Potter’s Field? Recession Insurance Bonds Could Bypass Political Wrangling In A Crisis (Venezuela, Here We Come!)

by confoundedinterest17

Turning the US into Venezuela where the annual inflation rate is 2,300%?

That what two former Fed officials have opined, Julia Coronado and Simon Potter.

The coronavirus pandemic that shut down economies around the globe showed how crucial—and difficult—it is to get money swiftly to people who need it most in a crisis. Former central bank officials Simon Potter, who led the Federal Reserve Bank of New York’s markets group, and Julia Coronado, who spent eight years as an economist for the Fed’s Board of Governors, are among the innovators brainstorming solutions. They propose creating a monetary tool that they call recession insurance bonds, which draw on some of the advances in digital payments.

JULIA CORONADO: 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.

SIMON POTTER: 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.

Julia Coronado sounds seemingly rational, Simon Potter sounds like Rudolf Havenstein, the president of the Reichsbank (German central bank) during the hyperinflation of 1921–1923.

I could mention former Obama Chief of Staff Rahm Emanuel and his “Never Let A Good Crisis Go to Waste.” In other words, Coronado’s seemingly rational approach could be thrown away in a crisis. Except that US public debt to GDP is already above 100% and M2 Money Velocity is crashing to 1.

Letting The Federal Reserve act as a fourth branch of government? Inflation much??

Venezuelan strongman Nicolas Maduro loves this idea!