Government buying and selling debt is just fine

Fixing Repo: A Follow Up

Agrees Selgin. 

The key is government fair trades with the other participants.

I take it a step further, not Treasury, but the large government programs themselves maintain their own S/L accounts, within the Fed system.

Government transaction flow is over 35% of the economy, make government take the same banking risk as the rest of us. No one is 'borrowing or lending' to the Fed, the Fed is market maker in the overnight pit. Keep the bankruptcy risk low.

Risk matching is a problem:

Selgin's real problem is that government is not in the same risk class, it is hard to make the market when the two risk classes are so separated.  Hence, most of these methods really work when the Fed get a pile of contractual default power from the past. Then the government risk level is increased to its long term value, the traders risk equalized.

What if there are no government losses from the past?  Yuk,yuk, LMAO. History proves beyond  doubt, government almost always has undeclared losses from the past. The Fed can directly set the risk level b virtue of its contract with Congress.

Central banking, by design, hs a wedge fee,  monopsony fee; and that needs to be traded, noway around the problem. It is equivalent to a lose in tht the wedge causes government to mis-allocate. So negotiate that unpaid wedge fee from the past and give the power to the Fd in a new contract.

The senators are free, at any time, to reformulate the system into fair competitive two color banking. Thy can say, profitless, savings to loans banking via fair traded enforced contracts are fine and dandy. Then the wedge fee is one, the Treasury taxes in multiple currencies. That requires very astute management by the senators, and if they pull it off, all their states are preserved.