The Sunday Telegraph published 3,200 words on the state of the global bond market. It quotes a portfolio manager comparing government debt to a can of petrol, an economist comparing it to pneumonia, and a chief investment officer comparing bond investors to something “stirring.” It runs through Scott Bessent’s biography, his time working for George Soros, his birthday, and his taste for a Stephen Covey quote. It does not, at any point, explain what a government bond actually is, why a government issues one, or what would happen if it simply stopped.

It is a sermon, delivered to a faithful congregation. The government supposedly borrows from “the market”; the market becomes nervous, the bond vigilantes appear, yields rise, and the government responds by trying to restore confidence. The yield becomes the message, and the government becomes the supplicant.

Emotions elevated, vibes enthused, reason defenestrated.

The reality is simple, prosaic and dull.

Start with government spending. The government instructs its central bank to credit bank accounts. That creates a government liability to the private sector. Taxation subsequently removes those government liabilities from those accounts, leaving a balance.

In a sensible world, that is where it would end. Those who want to hold money can do so until they feel like spending, at no cost to the government or the rest of us.

That’s the true extent of the tyrannical monster that will apparently devour our grandchildren. A trivial balancing item in the national accounts that ought to concern no one but the holders.

Government securities operate alongside this process as a policy choice made by the government we elected. Their policy is to give free money to people who choose to hold the trivial balancing item. A policy presently shared by all political parties.

Issuing a Treasury bill, gilt or other government security exchanges one government liability for another. A bank deposit becomes an interest-bearing security, which is, at root, just a deposit with the Treasury rather than a bank.

The only other aggregate choice is to continue holding the commercial bank deposit and standing the risks of doing so.

This gives us the obvious operating rule for a Treasury serving current government policy:

  • Supply the government security at the lowest possible current-year cost.

The simplest arrangement is to operate at the short end.

Warren Mosler’s prescription for the United States is that the Treasury should issue nothing longer than three-month Treasury bills.

Three-month bills give the private sector a safe, interest-bearing government asset while keeping the government’s interest cost closely connected to the central bank’s policy rate. The bills mature and can be rolled continuously because no other rational aggregate choice exists, giving the government a simple, predictable maturity structure, all without requiring legislative changes.

Then apply the rule to the existing stock of government debt.

Where long-term bonds carry substantially higher yields than short-term bills, buy back the bonds and replace them with bills. Where the market demands a high yield for longer-term duration, stop supplying that duration.

It is the logic behind Bessent’s current buyback programme, whether he understands that or not.

Make it normal practice.

That leaves a very simple policy.

Issue short-term bills as the standard government security. Roll them continuously. As the central bank determines the overnight interest rate, the government’s interest cost follows that rate closely, because the overnight interest rate is the only aggregate alternative on offer in that currency.

Long-term government bonds provide investors with fixed income over many years. They can be supplied where the government has a reason to provide that particular asset.

Pension funds, insurers and other investors may value the duration. They will show that by the price they are willing to pay relative to short-term bills.

Until then, don’t issue them.

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