Fed Musings /2
The only way to have a chance at implementing the inflation mandate is to have complete control over either one side or both the demand and supply side of currency. Although the Fed as agent of the department of treasury and in theory is the issuer of currency in the US and therefore should have a supply side monopoly on currency creation, there is a fly in the currency creation ointment. As per MMTs horizontal and vertical currency concept the Fed does not appear have material control, or chooses not to materially control the fractional reserve lending system, let alone the shadow banking system. Government can try to regulate the minimum reserve requirements (although they can be, and are circumvented through a number of pathways) but the government (yet) cannot impose maximum reserve ratios (force banks to lend a certain minimum amount visa viz their reserves). Whether commercial banks use a fractional reserve of 10% of 12% has a very significant impact on the actual number of cur