You may be interested in a recent Odd Lots podcast that touched on the concept of the Fed stepping into the role your describing.
While I understand the sentiment, and agree that the Fed is moving towards more direct management of the banking sector, I am very against the notion of the Fed providing a direct depository function to individ…
You may be interested in a recent Odd Lots podcast that touched on the concept of the Fed stepping into the role your describing.
While I understand the sentiment, and agree that the Fed is moving towards more direct management of the banking sector, I am very against the notion of the Fed providing a direct depository function to individuals and then doling out lumps of capital for banks to go and make loans.
Effectively, it would let the federal government decide which industries or people deserve credit, and I don't think that the government should play that role and don't think they would do a good job of it. Under either party, the credit would flow inefficiently and towards pet projects and away from politically undesirable projects, that may still have a lot of importance.
As it is, the Fed has already stepped into the role of direct money creation and destruction via QT/QE, which has sidelined the role of interest rates, as described above. I don't think that they have proven particularly efficient or prudent in that function and doubt that their delegation of loan capital would be efficient or prudent either.
The best version of these plans is that the Fed provides a "sleeve" or backstop to depositors and everything else sort of continues as it has.
Credit allocation by the government is not a good idea, absolutely. But it doesn't have to be. Banks can have access to Fed funds on general terms, limited by the regulations that are currently in place: capital cushions, stress tests, no self-dealing, etc...
You may be interested in a recent Odd Lots podcast that touched on the concept of the Fed stepping into the role your describing.
While I understand the sentiment, and agree that the Fed is moving towards more direct management of the banking sector, I am very against the notion of the Fed providing a direct depository function to individuals and then doling out lumps of capital for banks to go and make loans.
Effectively, it would let the federal government decide which industries or people deserve credit, and I don't think that the government should play that role and don't think they would do a good job of it. Under either party, the credit would flow inefficiently and towards pet projects and away from politically undesirable projects, that may still have a lot of importance.
As it is, the Fed has already stepped into the role of direct money creation and destruction via QT/QE, which has sidelined the role of interest rates, as described above. I don't think that they have proven particularly efficient or prudent in that function and doubt that their delegation of loan capital would be efficient or prudent either.
The best version of these plans is that the Fed provides a "sleeve" or backstop to depositors and everything else sort of continues as it has.
Credit allocation by the government is not a good idea, absolutely. But it doesn't have to be. Banks can have access to Fed funds on general terms, limited by the regulations that are currently in place: capital cushions, stress tests, no self-dealing, etc...