T Hundley

Powell says if he can’t pay banks to hold reserves the Fed would “lose control over rates.” That’s because the Fed has flooded banks with so many reserves they don’t trade federal funds anymore. The Fed just sets the rate wherever it wants. It’s “Price Fixing.” There is no real market anymore. If the Fed stopped paying interest on reserves it would be forced to reduce its balance back to a level where there were no excess reserves. The supply and demand for reserves and bank trading desks would once again influence rates. Powell says doing this could be disruptive. So, here is what I hear. We grew our balance sheet so much that we can’t unwind it without screwing up the system. This is exactly what Democrats are saying about COVID-era Obamacare subsidies. Now that they are in place we can’t take them away without causing pain. This is no way to run a government. Keep making it bigger and more powerful and then say dismantling it will cause harm. Just stop. Stop it all.