Treasury and Congress, coinage and taxes. Fiaters have no desire to distort markets, they just want to collect the Fedwire fee. Sanctity is preserved as long as treasury can buy its debt back at a market determined price. Isn't double spending an attack on sanctity? No, double spending is a known risk ex ante to the market. The Treasury market is naturally distorted by the taxation effect, double spending should alleviate that distortion.
If tax collection by the Fed is integral in the current model, then pass that same power back to Treasury. I think it is between a half and a point of GDP, but if you want security, make it two points of double spending.
Velocity of municipal bond market goes to crap and the various government entities cannot use debt to manage congestion. You are making the revenue sharing problem worse, Congress becomes the banker of resort for the government chain. Everything will have fallen apart long before then.
For good reason the senators do not trust the governors, in either party. That further distortion is states rights, districts do not have spending authorities, and no one trusts districts with that authority anyway.
We are a bit stuck. A Fed dominated municipal market backed by earmarks?
If the Fed went into municipal markets, it will take over the 3.8 trillion dollar market. That market merges into the ten ear Treasury which ultimately backs the municipal notes. The likely result, a higher ten year rate overall. I dunno, seems risky. Treasuries are safe to the extent they are independent of municipal volatility. This hedging costs, the costs of scale imbalance keeps getting washed into one current and showing up in another.
The scale problem needs to be expensed as it is observed. Running those costs through Treasury is a loop, Treasury should be supporting revenue sharing ex ante.
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