According to Forbes, the Federal Reserve has held its key interest rate steady at 3.5% to 3.75%, but the real story is how it maintains that rate. For 18 years, the Fed has used a “floor system,” paying banks interest on reserves—a system that economist Alexander W. Salter argues may violate the plain language of the 2008 law that authorized it. That statute said the Fed’s interest payments couldn’t exceed “the general level of short-term interest rates,” but the Fed reinterpreted this to set its own ceiling. The result is a $6.6 trillion balance sheet and annual payments to banks approaching $200 billion, a sum larger than the entire U.S. Department of Transportation budget. Congress has never explicitly authorized this framework, creating an 18-year-old operating system in a legal gray zone.
How The Fed Rewrote Its Own Rules
Here’s the thing about bureaucracies: when the rules get in the way, they often just… rewrite the rules. That’s basically what happened in 2008. The financial crisis flooded banks with reserves, which under the old “corridor system” would have crashed interest rates to zero. The Fed’s solution? Start paying banks interest to just park that money at the Fed. It was a clever fix for a crisis. But the law Congress passed said the Fed couldn’t pay more than the “general level of short-term interest rates,” meaning market rates. So the Fed simply redefined “short-term interest rates” to include another rate it itself sets, the primary credit rate. It’s a circular, self-justifying logic. As long as the rate it pays on reserves is below another rate it controls, it’s in compliance. With its own definition.
The Permanent Temporary Program
And that’s the kicker. What was sold as an emergency measure in 2008 is still the operating system in 2026. Milton Friedman was right about temporary government programs. The Fed’s balance sheet ballooned, peaked over $9 trillion, and still sits at a staggering $6.6 trillion. Those nearly $200 billion in annual interest payments? They flow overwhelmingly to megabanks and foreign institutions. It’s a textbook Cantillon effect: new money benefits those closest to the spigot. Congress has done nothing but debate. The Senate talked about stripping the authority, but as Salter notes in his analysis, debate without action is just theater. So the system persists, untethered from clear legal authority.
Bitcoin’s Different Kind Of Enforcement
This is where the Forbes piece pivots to Bitcoin, and it’s a compelling contrast. The Fed needed only internal agreement to reinterpret its statute. Bitcoin’s rules? They’re enforced by a distributed network. Think about it. Changing Bitcoin’s core monetary policy—like its 21 million coin supply limit—would require convincing hundreds of thousands of independent node operators worldwide to run new software. These operators have skin in the game; they run nodes because they believe in the existing rules. A change that dilutes their holdings would be dead on arrival. We saw this in the 2017 block size wars. A proposal (SegWit2x) backed by over 80% of mining power and nearly every major company failed because the economic nodes—the actual users—said no. Their veto power is absolute.
Discretion vs. Code
So what are you really holding when you hold a dollar or a bitcoin? You’re holding a promise from a system of governance. The dollar is a promise from a system built on discretion. As Fed Governor Stephen Miran’s recent speech shows, even when officials see problems (like regulations forcing a bloated balance sheet), they tinker at the edges. The core discretionary power remains. The Fed assesses, judges, and, when necessary, reinterprets. Your dollar’s value is subject to those tomorrow’s decisions. Bitcoin is a promise from a system of rules executed by code. The 2020 pandemic didn’t speed up issuance. The 2022 crash didn’t slow it down. No emergency committee can vote to change the schedule. The rules are the rules, enforced by a network with no CEO, no board, and no legal gray zone. After 18 years of the Fed’s unsanctioned floor system, that distinction isn’t just academic. It’s the whole point.
