NGDP growh by Helicopter

Beckworth , good start.

The final part of the operating framework would establish a standing fiscal facility for the Fed to use when doing helicopter drops. Specifically, the “Stella Fiscal Facility” (SFF) is proposed— named after Peter Stella’s suggestion to institutionalize the US Treasury’s Supplementary Financing Program that was used in 2008 by the Fed to help manage its balance sheet.13 Stella proposes the SFF as way for the Fed to shrink its large balance sheet, but it can also be used to help facilitate the Fed’s helicopter drops. Its use would be triggered when interest rates hit 0 percent and would be regulated by the McCallum rule, as outlined earlier. Also, I propose that its use should be approved by the Treasury secretary every time it is used. This would make the Fed’s use of helicopters drops, a form of fiscal policy, more accountable to the public.

Based on a growth rate, calibrated every quarter.   I think the plan needs to do helicopter all the time for NGDP growth to be consistent.

= i_t^N + λ1 NGDP_(t,t+h)^Gap  The base rate will be the one year treasury, always.

But then we get into seignioriage tax, and the Fed cannot expand its balance sheet indefinitely, the tax payer loses liquidity.

Why not let treasury have the helicopter drops in the form if erased bonds? Erase bonds when bond market activity is low.

Do not set an interest rate.

The Fed will end up holding government bonds against excess deposits. The Gap measure should be the difference between the two. So you set an instantaneous interest swap from the earnings on government bonds to excess reserves.   Keep the profits at the Fed to zero, and seigniorage to zero. Do the permanent NGDP expansion with the bond erasures, independently.

So, in this pandemic, the Fed is buying government bonds like crazy, and setting its own gains to zero,  attracting excess reserves as needed.  The Fed market activities are thus, net zero, price neutral. The NGDP growth done elsewhere. The market sets the rate.

When government nee a bailout by the Fed, the Fed will buy government bonds, and roll up the  existing fed credit market via monopsony pricing on the instantaneous interest swap.

Force these to be closer, all the time. The earnings can be sent to excess reserves. as needed.  Generally the fed is buying debt long and selling it short term, so there should be sufficient gain in a  upward sloping curve.

This is the direct path, no need for the second step setting Fed tax rates.

Howe big should the Fed balance sheet be?  Enough to cover the volatility of NGDP growth and erratic government budgets. Real growth seems to have four bit accuracy, why not hold 1/16 of the NGDP typical gap in is own account, target that, a coefficient on the gap.. Whenever the Fed's own account is low, take some temporary gain, or losses otherwise when setting the interest swap. Forcing the Fed's own market account to 1/16 of the NGDP gap forces the excess reserves and  Treasuries held to hold steady four points on the treasury curve, it orders the queues. You always get an upward sloper.

Government bailout are just fine, but they are priced to the curve almost immediately and paid for  by shrinking private Fed banking. The natural monopsony fee is handled by the independent defaulter. This way we get all the convenience of the Congressional bailouts without the fakery.

Very simple single rule, but Congress has to make the bet on NGDP growth rate, It is essentially the default rate an seigniorage tax. Congress has to decide on the rate on defaulting. Congress has a bunch of price fixes throughout its programs based on the real inflation rate, real default rate.  So, over some long period, it has to estimate, basically, how much of that old spending was worthless. That set their seigniorage fee for a long time, and basically sets the Fed market share. The number is close to a third, a third of congressional spending is likely a waste.  That number is about a trillion a year, at one third, 2% of NDGP?.

How long does Congress want the NGDP growth rate to be set?  How is the contract set? Congress writes a Fed law, sets the default rate, then changes its mind later. Congress discovers that it is too erratic for the banking sector to support? The law changes.