Bernanke Claims The Fed Is Not Monetizing The US Debt

[FaninAma]

The Federal Reserve's income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the System; fees received for services provided to depository institutions, such as check clearing, funds transfers and automated clearinghouse operations; and interest on loans to depository institutions (the rate on which is the so-called discount rate). After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.

So essentially the US Treasury is selling bonds to itself .

[KantoSooner]

Yes. In a giant game of Guess What The Fed Will Do Today. Guess right (and play with enough other people's money) and you make a pile.
Oh, to have been a bond trader.

[FaninAma]

Yes. In a giant game of Guess What The Fed Will Do Today. Guess right (and play with enough other people's money) and you make a pile.
Oh, to have been a bond trader.

I am sure there are many in the investment banking realm that
know exactly what the Fed is doing behind the scenes.

[KantoSooner]

Perhaps. It kind of pays both to keep the game somewhat honest, though. And investment bankers are people, too. They want to think that they have some insight and are not simply math geeks in nice suits running after the lemming scrum each and every day.

[pphilfran]

So essentially the US Treasury is selling bonds to itself .

Hasn't this been going on for decades in regards to SS special issue bonds?

[FaninAma]

Hasn't this been going on for decades in regards to SS special issue bonds?
My understanding is that the SS trust fund can only buy US Treasury Bonds as an investment so the interest should be going to the trust fund. Because of the artificially low interest rates the SS trust fund will become insolvent years earlier than previously predicted. But why should Bernanke care.....he'll be out of his position before that happens.

[SoonerorLater]

My understanding is that the SS trust fund can only buy US Treasury Bonds as an investment so the interest should be going to the trust fund. Because of the artificially low interest rates the SS trust fund will become insolvent uears earlier than previously predicted. But why should Bernanke care.....he'll be out of his position becore that happens.

I can't see where it makes much difference what the interest rate is with respect to the SS "trust fund". It's all just government smoke and mirrors accounting anyway. SS payments are going to come from future bond sales so the government is going to have to borrow money to pay the money they borrowed from SS in the first place. Government financing in practice is inherently criminal save for the fact it is made not so by government decree.

[SanJoaquinSooner]

nm

[pphilfran]

My understanding is that the SS trust fund can only buy US Treasury Bonds as an investment so the interest should be going to the trust fund. Because of the artificially low interest rates the SS trust fund will become insolvent years earlier than previously predicted. But why should Bernanke care.....he'll be out of his position before that happens.

They buy only Special Issue bonds that cannot be traded on the open market...

High interest rates or low interest rates it doesn't matte....if interest rates stay artificially low it hurts the Trust but helps debt servicing....if interest rates go higher the Trust benefits but we pay ourselves higher rates and increase actual debt servicing...