It looks normal on the way up, the pit boss is increasing its monopoly gains in a closed system as traders suddenly increase loans to deposits. On the down side, the automated S/L loses an equivalent to keep its market risk tending to zero. The pit boss is dampening volatility int time, and that is correcting a skew in the binomials between deposits and loans.
The central bank is not correcting the asymmetry on the down slope. Why? The owner has a one way profit stream, this is not your basic 1,y,z based automated S/L. We have a central back pit boss that runs two distributions, one for government and one for the banks. It alternates between states. In one mode it is running an S/L, then the L is suddenly from government, and government incurs a loss, relative to the banks. The central bank goes into tax collecting mode.
Where are these losses? Always at predictable moment in government operations, moments well hedged by outsiders, but hidden in the accounts of the central bank. It is like a claw back on behalf of the central bank. That up slope is government mis pricing error, the central bank is in tax claw back mode.
What the Fed is trying to do is, in essence, maintain dual ledger networks, one for taxes and one for currency. Risk on, risk off. But the market size is nt there fo the Fed to be running along the 2,y,z 3 tuples When in tax mode, tax dodgers run way ahead of the Fed. It take long and longer for the Fed to recover government losses. And it claws back much of those taxes, but there is a residual it cannot recover, and it accumulate on the balance sheet. Now we have splits in the fiat banks, some adopting the shadow system, some stuck in tax mode and dying.
The solution is to acknowledge he problem and negotiate a direct fiat inflation tax for Treasury. No target is going to work in the current circumstance, there is no way the central bank should be accumulating unrecoverable government losses. It will always fall further and further behind.
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