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n. Illinois | Make sure the Fed could actually do its job right which is to be the lender of last resort to the commercial banking sector.
True story. Silicon Valley Bank failed in early 2022 because the Fed failed to be there when that bank needed them the most The Fed knew that they were having liquidity issues but they also knew that SVB had sufficient long term Treasuries to back up any additional borrowing that SVB needed but they couldn't get the so called paper work done in a timely manner which caused the FDIC to step in a close it.
The small town commercial bank where i am at; the President of the bank told the CFO you better see what it would take to get something set up with the FED just in case we would need to actually tap into the Fed for overnight borrowings. It took the CFO over 2 weeks to get this done.
Bottom line the FED can not actually do its job which is to be the lender of last resort in a timely manner.
As to strategic issues #1 is stop buying any new Govt Bonds and start the process of selling off the bonds that are currently on the books. Do it in a manner that doesn't dramatically upset the markets. Work behind the scenes with the FDIC to tweek the liquidity rules that the FDIC is imposing that require more and more dollars to be deposited with the FED to be in line with the FDIC liquidity rules. This will free up capital that the banks could then use to #1 make more loans or #2 buy up the bonds the FED will be selling off. Keep the growth rate of the money supply modest so the population and productivity growth can absorb it without creating more inflation.
This is going to force the Treasury Dept to get creative in selling off the new bonds to finance the Governments inability to be fiscally responsible. But its not the FED's job to keep the junkie high on crack is it? The FED has been enabling congress to be fiscally irresponsible by sucking up the new bonds that the treasury is issuing .
One change I would make would be to have a lottery where one new person everyday is picked (taxpayers only who report taxable income of less than 150K and who do not have any business income on their 1040's) to be the lucky recipient of the fee that Goldman Sachs ET AL get for being the middle man between the Treasury department and the FED. IE if your selling off 40 billion in new bonds and those bonds immediately get bought by the FED and if the fee that the middleman gets is only .01 basis points ( I bet its even more than that) that is still $400,000/day for doing nothing at all. Going to take that away from Goldman Sachs and the Wall Street banks and give it to real tax payer's who could actually change their life with such a windfall.
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