The Fed Has Lost Control: How the Treasury Now Runs US Monetary Policy скачать в хорошем качестве

The Fed Has Lost Control: How the Treasury Now Runs US Monetary Policy

The US financial system has flipped. This is an era of fiscal dominance and stealth financial repression, where the quantity of money and regulatory plumbing matter more than interest rates. Key Dynamics: 1. Fiscal Dominance: The US Treasury, via its General Account (TGA), now directly controls market liquidity. TGA fluctuations from debt issuance and spending override the Fed's interest rate policy. 2. The End of QT: The Fed halted Quantitative Tightening and began reserve management purchases (buying T-bills) to prevent rate spikes, admitting the system lacks efficient liquidity. 3. Stealth Repression: Regulators tweaked the Supplementary Leverage Ratio (SLR), unlocking bank balance sheets to create a captive buyer for massive government debt issuance, artificially suppressing borrowing costs. 4. The Balance Sheet Trilemma: The Fed is forced to maintain a permanently large balance sheet to ensure stable rates for government financing, sacrificing its goal of monetary normalization. Summarizes the current state of the US financial system, arguing that the Federal Reserve (Fed) has lost control of monetary policy to the US Treasury, a condition referred to as fiscal dominance. The main claim is that the US financial system has fundamentally flipped, with the quantity of money and the regulatory plumbing becoming more important than the price of money (interest rates), leading to an era of stealth financial repression. Logic: 1. Fiscal Dominance via the Treasury General Account (TGA): The Treasury's massive debt issuance and spending needs mean the TGA balance—the government's checking account at the Fed—is now the primary driver of market liquidity. When the TGA balance rises (due to debt issuance), it drains liquidity from the banking system, and when it drops (due to spending), it floods the system. This gives the Treasury direct control over short-term money market conditions, bypassing the Fed's traditional interest rate tools. 2. The End of Quantitative Tightening (QT) and Reserve Management Purchases: The Fed halted QT at a $6.5 trillion balance sheet floor, claiming to have reached ample reserves. However, the Fed is now engaging in reserve management purchases (buying short-term Treasury bills). While the Fed claims this is purely technical and not Quantitative Easing (QE), the action is necessary to maintain stability and prevent short-term rate spikes, indicating the system is inefficiently liquid. 3. Stealth Financial Repression via Regulatory Changes (SLR): To ensure the government's massive debt is purchased, regulators tweaked the Supplementary Leverage Ratio (SLR) for major banks. This change unlocked trillions in balance sheet capacity for these banks, effectively creating a captive buyer for new Treasury debt. This manufactured demand keeps government borrowing costs artificially low (below what a free market would demand), which is the definition of financial repression. 4. The Balance Sheet Trilemma: The Fed is constrained by a mathematical trilemma, where it can only achieve two of three goals: a small balance sheet, low volatility of short-term rates, and limited market intervention. Given the necessity of stable rates (to facilitate government debt issuance) and the desire for limited intervention (to maintain credibility), the Fed is forced to sacrifice a small balance sheet. This necessitates a massive, permanent, and likely growing reserve buffer, locking the system into the current paradigm.