Courtesy of Pam Martens.
A Trader on the New York Fed Trading Desk Monitors the Latest Market Intelligence
Economist and New York Times columnist Paul Krugman has been showering praise on the current administration for shrinking the budget deficit while scolding the press for failure to adequately report it: “where are the front-page news reports?” he writes on October 9.
The media has been duly pressed into action with Bloomberg News reporting a big headline today on its digital front page: “U.S. Deficit Decline to 2.8% of GDP Is Unprecedented Turn.”
But here’s a missing detail that carries a dark side: Over the past six years, $400 billion of deficit reduction has had nothing to do with Congress or the President and everything to do with those savvy traders sitting behind their Bloomberg terminals with their speed dials to Wall Street at the New York Fed. Like every other regional Federal Reserve Bank, the New York Fed, by law, hands over its surplus profits to the U.S. Treasury weekly. But as Table 7 at the attached Federal Reserve link shows, the bond holdings of the New York Fed dwarf those of any of the other 11 regional Fed banks; thus its interest income contributions to shrinking the deficit are also outsized.
According to the 2013 annual report of the System Open Market Account (SOMA), the New York Fed group that carries out monetary policy on instruction from the Federal Open Market Committee (FOMC) of the Federal Reserve, here’s what has happened since 2008:
“Primarily as a result of net income from the domestic SOMA portfolio, Federal Reserve remittances to the Treasury were almost $78 billion in 2013, high by historical standards but down from more than $88 billion in 2012. On a cumulative basis, remittances from 2008 to 2013 totaled $400 billion, about $250 billion more than the cumulative amount suggested by the average pre-crisis pace of about $25 billion per year, and a reflection of elevated portfolio income associated with policy measures taken to respond to the crisis and to strengthen the recovery…”
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