The Fed as fiscal authority

We sometimes describe fiscal policy as determining the overall level of the public debt, while monetary policy determines the composition of that debt between money and interest-bearing federal obligations. By that definition, the Fed has clearly now entered the realm of implementing fiscal policy, by issuing debt directly in the form of interest-bearing reserves, reverse repos, and now term deposits.

That's from James Hamilton.  His upshot?:

I fear that as this marriage between fiscal and monetary policy becomes consummated, an amicable divorce is not the most likely outcome.

My advice would be the sooner the Fed can return to plain vanilla central banking, the better.


The distinction between fiscal and monetary policies in the terms posed by JH is irrelevant. Relevant issues are: the total amount and composition of government spending over some period of time, the composition of the financing of government spending over the same period of time, the implications of the accumulated debt for future government spending.
As anyone familiar with hyperinflation knows, the issue of currency is critical to finance government spending when other sources are not available. Anything else related to the issue of currency is usually irrelevant.
If the Fed starts to issue bonds to finance the accumulation of gold, foreign exchange, foreign stocks, houses, or whatever, then the Fed is just another state bank or financial institution (the best example is the People's Bank of China that has accumulated over a trillion dolars of "international reserves" financed by people's deposits with the state banks).

hang on, aren't interest-bearing reserves just a way of putting a floor on interest rates?

8 hours ago I saw people successfully selling red masks for 35m each. Now I see people attempting to sell them for 30m each. I haven't been watching other rares though, except for one of my friends who successfully sold a red phat for 240m this morning. Not sure on the price of them right now.

For me, economic and investment are two difficult topics. They are really hard to understand. Maybe it's time for me to learn them so that I can achieve my salary plan.

Comments for this post are closed