“The U.S. financial system has become increasingly vulnerable to core market dysfunction because the supply of intermediation has not kept pace with demand as the Treasury market’s size and complexity have grown,” Logan said in the text of a speech to be delivered to an event held by the University of Chicago Booth School of Business.
She pointed to a rapid expansion of U.S. government debt and a change in who buys and holds that debt, as well as the fading back of the large banks that once dominated the government bond market, as helping drive up vulnerabilities to major shocks.
When a shock arrives that rises to the level where it could threaten the basic functioning of markets, it is appropriate for authorities to take action, as they have in the past, Logan said. She pointed to the Fed’s intervention to both borrow and then buy massive amounts of government debt at the start of the coronavirus pandemic three years ago as a key chapter in authorities action…
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