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- Jul 10, 2012
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What does anyone think of this? Instead of the Fed controlling interest rates and lending, by manipulating the Fed Funds rate to control interest rates, why not just let the market control it?
Lend a set amount of money every day/week/month whatever, and have it go to different banks by way of auction. Banks would "bid" how much interest they would pay on a particular "block" of Fed lending. If the economy is skyrocketing and banks are lending at a high clip, the interest rate would get pushed up by increased demand. If the economy is tanking, perhaps the Fed might end up lending at a negative interest rate if that is all the market is willing to pay.
Thoughts?
Lend a set amount of money every day/week/month whatever, and have it go to different banks by way of auction. Banks would "bid" how much interest they would pay on a particular "block" of Fed lending. If the economy is skyrocketing and banks are lending at a high clip, the interest rate would get pushed up by increased demand. If the economy is tanking, perhaps the Fed might end up lending at a negative interest rate if that is all the market is willing to pay.
Thoughts?