Let's help John C Williams figure out Zero Bound

My Favorite chart: Rate spreads over time 

Whoops, we are upper bound, not lower bound. Notice the trend in the long term yield, down since Reagan. See how difficult it is for the term rates to spread out during a restructuring? They are upper bounded! By gosh, by golly.

We are looking at the balance sheet passed up stream for each recession, and at each recession Congress replaces takes on debt for some partition of the economy that has gone belly up. As Congress builds up its debt, it has less flexibility, so the Congressional channel gets less and less spectral space on the curve. More and more of the necessary government flexibility has been handed off to states and localities, which are very heteroskedastic, my favore word, and now broke.

How do we handle our second dip?

One choice here is to force the curve steep again, the effect of which is to concentrate more of the government sector onto DC, and less onto the states. In other words, send all the digital money to Congress and let the major funding states go broke.

Or, John C Williams can lead a rebellion against DC and force open the money channels out to the preriphery with a break up of the central bank. Thus providing the states and localities with regional currency zones.

Or, John C WIllias can ride the horse all the way to end game, and let Congress default.

At some point, in the very near future, our skewed political system will reformulate.