Central bankers enamored of Isaac's rules of grammar

Bernanke says no need for Fed to shrink balance sheet

DALLAS, May 19 (Reuters) - The Federal Reserve does not need to shrink its $4 trillion-plus balance sheet by even "a dime" for it to normalize monetary policy when the time comes, former Fed Chair Ben Bernanke said on Monday.

Janet Yellen needs to cover the operations of the central bank itself, or else go to Congress for permission to draw the seigniorage account, which belongs to Congress. Ben thinks the yield curve is infinitely divisible; the central bank can always find a spot to earn money for operations. He is wrong, and conflates Isaac Newton's rules of etiquette with the real world of finite number lines. The bankers curve is just like any curved number line, it is adjusted so the term points are evenly imprecise, relative to a count of the whole numbers.

The central banker can never really earn more than Congress pays for interest, and the central bank must always keep rates low enough for Congress to pay its interest.  That rate has been dropping since the 1980s, mostly, and is down to around 2.5%.  The central bank needs something like 1%, minimum to cover expenses. The next recession, due in 2015, will stretch the boundary, and Janet is loathe to go begging Congress for her paycheck.