The Fed Is Planning To Send Money Directly To Americans In The Next Crisis | Zero Hedge
Which is why we read with great interest a Bloomberg interview published on Saturday with two former central bank 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.
The response was striking: the two propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments, which will be wired instantly to Americans.
As Coronado explains the details, Congress would grant the Federal Reserve an additional tool for providing support say, a percent of GDP [in a lump sum that would be divided equally and distributed] to households in a recession. Recession insurance bonds would be zero-coupon securities, a contingent asset of households that would basically lie in wait. The trigger could be reaching the zero lower bound on interest rates or, as economist Claudia Sahm has proposed, a 0.5 percentage point increase in the unemployment rate. The Fed would then activate the securities and deposit the funds digitally in households apps.
As Potter then elucidates, “it took Congress too long to get money to people, and it s too clunky. We need a separate infrastructure. The Fed could buy the bonds quickly without going to the private market. On March 15 they could have said interest rates are now at zero, we re activating X amount of the bonds, and we ll be tracking the unemployment rate if it increases above this level, we ll buy more. The bonds will be on the asset side of the Fed s balance sheet; the digital dollars in people s accounts will be on the liability side.”
And that, in a nutshell, is how the Fed will stimulate the economy in the next crisis in hopes of circumventing the reserve creation process: it will use digital money apps (which explains the Fed’s recent fascination with cryptocurrency and digital money) to transfer money directly to US consumers.