Fed taxes and dollar value

 

The  red line is our willingness to accept the seigniorage fees. The blue is traded weighted dollar.

That is a fairly high correlation coefficient, not .95 or anything but close enough to show the two are related.

What the Fed is doing is indicating a willingness to tax the banks and make the Swamp whole.  This makes government bonds safe and all those Black-Sholes time series are more accurate. The downside is that Congress is blind, they have no idea about government prices and productivity goes to hades, we end up devaluing anyway.

The red line is not the seigniorage fees, they were about a hundred billion before covid. The red line indicates, under the current circumstance,  the relative bank cost of collecting that tax. The higher that line, the more willing are the retail banks to go tax collecting. 

The red line is headed down, to meet the dollar value.  Expect a flood of excess deposits at the Fed. It seems that cause is higher dollar effects banks more willing to go tax collecting.It is like an entry fee, congestion adjusted like any monopoly would do. In the sandbox model the pit boss takes such a small share of the trade space that exogenous monetary shocks are mostly split between deposits and loans.

The safe way to avoid the tax is to return the tax collecting duties to Treasury, give them a devaluation tax authority within an agreed bound. Leave the banks completely out of the problem. Or a partial deal, the Fed pays a fixed, and small monopoly fee, say a half point, and Treasury can hit the rest of us with the one and a half point difference in inflation taxes. 

Just do not be collecting Swamp taxes through the regulated banking system. It is the monopoly tax dollar, used always to pay government taxes. So it is automatically, 100 percent a double tax, without legislative approval. The fed cannot afford the market share loss, it is extremely deflationary.