Think about what the article says.
You're an Italian. You buy the Bill at auction by converting a bank deposit into a discounted Bill whose yield runs anywhere from 3.2% - 6.5%, most likely 3.2%. At the end of the period, 6 months, the Bank of Italy or its branch will return your deposit plus the discount amount, 3.2% on principal. Is there a "sharp decline in borrowing cost"? Well, the BOI would have had to return at least 6.5% on the Bill had not the market come in. The difference, 3.3% of $14 billion = $430M over 6 months is what the BOI saved. So what?
6 months pass. The Bills have to be rolled over. The assumption always made is that at some point the quantity to be rolled will decline. Nowhere ever has this been observed. Italy will have to make good its promises of economic discipline or they will have difficulty making the next rollover or at the next rollover the rate to entice the deposit holders to buy the Bills, will have to be higher, progressively higher.
Unfortunately, this approach is Keynesian. They try to solve a monetary problem with less monetary activity. It's like 17th century bleeding to heal someone ill. Less never solves any problems because people always demand more. Institutionalized, agreed upon, recession must fail. |
