The Once and Future Fed - And Treasury: From Credit Modulo-Allocative Separation to Re-Consolidation

Abstract

We are now so accustomed to the separation of fiscal and monetary policy, hence of central banks and exchequers along with the distinct credit-modulatory and credit-allocative tasks now assigned those distinct instrumentalities, that the thought of a partial reconsolidation rings heterodox. So does the ‘re-’ in that last word. In fact, however, partial consolidation used to be the norm, and for good reason, while our reason for first attempting a radical separation here in the U.S. was a bad reason. This essay aims (a) to explain why credit-modulation cannot be practically separated from credit-allocation, (b) to indicate how we used to combine them and why we mistakenly stopped, and (c) to show how to reconsolidate now with a ‘Spread Fed,’ a revitalized Federal Financing Bank within Treasury, a Democratic Digital Dollar savings and payments platform, and a democratically accountable National Reconstruction and Development Council – in short, the author’s ‘InvestAmerica’ Plan.

Keywords: Banks, Capital, Central Banks, Credit, Consolidated Balance Sheets, Credit Allocation, Credit Modulation, Exchequers, Fed, Federal Reserve, Finance, Finance Ministries, Financialization, Fiscal/Monetary Consolidation, Fiscal Policy, Monetary Policy, Money, Public Investment, Treasury