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By Craig Torres
Bernanke said in a congressional hearing yesterday that the expansion of the Fed’s balance sheet “makes it more difficult to control the federal funds rate.” It is “still an issue we are working on,” he told the House Financial Services Committee.
How about the Fed trading Fed funds and making a 1 basis point market in Fed funds. Yes, that would mean lending to Fed member banks without specific collateral, but Fed collateral demands are redundant, as other government agencies- FDIC, OCC, etc- are already responsible for monitoring all bank assets and capital, and presumably close down any and all insolvent banks.