With rates this low the only halfway reasonable thing for congress to be negotiating over is how many tax cuts to add to the Democratic spending proposals.
A badly educated Yglesias. We are and will be paying hundreds of billions in seigniorage taxes while our existing debt costs 2.5%.
The economists who badly educated Yglesias are not going to fix the blunder. We will get inequality and mass poverty as we cut off the Antificants from banking. If repubs want to reduce taxes then they need to reduce the taxes collected by the Fed and covered up in mass economic stupidity.
Currently the Fed subsidizes Treasury to the tune of 2% if we consider the current interest rate Congress is willing to pay. If price variation are 3% then at most the Fed should carry about 200 billion on its balance sheet, or less than one third of that risk. So Congress it collecting a 50 billion fee for carrying 200 billion in risk. That is a high monopoly fee. That fee makes baking account unaffordable and lending is very tight.
Yglesias and Drum both badly deceived by the free liquidity theory of central banking. It is the incorrect idea that there is always and exact deposit for every loan, pushed by the Bank of England, it is is incorrect. Cash in circulation is growing at about 5% per year and it will continue to grow as long as the Fed is a tax collector.
The FDIC depost insurance fee is about the size of the seigniorage tax. So other forms of cash are on demand deposits with zero interest rate. These deposits are regulated out of the lending channel. And a lot of cash deposits end up in shadow lending services, meaning the Fed is blind.
The 50 billion in taxes may seem low, after all it go as high as 90 billion in the last cycle. But we have had ten years of tax avoidance on that number. That tax avoidance consists of kicking out the poor from banking. The pension funds also lose on their cash holdings which makes for an erratic stock market.
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