Ex post it is recently true that the dollar jumps when we enter recession. It is true that the Swamp will enter stimulus style spending. That is when they will utilize their contracted double spending. Treasury then has an immediate impact on monetary inflation, but limited to contract. Treasury can neither save too much nor spend too little of their double spending authority. The contract assumes a good third of that debt burden is wiped clean over the contract term.
The effect on the dollar is to stabilize supply and demand. That is a productivity gain, the Swamp should get back at least half a point from that gain. The Fed target, being 15 years hence will be keen to enforce the contract, it wants debt relief for the Swamp, especially if the bank are not being hounded. We will cover that 2% inflation tax quickly. Treasury will hit its bounds once, cause an uproar, and learn to wait out the contract. This is all good for currency stability, and it fixes long term currency insurance. We are simply being honest, left or right, government fouls up for no fault on any of us. Book it.
Other central banks can do the same, but currencies in a global recession will revalue temporarily, not all inflation responses will be the same. The effect of a global recession is temporary currency volatility as currency hedges are collected. The inflation tax acting the same as a Fed tax, but distributed by the rightful power.
Separation of the two, a more neutral Fed and Treasury's right to devalue (or revalue). Treasury's may collude with each other across national boundaries, manipulate currency values all they want. But the inflation tax is better spent on revenue sharing. Congress, both chambers, equally incentivized to get another point of cash from programs mostly by reducing interest costs. Our economy will be close to deflation again in five years. The gains from more accurate central bank money spread everywhere as the fed recovers market share. Currency risk reduces because variance on direct inflation is bound, and visibly enforced. Can the global economy sustain an infinite 2% inflation? We do not know, but 15 years is a lot shorter then forever. And we get healthier regulated banks.
The central banks single rule is the same, keep government funded, no one is changing that rule. But after a year or two, there is a bridge loan that sustains the can kick for 15 years, maybe less. So saving government is at the renewal point.
The inflation appears as a variable value added tax. So it will depress value chain length, favor vertical consolidation to the extent of its variation. If revenue sharing is tied to the inflation then new money favors the mid sized to small states, they recover soonest after recession. States like Vermont will earn money from the recession. They have shorter supply chains. During the following expansion the inflation tax will drop after being excessive. Favoring large states with deeper value chains.
Since Treasury and he Senate agreed they will be stuck with higher rates for a few years. But as the newly freedom loving Fed expands market share, velocity goes up and net value added tax drops. The Fed is not carrying the 2% burden and deposits are not threatened except for what is predicted 15 years hence. So this is simply a bank switch, and does not change value chains but spreads out the inflation tax among ex shadow traders. Worth half a point. Just efficiency gains from better accounting without multipliers recovers 1 point of the inflation tax.
This deals works, this is what the fed board wants, this is what they are saying in code word. Tie this to revenue sharing, you will do no worse and it is an automatic stabilized.
What if it works too well?
We get a quick and permanent productivity boos in finance, worth a few points of deflation. Congress will demand a better deal and we renew the contract in ten years. The effect of assigning legal inflation where the Constitution says it belongs? Just that alone clarifies much of the chaos. But uncertainty remains, we know there will be calls for early or later contract renewal. In 15 years, Congress may like it, but the banks are beyond that level of inflation.
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