Are the FEDs Holdings of Federal Debt Meaningful?
Ralph T. Byrns Remind students that expansionary open market operations entail FED purchases of U.S. Treasury bonds and that the FED is actually an arm of the federal government, regardless of legal fictions to the contrary. Identify your left pocket as the Treasury and your right pocket as the FED. Then pull some money (a big bill will help students remember this point) out of your right pocket. Show it to your class. Stick the bill in your left pocket. Now state that if you were a government accountant, you would alter your books to show that the left pocket (Treasury) owes the right (the FED), say $20. Now explain that the Treasury does formally (on paper) pay all interest due on the FED’s bondholdings. Illustrate this by visibly moving a few coins from your left pocket to your right pocket, showing your students the amount moved. Follow up by explaining that the FED must regularly return its surpluses (annual receipts exceeding 6% of member banks’ “stockholdings”) back to the Treas
Related Questions
- How long will it take South Carolina to pay off the federal loan and interest due? Is South Carolina the only state in debt to the Federal Government for unemployment loans?
- Can be Federal Funds To Eliminate Debt Much Better Than Other Debt Relief Plans?
- Are the FEDs Holdings of Federal Debt Meaningful?
