QUESTION: In your Nov. 15 blog you said about the Fed “ I do not think in its present form it should be owned by banks collecting 6%. I would advocate a public float as is the case in Switzerland. Can you explain what that means, and how that works. Thank you
I sincerely hope you continue your blog. I have been trying to get a handle on how the markets work. It really requires a lot of thought until one can feel comfortable.
There is a ring of truth to what you say.
ANSWER: The Fed is far more independent than it portrays. The Fed’s decision to raise or lower interest rates is not at the direction of the bankers, rather it is an understanding that it must steer a realistic path. Yellen has inherited a nightmare. Rates were lowered and the Fed became trapped. They stopped buying 30-year bonds and moved to mortgage securities. They cannot sell anything it now holds. Yellen realized that the pension funds would belly up, and she keeps saying that the rates must rise to be “normalized”.
Politics have far too much influence over the Fed. We cannot afford a central bank controlled by politicians. The bankers should not control the Fed sine they no longer retain loans on their books and become transactional bankers when they sell their loans.
The only solution is to float the Fed publicly so that anyone can buy shares. The influence of politicians and bankers must come to an end. Banks should NOT be qualified for any bailout on their trading – PERIOD. If they do not retain loans, they are not entitled to use elastic money. Floating the Fed makes it a private corporation that must report its balance sheet like everyone else. Congress MUST be forbidden to order the Fed to do anything. That has been the problem all along. Stimulation should return to buying corporate paper instead of handing the banks cash and hoping that they lend it out. Enough is enough.