I was with him all the way, then we diverged on normalization.
The one year treasury rate was rising, reserves were exiting and leaving Yellen with the choice of selling her Treasury pile or letting seigniorage go up, yet again. She was facing a deposit run. If she chose to accept the rising seigniorage, then she impairs loan collateral much worse than before. That shrinks the fiat network.
Her very first duty is what? Keeping deposits and loans as moment matched as possible. There is no avoiding this. It happens, assets track liability, hunts them down. And fiat banks have that job. Yellen cannot let that fee jump as high as Treasury wants as this greatly impairs the fiat network which is still 60% private gdp.
Banks are the most liquid thing, if they have an arbitrage moment they get about one and a half steps to correct or the bank fails. These fiat banks were staring, then, at their fourth year of these fees, the customers automatically avoid them, with a few clicks into other corporate and stock and money market.
Yellen has to keep a fiat network alive, so does Powell. They will track reserves to the government one year, always, until that link is better managed.
Selgin and I differ on market size. That fiat network is so liquid that it can very rapidly segment into fee avoiders and tax payers. The fed itself is causing the former group to exit, a deposit run down the network robs fiat banks of share and they contract the net.
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