So, suddenly, instead of being the most profitable bank in the land, the Fed could find itself with much less income to return to the Treasury, and maybe with no income at all.
By law, the Fed sends most of its profits to the Treasury, and in recent years those profits have soared as the Fed has collected interest on its investments. Last year, the central bank contributed $89 billion to the public coffers — essentially refunding a significant portion of the federal government’s annual borrowing costs.Also this is the first time I've seen the Fed confirm it will raise interest rates on excess reserves:
When the economy grows stronger, the Fed plans to sell some of its vast holdings of Treasury and mortgage-backed securities. The Fed also plans to pay banks to leave some money on deposit with it to limit the pace of new lending.Predicting a Crisis, Repeatedly by Binyamin Appelbaum
The problem with every attempt to look for debt limit thresholds has a name, and that name is Japan, a country that is able to borrow at one of the lowest average interest rates of any developed country despite a debt burden that is the largest, relative to its economic output, of any developed country. Nor is this an ephemeral anomaly. It has been true for years.
Japan’s debts total about 230 percent of its annual output, and so far, investors don’t mind.
In part, the authors address this in the traditional manner, by lopping off 5 percent of their 20-nation sample and simply declaring, “There is something very special about Japan.”
This is quite possibly true. But because there are not very many developed countries — in this study Japan is just one of 20 — it also might cause a reader to wonder about the universality of any rules derived from the remaining 19 cases, particularly since half of the remaining sample share a currency and an economic union. They are not exactly independent variables.
Furthermore, it’s quite possible that the United States also is something of a special case.
Which brings us to the more important acknowledgment, buried deep in the paper: 80 percent is not a magic number. It’s not even a particularly good summary of past experience. Rather, it’s an average of widely divergent experiences. And it doesn’t necessarily tell us much more than common sense: countries with more debt run greater risks of losing the confidence of investors, and have less flexibility to deal with new economic problems.
“We don’t know where the tipping point is,” Jerome H. Powell, a Federal Reserve governor, said in a response to the paper. But, he continued, “Wherever it is, we’re getting closer to it.”Powell is a Republican governor who Obama appointed. What a joke. Clinton appointed Greenspan who was a disaster. He was the one who most responsible for the housing bubble/financial crisis.
Don't forget Greenspan's "Deflation is coming; give away the surplus!" scare that enabled Bush to cut taxes for the rich.Democrats need to become much, much, much better in their appointments to the FOMC.
If that is Fed independence, I'll take a pass.