Another gadget from the Fed

Why the Fed Should Create a Standing Repo Facility

This one lets banks borrow from reserves based on treasuries for collateral.

Before we discuss this, let us restate our model. In the S/L banker, agents keep savings and loan accounts. The central bank has a choice, act like a normal S/L banker or cycle.

The various banking theorists are trying to inch around the problem, like Keynesians trying to fake a multiplier lightly greater than one. It does not work.  Banking theorists have one choice, lease the right to coin from Congress and get Treasury out of the loop completely. Then the right to coin is properly hedged and the central banker can pretend to be a standard S?L banker.

The new gadget does move the central banker closer to a normal S?L corridor, but at any given moment, the law prevails, Congress will be the majority borrower, violating representative sample and causing a cycle.