Wow it is almost like we go back to Capitalism from Crony-Capitalism
Federal Reserve STILL has $7 Trillion of DEBT on its books from its RESCUE of Wall Street WEALTH POOL!
A real shameful period of RESCUING THE RICHESTS and abjectly WRONG of Wall Street 2008-2024.
I believe we need a 1-2% TAX on the GROSS of gross of all wall street transactions or moving money offshore, to FORCE investing, away from money spinning day trading of Wall Street...with FEDERALLY printed money!
Great explanation of the dual roles of Treasury and Fed in managing debt, thank you.
As you know I believe the great monetarization in 2020 (Money supplies all-time high in December), when paired with a slowed economy, created the imbalance that led to inflation, mainly in 2022. That's consistent with my regression study over 40 years' data, which shows a direct relationship between M2/GDP and year-over-year inflation lagged about 2 years.
If the Federal Reserve is paying more interest on reserves than it is receiving from its holdings of securities, then the deficit is recorded on the FR's books as "deferred expense" on the asset side of the balance sheet. The Treasury account at the Fed is not impacted by losses that the Fed is booking as a result of IOR > interest revenue, ceteris paribus.
At the close of each period, if the Fed's accumulated surplus is greater than a legislatively specified threshold value, then the Fed credits the Treasury's account by the difference between the accumulated surplus and the threshold value. If the Fed records a deficit in the period, the deficit is booked as an increase in the deferred expense account. The Treasury's account at the Fed is unaffected. Which is to say, that the Treasury does not absorb the Fed's losses from its IOR policy.
In terms of 2020-2021, the Fed's policy of buying municipal and state bonds addressed a market failure during that period. The monetized debt, if you will allow that term in this context, provided an orderly market for the issuance of munis and state bonds to avoid crippling the municipal and state funding during a unique event -- the pandemic shutdown that gripped the nation and prevented the flow of capital investment in the ordinary course of events. Liken it to a state of war in its impact at the state and municipal government operations.
As to Warsh, his views are all over the map. There is a level of incoherence in his views that defies definition of where his policy preferences will lie if and when his nomination for the chairmanship of the Federal Reserve System Board of Governors is confirmed by the Senate.
Your narrative implicitly treats government liabilities as the settlement asset whose valuation absorbs fiscal expectations when interest rates are pegged or otherwise non-informative. In that sense, inflation in 1951 looks less like a Phillips-curve or policy reaction story and more like a one-time revaluation of a fixed nominal settlement base under a change in expected future real claims. You don’t need a monetary policy rule to get the result, it falls straight out of a valuation identity once the settlement base is taken as exogenous. Under fixed supply and growing real activity, the default drift is deflation unless fiscal news intervenes (which seems consistent with the way output growth enters your 1951 interpretation)
I don't understand why the Fed needs a new accord to do all that you desire. The Treasury was not obligating the Fed to act as a credit allocator or support asset markets. It could just refrain from what you do not prefer on its own. The 1951 accord was an agreement to let the Fed refrain from having to do something it did not want to do. But what has the Fed been forced to do that it needs an accord from the Treasury to get out of doing?
Wow it is almost like we go back to Capitalism from Crony-Capitalism
Federal Reserve STILL has $7 Trillion of DEBT on its books from its RESCUE of Wall Street WEALTH POOL!
A real shameful period of RESCUING THE RICHESTS and abjectly WRONG of Wall Street 2008-2024.
I believe we need a 1-2% TAX on the GROSS of gross of all wall street transactions or moving money offshore, to FORCE investing, away from money spinning day trading of Wall Street...with FEDERALLY printed money!
Great explanation of the dual roles of Treasury and Fed in managing debt, thank you.
As you know I believe the great monetarization in 2020 (Money supplies all-time high in December), when paired with a slowed economy, created the imbalance that led to inflation, mainly in 2022. That's consistent with my regression study over 40 years' data, which shows a direct relationship between M2/GDP and year-over-year inflation lagged about 2 years.
If the Federal Reserve is paying more interest on reserves than it is receiving from its holdings of securities, then the deficit is recorded on the FR's books as "deferred expense" on the asset side of the balance sheet. The Treasury account at the Fed is not impacted by losses that the Fed is booking as a result of IOR > interest revenue, ceteris paribus.
At the close of each period, if the Fed's accumulated surplus is greater than a legislatively specified threshold value, then the Fed credits the Treasury's account by the difference between the accumulated surplus and the threshold value. If the Fed records a deficit in the period, the deficit is booked as an increase in the deferred expense account. The Treasury's account at the Fed is unaffected. Which is to say, that the Treasury does not absorb the Fed's losses from its IOR policy.
In terms of 2020-2021, the Fed's policy of buying municipal and state bonds addressed a market failure during that period. The monetized debt, if you will allow that term in this context, provided an orderly market for the issuance of munis and state bonds to avoid crippling the municipal and state funding during a unique event -- the pandemic shutdown that gripped the nation and prevented the flow of capital investment in the ordinary course of events. Liken it to a state of war in its impact at the state and municipal government operations.
As to Warsh, his views are all over the map. There is a level of incoherence in his views that defies definition of where his policy preferences will lie if and when his nomination for the chairmanship of the Federal Reserve System Board of Governors is confirmed by the Senate.
Your narrative implicitly treats government liabilities as the settlement asset whose valuation absorbs fiscal expectations when interest rates are pegged or otherwise non-informative. In that sense, inflation in 1951 looks less like a Phillips-curve or policy reaction story and more like a one-time revaluation of a fixed nominal settlement base under a change in expected future real claims. You don’t need a monetary policy rule to get the result, it falls straight out of a valuation identity once the settlement base is taken as exogenous. Under fixed supply and growing real activity, the default drift is deflation unless fiscal news intervenes (which seems consistent with the way output growth enters your 1951 interpretation)
I don't understand why the Fed needs a new accord to do all that you desire. The Treasury was not obligating the Fed to act as a credit allocator or support asset markets. It could just refrain from what you do not prefer on its own. The 1951 accord was an agreement to let the Fed refrain from having to do something it did not want to do. But what has the Fed been forced to do that it needs an accord from the Treasury to get out of doing?
Fes Balance sheet management is here as transmission from short term rates to long-end will increasing fade