - So if a central bank sells bonds to the government, then the government will be the one who will earn money from the debt of central bank?
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January 25th, 2019, 08:56 AM   #4
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Quote:
Originally Posted by IlanSherer View Post
Thanks for explanation!
About your second paragraph - So if a central bank sells bonds to the government, then the government will be the one who will earn money from the debt of central bank?
Central banks seldom if ever sell bonds to the government. They buy bonds from the government. So the central bank "earns" interest from the government (meaning the taxpayers).
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