The New Uses of Monetary Powers
A substitution of fully amortized, long-run, variable-interestrate mortgages for the present fixed-interest-rate mortgages is necessary if rapid and substantial increases in long-term interest rates are to be consistent with the integrity of savings institutions. For the Federal Reserve to be free to adopt policies which lead to sharp increases in long-term rates, it needs to guide the evolution of mortgages in the direction of the adoption of variable interest rates. This could be accomplished by making variable-interest-rate mortgages eligible for discount, by making the paper of dealers in such mortgages eligible for discount, or by extending Federal insurance only to such mortgages. The political difficulties of moving the specialized government agencies to adopt such an alternative convention for mortgages is an argument against the present decentralized central bank structure. 5
ing the availability of monetary policy as a technique for restraining undue expansion.