Living an illusion

And here’s where the fallacy of composition comes in. While I can get rid of the extra cash by purchasing bonds, stocks, commodities, real estate or foreign exchange; society as a whole cannot get rid of the excess cash by purchasing other assets. Doing so is merely “passing the buck”.

But the public’s attempt to get rid of excess cash balances will drive up the price of a wide range of assets, leading to more total spending, more NGDP. Eventually NGDP will rise high enough so that people are willing to hold the larger cash balances, and a new equilibrium is established.

Scott. 

A permanent expectation of higher prices. Tricked by the peg then run.

Not what happens, Instead we get the Deja Vu and we hedge the current round of NGDP growth. We have seen it before and we know it is finite, so we make the binomial bet and hold cash till the end as this too shall pass.

Where do the central bank earnings go while it is gobbling market share? Most of us know the answer already, and it is not higher consumer prices.  We know the market size, we know the Fed will run out of poop before the new expectations. 

An automated S/lLwith a loss function would have the pit boss lose money to deposits, as necessary.  there is no other leakage path. So if the traders cannot find opportunities to invest ahead, the pit poss raises its own L/S to keep the interest earnings flowing.  Near equilbrium, the pit boss flips back from losing to gaining. Finance does risk off and on. We will get a partition as the risk on traders are not risk off traders.

Sandbox is a closed system, no leakage out the back. So there is no peg and run, and investors follow the Fed as if it were stuck in a closed system with a government profit/loss taker, it is.  Why not an independent Fed and government is just another S/L account then  the Fed can have a loss function.  

I like the inflation tax.  That tax completely frees the Swift bankers with just a fifth point monopoly fee.  The alternative is the previous suggestion, let governments have accounts.  We will see a government scofflaw queue anyway. Everyone will operate with higher L/S but there is still switching to maintain a neutral pit boss.  The switching will be a bit more volatile. But it means government losses are visible.

Money base determined by Treasury, with a bounded rate. Powell and the Swift bankers free and clear of government regulations, except they manage the tax currency.  We all pay the price for government imbalance.