Reserves aid in pricing over the inventory cycle

George Selgin has  good interview from

Authored by Christopher Whalen via TheInstitutionalRiskAnalsyst.com,

He talk about reserves and how central banks should deal with reserve requirements.

Here is the sandbox answer. It is about spectral packing. Properly matched banking reserves keep money accurate over the inventory cycle.

This is a central bank, they have government movements which need to be countered (no arb condition still a requirement). We are not talking the simple sandbox two color currency machine.

So, government should keep its hands off the Fed over an interval half as long as the government default cycle, about forty years.  We want a new central bank contract with Congress every fifteen years, at which point we can negotiate government losses or gains.. Meanwhile, banks and others can manage their own liquidity in a fair trade liquidity pit. Everyone will know we have a reserve requirement contract coming up, and naturally prepare.

That spectrum matches the overlapping generations problem with entitlements, and allows more accurate pricing of the generations. And we have the huge spectral mismatch between the Senate and House, that trading pit needs to run every to years or so. Finding congestion points is equivalent to finding a band limit and seeing aliasing in a self sampled system.