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4 Ways to Change the Fed: A Users Manual

November 7, 2011 17 comments

Here's the sizzle, the last post was the steak

I’ve had a few inbound links to the 4 Ways to Change the Fed .  That post was intended to be very detailed for long time readers – but unfortunately, not many people can understand it easily.

Here is a quick and easy guide to why we want to do these things.

#1. The Fed isn’t under any control at all.  It can do almost anything it wants with monetary policy. It’s not accountable to the president or congress in any meaningful way.  It’s like a rogue bank in the middle of our government, funded by our government, that tries to control our entire economy.

But the Fed flips the middle finger to U.S. citizens when they ask for accountability to minimizing unemployment.  It’s an anti-democratic institution that’s literally out of control.

The solution?  Place the Federal Reserve Under Treasury Control.

Why?  The Treasury reports directly to the President.  If we can trust the president with the nuclear launch codes, we can and should trust him with money.  Put the Fed under the Treasury.

#2.  Normally, banks issue debt, and companies issue stock.

But for the U.S. government, the bank (the fed) issues the stock, and the company (the treasury) issues the debt.

The the fed tries to alter the yield curve with their open market operations.  It’s ass-backwards.

It should be fixed, so people recognize the government can create money at will.  Not only that, this is the way its done in the constitution.

The solution? Have the Treasury and Fed switch places.  The Treasury issues money, the Fed sets the yield curve.

#3: The U.S. is the richest country in the known history of the world.  Yet,  somehow the richest country in the history of the world doesn’t have enough money. Does this seem completely stupid to you?

It should.  We’re can’t run out of money, because we can make all we need.  We can make the money to pay for China ripping us off, and to stimulate the economy.

The Solution? Make several trillion dollar coins.  Deposit them in the Treasury account at the Fed.

We now have the money to pay for programs.   Don’t spend too much- we might get inflation.

But do spend enough to get people working.   In fact, you can spend it on a huge tax cut for working people as #4 will tell us.

#4.  We know a simple fact: Businesses hire when they are swamped with demand!  Don’t believe me? Just ask Mitt Romney! (h/t beowulf!)

Business have high profits right now, but they don’t want to hire because the demand for their products is low.

So how can we boost demand when we need it – and cut back when we don’t need it any more?

The solution: Give people more money when times are tough, and cut back when times are good.

The best way to do this is through a payroll tax holiday.  When times are tough, people get laid off.  But if your buddy gets laid off, you’ll get a raise!

I hope this helps!

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The Fed will probably announce another $100bn of Purchases on Jan 12th

December 21, 2010 Comments off

Since the Fed announced QEII, Mortgage rates have gone up significantly.   The Fed does not want higher rates, it wants lower rates.

One way to make rates lower is to lower the benchmark rate, and one way to lower the benchmark rate is to buy lots of Treasuries.

Conveniently for the Fed, it has announced a program to purchase lots of Treasuries, and has also said that it is targeting interest rates on the longer end of the curve.   It has also said that it would buy more than the announced amount if needed, and that these purchases will not cause inflation.

All of this adds up: The Fed is likely to announce another $100bn of treasury purchases over the 5-6 weeks starting last week of January.    If that doesn’t work, expect another $100bn in March and April.

One of the key ideas of MMT is that Fed actions are about price and not quantity. How long can the bond market hold its lows with this amount of concentrated buying?   What happens if the Fed does all of the purchases before June 1st?

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