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When relations within government were sensible – the US-Fed Accord – Part 1

I have all that much time today to write this up and it is going to be one of those multi-part blogs given the depth of the historical literature I am digging into. So this is Part 1. The topic centres on an agreement between the US Federal Reserve System (the central bank federation in the US) and the US Treasury to peg the interest rate on government bonds in 1942. What the agreement demonstrated is that a central bank can always control yields on government bonds, which includes keeping them at zero (or even negative in the current case of Japan). What it demonstrates is that private bonds markets, no matter how much they might huff and puff about their own importance or at least the conservatives who are ‘fan boys’ of the bond markets), the government always rules because of its currency monopoly

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