We finally beat China at something!
11-22-2011, 07:58 AM
#3
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The US (between public and private sectors) have always been the top holders of US Govt debt.
No. The Federal Reserve, through open market operations in coordination with the US Treasury, sets interest rates. Also, when the US Treasury pays the Federal reserve interest on the US Treasury bonds held by the Fed, what happens to that interest income?
No. The Federal Reserve, through open market operations in coordination with the US Treasury, sets interest rates. Also, when the US Treasury pays the Federal reserve interest on the US Treasury bonds held by the Fed, what happens to that interest income?
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11-22-2011, 09:55 AM
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The Fed is limited to how much money it can earn per year. I do not remember if it is a set dollar amount or a percentage. It has been a while since my money and banking class. All earnings over that set amount is given back to the treasury.
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11-22-2011, 11:30 AM
#11
http://www.federalreserve.gov/newsev.../20110110a.htm
The Federal Reserve Board on Monday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $78.4 billion of their estimated 2010 net income of $80.9 billion to the U.S. Treasury. This represents a $31.0 billion increase in payments to the U.S. Treasury over 2009 ($47.4 billion of $53.4 billion of net income). The increase was due primarily to increased interest income earned on securities holdings during 2010.
Under the Board's policy, the residual earnings of each Federal Reserve Bank, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed to the U.S. Treasury.
Under the Board's policy, the residual earnings of each Federal Reserve Bank, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed to the U.S. Treasury.
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11-22-2011, 12:55 PM
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However, the correlation breaks down a bit when you are in a "ZIRP" (zero interest rate policy) environment. That is, the yields will deviate from the FFR a little more often, but in a relatively narrow range.
The Federal Reserve and US Treasury are in regular communication regarding the reserves of their primary dealers and the banking system (required, excess, etc) and use that information when structuring the US Treasury bond auctions. That is why, barring some technical screw-up, they should always be oversubscribed.
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