Default machine version 6

Let me, make some assumptions. We have a normal S/L currency banker in place, almost automated. The acturrarial losses and gains happen in run time.

In a separate account, unrelated. The Fed keeps a balance of government bonds, of various terms.  Whenever the currency function records a loss, the default machine will burn a portion of its bond stash, by ratio. On a gain, the default machine is indifferent. Otherwise, the default machine manages some trillions in government bonds.

Absent the default machine, as I have noted, the currency function losses in proportion to productivity gained, and visa versa. This is price neutral currency release, automatic as long as the fed mainains a representative sample for accounts. The effect of adding the default machine is to be slightly inflationary (general rise in all prices) as the economy becomes productive.  This puts pressure on government agencies to manage their accounts directly at the Fed, moves all of large GSE and agencies, and aggregates of privates sector to be represented.

Accurate cash flow accounting, separates the time function into a separate insurance function.  The default machine is slightly inflationary, but past inflation will get expensed very soon, and inflation will be much more of a random walk about contract trend. 15 years of default, short really, very intelligent flow of finance everywhere. Government can dump 8 trillion,  efficiency from cash flow accounting gets you back another 4 trillion. If the Fed were independent enough, we could conclude the contract, favor the millennials in entitlements, get another 3% in progressive taxes.

One midnight deal, lock the senators up, threaten their precious government goodies, force them to sign.  Right away, the global finance world gets it, we are suddenly granted excess discretionary spending in government. The contractual lock with the default machine needs to have legal certainty.

legal issues

We have the Citizen's United problem, we want Congress to make a contract that this algorithm rules central banking for 15 years. But, even though we keep a human board of directors, it is hard to derive a profit from a government mandated algorithm.  There are no humans at risk of contractual loss, and algorithms cannot own money, they never go skiing.

But, spectral containment should lock the system in, there will be no other Pareto efficient method to improve it, this tree trunk will be as round as possible. There will be no justification for changing it.