A little-noticed provision of the revised Heroes Act which passed the House on Oct. 1 might destroy the U.S. municipal bond market. Although this may be a desirable outcome to proponents who would like to free state and local government from the costs and constraints associated with issuing bonds, such a radical change at least merits a debate.
The profits from the Fed buying municipal bonds goes to the Swamp. It is a tax and bond dealers will pass the tax down stream or exit the business.
The net effect is to put Congress into the municipal bond industry. But Congress needs the tax, and when the municipals have less need for loans and more need for deposits, Treasury loses a big chunk of taxes. Treasury cannot exit and enter the bond industry like bond traders.
One can see the problem. Who manages the municipal bond industry? The answer is Tom Cotton and the senate. We will have habitual war declarers trying to cover payments with the city lending business.
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