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In Unprecedented Monetary Overhaul, The Fed Is Preparing To Deposit ‘Digital Dollars Directly to Each American

Summary:
Over the past decade, the one common theme despite the political upheaval and growing social and geopolitical instability, was that the market would keep marching higher and the Fed would continue injecting liquidity into the system. The second common theme is that despite sparking unprecedented asset price inflation, prices as measured across the broader economy – using the flawed CPI metric and certainly stagnant worker wages – would remain subdued (as a reminder, the Fed is desperate to ignite broad inflation as that is the only way the countless trillions of excess debt can be eliminated and has so far failed to do so). The Fed’s failure to reach its inflation target – which prompted the US central bank to radically overhaul

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Over the past decade, the one common theme despite the political upheaval and growing social and geopolitical instability, was that the market would keep marching higher and the Fed would continue injecting liquidity into the system. The second common theme is that despite sparking unprecedented asset price inflation, prices as measured across the broader economy – using the flawed CPI metric and certainly stagnant worker wages – would remain subdued (as a reminder, the Fed is desperate to ignite broad inflation as that is the only way the countless trillions of excess debt can be eliminated and has so far failed to do so).

In Unprecedented Monetary Overhaul, The Fed Is Preparing To Deposit ‘Digital Dollars Directly to Each American

The Fed’s failure to reach its inflation target – which prompted the US central bank to radically overhaul its monetary dogma last month and unveil Flexible Average Inflation Targeting (or FAIT) whereby the Fed will allow inflation to run hot without hiking rates – has sparked broad criticism from the economic establishment, even though as we showed in Junedeflation is now a direct function of the Fed’s unconventional monetary policies as the lower yields slide, the lower the propensity to spend. In other words, the harder the Fed fights to stimulate inflation, the more deflation and more saving it spurs as a result (incidentally this is not the first time this “discovery” was made, in December we wrote “One Bank Makes A Stunning Discovery – The Fed’s Rate Cuts Are Now Deflationary“).

In Unprecedented Monetary Overhaul, The Fed Is Preparing To Deposit ‘Digital Dollars Directly to Each American

In short, ever since the Fed launched QE and NIRP, it has been making the situation it has been trying to “fix” even worse while blowing the biggest asset price bubble in history.

And having recently accepted that its preferred stimulus pathway has failed to boost the broader economy, the blame has fallen on how monetary policy is intermediated, specifically the way the Fed creates excess reserves which end up at commercial banks instead of “tricking down” all the way to the consumer level.

To be sure, in the aftermath of the covid pandemic shutdowns the Fed has tried to short-circuit this process, and in conjunction with the Treasury it has launched “helicopter money” which has resulted in a direct transfer of funds to US corporations via PPP loans, as well as to end consumers via the emergency $600 weekly unemployment benefits which however are set to expire unless renewed by Congress as explained last week, as Democrats and Republicans feud over which fiscal stimulus will be implemented next.

In Unprecedented Monetary Overhaul, The Fed Is Preparing To Deposit ‘Digital Dollars Directly to Each American

And yet, the lament is that even as the economy was desperately in need of a massive liquidity tsunami, the funds created by the Fed and Treasury (now that the US operates under a quasi-MMT regime) did not make their way to those who need them the most: end consumers.

Which is why we read with great interest a Bloomberg interview with two former Fed officials: Simon Potter, who led the Federal Reserve Bank of New York’s markets group i.e., he was the head of the Fed’s Plunge Protection Team for years, and Julia Coronado, who spent eight years as an economist for the Fed’s Board of Governors, who are among the innovators brainstorming solutions to what has emerged as the most crucial and difficult problem facing the Fed: get money swiftly to people who need it most in a crisis.

Tyler Durden
Tyler Durden (a pseudonym) represents the idea that a return to truly efficient markets is a possibility and a necessity. After having experienced the inner workings of capitalism at various asset managers and advisors, Tyler believes that the current model is flawed and a deleveraging at every level of modern society is needed to reinspire the fundamental entrepreneurial spirit.

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