Chatted today with @GeorgeSelgin about his proposal to tweak @dandolfa & Jane Ihrig's proposed standing repo facility (SRF) so that in crises Treasury & foreign official entities can access SRF. A pragmatic suggestion that increases Fed's control over its own balance sheet (1/x)
Many don't appreciate that the TGA and foreign repo pool part of Fed's balance sheet has become large, volatile, and largely outside the Fed's control. This leads to big swings in reserves, and in turn, can affect funding for repo markets (2/x)
The attached chart shows how these two accounts have changed since 2008. They used to be small and trivial parts of the Fed's balance sheet. Now they're large and, in the case of the TGA, volatile. George explains the change here: alt-m.org/2019/11/12/dto… (3/x) 
Interestingly, Selgin notes that the current TGA problem isn't new. It became an issue in the 1970s with the high interest rates of that time. Treasury starting putting funds in the TGA to minimize the cost of the high yields (i.e. maximize Fed remittances to Treasury). (4/x)
To illustrate how these accounts affect reserves, first consider where reserves would've been if the Fed hadn't done QT. At the end of QT, reserves were near $1.4 trillion but would've been near $2.0 trillion in its absence. That is roughly $600 billion higher. (5/x)
Now assume the TGA and Foreign Repo Pool accounts had stayed at their pre-2008 levels. Reserves would be roughly another $600 billion higher near $2.6 trillion. (6/x)
So, in short, the TGA and Foreign Repo pool drained the banking system of as many reserves as QT. They should be as much to blame for the repo rate spikes as QT. But unlike QT, the Fed currently has little control over these accounts. (7/x)
Selgin's proposal to tweak the SRF provides a fix that would address these issues. Proposal outlined here (End) alt-m.org/2019/11/14/sto…
Addendum: allowing foreign official entities (primarily foreign central banks) access to the SRF as is one way to accomplish @teasri's idea of granting more foreign central banks access to Fed BS and thereby minimize global dollar cycle. See our chat here mercatus.org/bridge/podcast…
