In recent months, states and cities have lobbied for their piece of the bailout pie. Among other requests, they’ve asked the federal government to support municipal bond markets by directly buying municipal bonds through the new programs that the Treasury and Fed have set up to buy everything from mortgages to credit-card debt. Mortgage Market Advisers warns us today why this proposal may be a bad idea.
“[A]ny buying program should NOT entail direct buying of long-maturity muni paper,” MMA warns. “This would effectively create a new, but temporary institutional demand component for bonds that would rally the market while it persisted but ultimately undermine future issuers when Treasury needs to unwind its muni portfolio.”
In other words, MMA figures that if Treasury (or the Fed) amasses a big portfolio of muni bonds, investors soon would figure that the government, eventually, would have to sell those bonds, depressing prices as it flooded the market.
So private investors would wait to buy bonds until the federal government had done most of its selling work, further distorting the real market for supply and demand.
Of course, one could say the same thing about all of the government’s new credit-creation programs …
You may also like
NY outlook: worse than 2008-09
#NYcoronavirus: The outlook for New York's economy is the grimmest on record, according to the first post-pandemic lockdown round of credible economic surveys and forecasts.
Start with the Federal Reserve Bank of New York, whose regional economists today issued a notably pessimistic report based on their monthly Empire State Manufacturing Survey and a broader Business Leaders Survey that take sin the northern New Jersey and metropolitan New York. Read More
Big bucks, no impact
The billions of dollars funneled from New York's treasury to movie and TV producers had no statistically significant impact on the industry's employment in the Empire State through 2017, according to a new multi-state study of such tax incentives. Read More
SALT suit swept aside
In what could rank among the least surprising federal court rulings of this or any year, a U.S. District Court judge in Manhattan has rejected New York's constitutional challenge to the state and local tax (SALT) deduction cap in the new federal tax law. Read More
NY’s dimming budget outlook
When New York's current state budget was enacted, Governor Andrew Cuomo hailed it as "the broadest and most sweeping" of his tenure, adding that "for the ninth straight year it was both timely and fiscally responsible."
"Timely," yes: budget bills were passed by the Legislature just in time for the April 1 dawn of a new fiscal year.
As for "fiscally responsible"—well, that's more a matter of opinion. Read More
Albany unleashes a green monster
The Climate Leadership and Community Protection Act on its way to enactment in Albany would vastly expand the state government’s power to regulate every corner of New York’s economy in pursuit of reducing greenhouse gas emissions. Yet even as it addresses what proponents describe as a “climate emergency,” the bill’s most controversial elements have been postponed until after the 2022 elections. Read More
NY per-pupil spending reaches $23k
New York's spending on elementary and secondary education reached a record $23,091 per pupil in 2017, once again topping all other states in this category, according to the latest U.S. Census data. Read More
Side effects of the opioid tax
Industry lawsuits filed against Governor Cuomo's $100 million opioid tax, summarized in today's Wall Street Journal, are raising fresh questions about the levy's fairness and unintended side effects. Read More
Soaking the rich—or not
New York State's so-called millionaire tax, temporarily raising the state's top income tax rate to 8.82 percent from the permanent law limit of 6.85 percent, is next scheduled to expire at the end of 2019. The added tax generates roughly $4.5 billion a year, about 9 percent of net personal income tax revenues, making New York more dependent than ever on the highest-earning one percent of its taxpayers.
The future of the tax has now emerged as an issue in the gubernatorial campaign. Read More