The Fed's new gadget don't work

NEW YORK (Reuters) - The U.S. Federal Reserve may consider tweaking again a tool to control the level of excess bank reserves if a key overnight borrowing cost rises further from current levels, TD Securities strategists said on Friday.The federal funds rate, or what banks charge each other to borrow excess bank reserves, has risen in the past couple of days, likely due to reduced excess reserves in the U.S. banking system, they said.

George Selgin brings this up, the sub floor and floor.  The floor is the IOER at a higher rate than the subfloor, the overnight rates. The arbitrage is being squashed and the Fed has to rethink.

Thecorret answer is that the savings and loan queues are independent, and market based.  The proper charts to target are the excess loans (treasuries held) and excess deposits.    The gap between those two is the change in NGDP the next time the Fed sets interest charges.  Those two queues have to be marked to market with interest swaps from loans to deposits. The Fed has to take risk, hold gains or losses.  

All economists have to realize that Congress is not a normal member bank, so either quit trying to treat it as one (like I do) , or make a real central banks owned for profit by Congress, a true three color central bank (Like I suggest).