{"id":53921,"date":"2020-06-28T09:00:41","date_gmt":"2020-06-28T14:00:41","guid":{"rendered":"https:\/\/olduvai.ca\/?p=53921"},"modified":"2020-06-28T09:00:47","modified_gmt":"2020-06-28T14:00:47","slug":"the-fed-isnt-a-magic-money-tree","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=53921","title":{"rendered":"The Fed Isn\u2019t a Magic Money Tree"},"content":{"rendered":"\n
\"The<\/figure>\n\n\n\n

The Fed Isn\u2019t a Magic Money Tree<\/a><\/h3>\n\n\n\n

There seems to be no end to the Federal Reserve\u2019s arrogance. Fed officials believe that through their wise actions, they can eliminate the business cycle, lower unemployment and make society prosperous.<\/p>\n\n\n\n

But it\u2019s actually much more limited in what it can do.<\/p>\n\n\n\n

All the Fed can reliably do is stop bank runs and limit liquidity panics. It can also fund (or \u201cmonetize\u201d) the U.S. federal deficit, as it has done in recent months.<\/p>\n\n\n\n

By buying essentially the same amount of U.S. Treasury securities the government has issued, the Fed has taken pressure to fund mammoth federal deficits off of the private sector.<\/p>\n\n\n\n

But such actions are not cost-free.<\/p>\n\n\n\n

They store up trouble for the future. These actions swell the Fed\u2019s balance sheet, which will limit the Fed\u2019s flexibility and its willingness to tighten policy during the next inflation spike.<\/p>\n\n\n\n

The more the Fed intervenes, the harder it is for it to reverse course without causing damage.<\/p>\n\n\n\n

By promising the public that it can do anything more than offer dollar liquidity, the Fed is setting up both investors and workers for disappointment.<\/p>\n\n\n\n

Yet it\u2019s going to try anyway. And it\u2019ll only undermine its limited reputational capital in the process.<\/p>\n\n\n\n

\u201cYield Curve Control\u201d<\/strong><\/p>\n\n\n\n

The Wall Street Journal<\/em> recently reported that the Fed is considering implementing \u201cyield curve control\u201d in the Treasury market. This policy hasn\u2019t been used since WWII and the early postwar period.<\/p>\n\n\n\n

It essentially funded the war effort. If unleashed today, it wouldn\u2019t be done to support a civilization-saving war effort but to maintain the debt-saturated economy to which we\u2019ve become accustomed.<\/p>\n\n\n\n

Here\u2019s how it would work in practice:<\/p>\n\n\n\n

The Fed would set a target range, or cap, on yields for Treasury bonds of a specific maturity \u2014 say, 3-, 5- or 7-year Treasuries.<\/p>\n\n\n\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

The Fed Isn\u2019t a Magic Money Tree There seems to be no end to the Federal Reserve\u2019s arrogance. Fed officials believe that through their wise actions, they can eliminate the business cycle, lower unemployment and make society prosperous. But it\u2019s actually much more limited in what it can do. All the Fed can reliably do […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[49,11023,29955,303,29956,3650],"class_list":["post-53921","post","type-post","status-publish","format-standard","hentry","category-economics","tag-balance-sheet","tag-daily-reckoning","tag-dan-amoss","tag-fed","tag-magic-money-tree","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/53921","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=53921"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/53921\/revisions"}],"predecessor-version":[{"id":53922,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/53921\/revisions\/53922"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=53921"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=53921"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=53921"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}