Proposal:
Given that the FED recently increased the spot rate, and the markets have been in a slump since the holidays ended, the FED is in a tough spot. Reducing national debt while alleviating currency pressure, by increasing the M1 and paying off debt, or by decreasing the yield of the T notes and reducing the cost of debt.
Brief Analysis:
While the US government continues to run a deficit, the USD is continuing to gain strength against the EUR and yuan. This added value does not benefit the export driven US economy. Instead, if the government wanted, it could utilize this added trust the forex markets have placed in the economy to lower it's debt.
Increasing the M1, also known as printing more money, applies a downward pressure on the USD. Paying off our national applies a smaller amount of upward pressure on the USD. Overall, the raise of the USD could be halted or reversed if applied carefully.
Alternatively, reducing the held of the T notes would make new debt cheaper. Debt we have to incur as a result of the existance of a deficit. In fact, there an argument can be made for negative interact rates (an argument I intend to make in a follow up post titled "On Negative Interest Rates"). Put simply, the T note provides safety and inflation protection; however, there is no need for it to provide any return. Removing the message return would encourage more investment.
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