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Old 11-17-2011, 10:06 AM   #1
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Default We finally beat China at something!

Fed Now Largest Owner of U.S. Gov’t Debt—Surpassing China
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Old 11-20-2011, 06:50 PM   #2
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doesn't the fed charge a higher interest rate than everyone else?
the bank of last resort right?
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Old 11-22-2011, 08:58 AM   #3
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Fed Now Largest Owner of U.S. Gov’t Debt—Surpassing China
The US (between public and private sectors) have always been the top holders of US Govt debt.

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doesn't the fed charge a higher interest rate than everyone else?
the bank of last resort right?
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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Old 11-22-2011, 09:30 AM   #4
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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?
Are you asking what happens to the interest that is paid to the fed?
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Old 11-22-2011, 10:24 AM   #5
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Are you asking what happens to the interest that is paid to the fed?
Yes; if the Fed holds massive amounts of US Treasury bonds and the US Treasury pays interest on those bonds (e.g. "2% 10-year Treasury"), what happens to that interest that is paid?
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Old 11-22-2011, 10:45 AM   #6
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seeing as how it is a private bank i do not see why they would not pocket the money

i have never heard anything different
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Old 11-22-2011, 10:50 AM   #7
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The interest is given back to the Treasury, no?
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Old 11-22-2011, 10:55 AM   #8
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Originally Posted by Scrappy Jack View Post
The US (between public and private sectors) have always been the top holders of US Govt debt.
The Truth.


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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?
Well the Fed does not actually set interest rates. They decide on a target interest rate they would like the be around. They then buy and sell US Treasuries and other assets to achieve get near the target.

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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Old 11-22-2011, 11:15 AM   #9
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The interest is given back to the Treasury, no?
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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.
I am interested in learning more about this.
Could someone link me to some credible info as google just returned some similar answers for me but they were just people talking on some site somewhere.
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Old 11-22-2011, 12:25 PM   #10
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I am interested in learning more about this.
Could someone link me to some credible info as google just returned some similar answers for me but they were just people talking on some site somewhere.
I will see if I can find any decent sources on this. It has been 2-3 years since I last actually looked.
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Old 11-22-2011, 12:30 PM   #11
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http://www.federalreserve.gov/newsev.../20110110a.htm

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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.
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Old 11-22-2011, 01:55 PM   #12
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Well the Fed does not actually set interest rates. They decide on a target interest rate they would like the be around. They then buy and sell US Treasuries and other assets to achieve get near the target.
Yeah; that is more accurate to say. Over the past ~40 years, there is an approximately 97% correlation between the Fed Funds target rate (FFR) and the 2-year Treasury yield. It's 88% between the FFR and the 10-year yield.

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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