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Articles by James L. Caton
The Federal Reserve is subsidizing the Treasury. The apparent trouble in overnight markets appears to have provided an excuse to quietly reengage in the now decade-old program of support.
In the first stage, it removes a significant amount of base money from circulation by paying interest on excess reserves. In the second stage, it manipulates other accounts at the Federal Reserve that influence the quantity of base money in circulation.
The greater the unwinding of the balance sheet, the greater will be the difficulty of servicing federal debt. This problem is on the horizon. It will be met by a combination of dollar devaluation, reduction of the budget, or default.
It is the perfect time for Powell to set right the financial sector and establish a return to normalcy.