4 ms·

Very little pressure. https://fred.stlouisfed.org/graph/?g=UtqF https://fred.stlouisfed.org/graph/?g=UtqF Interest payments relative to federal tax receipts a

Very little pressure. https://fred.stlouisfed.org/graph/?g=UtqF https://fred.stlouisfed.org/graph/?g=UtqF Interest payments relative to federal tax receipts are at multi-decade lows. Some other important points to remember: - $5.7 trillion of the debt is held by the Federal Reserve. The interest that they earn on this is passed back to the US Treasury. It effectively "doesn't count" except for whatever minor operating costs the Fed takes out. - Inflation has risen faster than rates have risen. This means federal tax receipts will likely rise faster than interest payments as well.

rank0 4y ago
> Interest payments relative to federal tax receipts are at multi-decade lows. It'll take some time before the current debt needs to be replaced at the higher rate. We've had artificially low rates for the past 14 years. I argue that spending 20% of tax revenue on interest alone is grossly irresponsible. We still need to pay out the face value of those treasuries too. > $5.7 trillion of the debt is held by the Federal Reserve. The interest that they earn on this is passed back to the US Treasury. It effectively "doesn't count" except for whatever minor operating costs the Fed takes out. It "doesn't count" if you ignore the accelerating wealth disparity in our society.
- boole1854 4y ago
  > It "doesn't count" if you ignore the accelerating wealth disparity in our society. The parent asked about how interest rates affect the burden of servicing the debt. That is the sense in which it literally "doesn't count" -- interest paid by the Treasury to the Fed is returned by the Fed to the Treasury as distributed earnings.
missedthecue 4y ago
The federal reserve's remittances to the treasury are likely to be completely wiped out within the coming year. The reason is that the (low) interest it earns on its existing portfolio of government securities is fixed and will stay flat while the interest the fed pays out is rising sharply and will rise even further as rates increase. The fed is not rolling over its government debt portfolio into new debt at higher rates. Rather it is undergoing quantitative tightening selling off/allowing bonds to mature.
- boole1854 4y ago
  > The federal reserve's remittances to the treasury are likely to be completely wiped out within the coming year. The reason is that the (low) interest it earns on its existing portfolio of government securities is fixed and will stay flat while the interest the fed pays out is rising sharply and will rise even further as rates increase. Can you explain your reasoning here? It seems wrong to me. The Fed has stated in speeches that they are planning on keeping trillions of securities as assets on their balance sheet. These will continue to earn billions in interest per year. Further, they do not directly "pay out interest" -- they pay out their net income to the Treasury. Rising rates on US debt does not increase what the Fed has to pay out to the Treasury except indirectly if they purchase more higher-earning assets.
  - missedthecue 4y ago
    So the Federal Reserve pays out interest on balances deposited by banks. As of yesterday at close, the interest paid on these balances is 3.15%. https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc... While they do own assets on their balance sheet, these assets have a fixed interest rate. The interest rates stays the same as it was when they bought it. When the fed was buying these treasuries during QE, rates were very low. Less than a percent, less than even half a percent for a while. The interest rate on these interest earning assets, while it is nominally billions of dollars, will stay flat. Meanwhile, the interest it pays out to banks will increase and increase and increase. If no profit will be available, no remittances will be paid to the treasury.
    - boole1854 4y ago
      Ah, I see. I thought you were trying to say the Fed directly paid interest to the Treasury. And, wow, I did not know the IORB rate had gotten so high. https://fred.stlouisfed.org/series/BOGMBBM https://fred.stlouisfed.org/series/BOGMBBM I think you are correct. With $3+ trillion in reserve balances, which aren't really expected to go down too much, the reserve interest payments are going to eat up a ton of the Fed's income.

rank0 4y ago

> Interest payments relative to federal tax receipts are at multi-decade lows. It'll take some time before the current debt needs to be replaced at the higher rate. We've had artificially low rates for the past 14 years. I argue that spending 20% of tax revenue on interest alone is grossly irresponsible. We still need to pay out the face value of those treasuries too. > $5.7 trillion of the debt is held by the Federal Reserve. The interest that they earn on this is passed back to the US Treasury. It effectively "doesn't count" except for whatever minor operating costs the Fed takes out. It "doesn't count" if you ignore the accelerating wealth disparity in our society.

boole1854 4y ago
> It "doesn't count" if you ignore the accelerating wealth disparity in our society. The parent asked about how interest rates affect the burden of servicing the debt. That is the sense in which it literally "doesn't count" -- interest paid by the Treasury to the Fed is returned by the Fed to the Treasury as distributed earnings.

missedthecue 4y ago

The federal reserve's remittances to the treasury are likely to be completely wiped out within the coming year. The reason is that the (low) interest it earns on its existing portfolio of government securities is fixed and will stay flat while the interest the fed pays out is rising sharply and will rise even further as rates increase. The fed is not rolling over its government debt portfolio into new debt at higher rates. Rather it is undergoing quantitative tightening selling off/allowing bonds to mature.

boole1854 4y ago
> The federal reserve's remittances to the treasury are likely to be completely wiped out within the coming year. The reason is that the (low) interest it earns on its existing portfolio of government securities is fixed and will stay flat while the interest the fed pays out is rising sharply and will rise even further as rates increase. Can you explain your reasoning here? It seems wrong to me. The Fed has stated in speeches that they are planning on keeping trillions of securities as assets on their balance sheet. These will continue to earn billions in interest per year. Further, they do not directly "pay out interest" -- they pay out their net income to the Treasury. Rising rates on US debt does not increase what the Fed has to pay out to the Treasury except indirectly if they purchase more higher-earning assets.
- missedthecue 4y ago
  So the Federal Reserve pays out interest on balances deposited by banks. As of yesterday at close, the interest paid on these balances is 3.15%. https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm https://www.federalreserve.gov/monetarypolicy/reserve-balanc... While they do own assets on their balance sheet, these assets have a fixed interest rate. The interest rates stays the same as it was when they bought it. When the fed was buying these treasuries during QE, rates were very low. Less than a percent, less than even half a percent for a while. The interest rate on these interest earning assets, while it is nominally billions of dollars, will stay flat. Meanwhile, the interest it pays out to banks will increase and increase and increase. If no profit will be available, no remittances will be paid to the treasury.
  - boole1854 4y ago
    Ah, I see. I thought you were trying to say the Fed directly paid interest to the Treasury. And, wow, I did not know the IORB rate had gotten so high. https://fred.stlouisfed.org/series/BOGMBBM https://fred.stlouisfed.org/series/BOGMBBM I think you are correct. With $3+ trillion in reserve balances, which aren't really expected to go down too much, the reserve interest payments are going to eat up a ton of the Fed's income.