Blushing bankers parked in a pickle

From time to time, we all experience those moments when overlooked, devilish details seem to pop up out of nowhere to frustrate plans of all varieties of magnitude. And, according to George Selgin, it appears that the Yellen Fed has encountered such a situation resembling much more than a mere moment of frustrated plans, for the law that provided the Fed with authority to pay interest on reserves caps the rate at no higher than the market short-term rate (short-dated T-bills).

Many of my readers already understand what this means, and that the degree to which the central bankers have painted themselves into a corner in refusal of a years-long constant stream of good advice from sympathetic individuals qualified to provide it can’t be overstated.

The IoR/RR solution to controlling interest rates in a post credit-crunch world has already been implemented, I suppose, with the assumption that the cap on the rate of interest on reserves could be flouted as much as the Federal Reserve Act has been, and the now FF rate applies to so few institutions as to be meaningless.

So if you’ve wondered why Janet Yellen appeared to have finally tapped into her better angles, going from writing off nearly every labor force dropout in years past, to this year deciding that the Fed may want to run the economy a little bit hot, this little tidbit of information may as well shed some light. I probably will not dwell on this point, however, because the obviousness that she completely understood that the economic conditions planned by organization she heads was optional and would result in perpetual hopelessness for millions doesn’t escape me, and will just piss me off more than I’ve already been.

PS: Consider my last post about V and marvel at small wonders.