Saturday, September 26, 2020

The Fed made changes in the monetary base format.

 They no longer have excess reserves, they have non borrowed money, just plain reserves. These are still effective Fed deposits, as as such always earn interest on fed loans. It will always earn  positive rate because deposits do not pay the Fed tax, they avoid it.

So what the Fed now calls non borrowed funds really mean funds borrowed by Congress, funds that skip the seigniorage tax when rates are zero.  There is no escape, loans are moment matched to deposits. There is no escape because double entry accounting tracks all exits within a bound uncertainty. So, for the Fed, currency neutrality will include seigniorage tax neutrality as needed. And the Fed still is, and always will be, a central bank. 

The siegniorage fee is faked in the sense it can be paid in advance, via the new Fed contract. That is, we know it is there, always will be. We have the Constitutional ability for a provable New Fed contract. A little math says we can do pretty good by being honest about it.

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