An idea on Fed balance sheet

At the next meeting the Fed should create an account, Fed gains and losses during the current monetary cycle.  Then the Fed should wipe out 50 billion of its treasuries and enter them as losses at market  price.

After the hysteria boils over, the senators are presented with a conflict. The Fed could easily make up the loss with retained earning submitted to the same account, a reduction in the senators' interest subsidy. This simple act establishes an independent corridor function, a flexible wedge between savings rates and loan rates.  It makes a bit error process.

The main force in a bit error function, in this case, is the ability to opportunistically default a chunk of the Swamp debt on the books. Do it in small increments without over-stressing the financial conditions index.  It is direct inflation on a loss, direct deflation on a gain in the bit error process.

The 50 billion is a 30 basis point jump in prices.  But is double entry accounting is neutral then all the prior fake inflation in the cycle is reversing.    Like right now at this moment, a large majority of consumer items have dropped in price.  We are headed toward increasing periods of deflation, a negative over all index, if the neutral theory is true.  So, these new bit error losses are post dated, should have happened in 2001, for example.  The Fed, being price neutral should have accumulated losses upon real growth, it should have been 'snookered'.

Snookering the Fed

The interest charges are computed ex post, so there is an inherent assumption about the likely interest charges going forward for some large loan. It is asynchronous, adaptable; charge applied according to current conditions.  But the system is semi-repeatable, and the  loan and deposit queues have momentum.

But is a set of insiders take a large loan, then use it to minimize inventory volatility, they gain rents on saved capacity, and return the dough as deposits.  The shrewd will catch the Fed debt machine unawares, and it will pay a slightly too high deposit rate, resulting in a loss.  But prices stay neutral, there is no deflation from higher productivity. This is called adiabatic change, there is no requantization the change is within bit error, hence none of the congestion losses typical of requantization.