…… So in 2008, the money markets would have cleared, and any temporary expansion of the Fed’s balance sheet would have immediately shrunk once the crisis was over, and the discount loans were repaid.
And, yes, at 10%, 15% or even 25% and a penalty spread to boot, they would have been paid off real fast.
That’s what a real lender of last resort would look like. Janet Yellen’s crony capitalist flop house is its very opposite.
By the same token, a real central bank of the pre-Keynesian era would not now own $4.5 trillion of government debt and guaranteed paper. In fact, it would own none at all because monetization of the public debt was never the purpose of central banking.
The purpose was to liquefy business loan books and the traded markets in real bills, which were essentially receivable-type claims on finished goods in the channels of distribution. Unlike government debt, the latter represented production already done and banking collateral that could be collected within a relatively short period of 30 to 90 days.
This post was published at David Stockmans Contra Corner on August 10, 2016.
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