Changing the topic slightly while waiting for Tin’s response, I have a question: Should the Fed’s System Open Market Account Holdings be subtracted from the US government’s public debt?
While everyone was following the debt ceiling debates, that includes money the government owes itself; sort of borrowing from your own 401k. The part that really counts is the part that is owed to other parties. Under President Bush that went from $3.3T to $6.3T over 8 years, about $3T. Under President Obama that has gone from $6.3T to $10T in 32 months, about $3.7T. However, Federal Reserve Balances which had been trivial soared to $850B in the last 4 months of the Bush administration, and with QE2 are now at $1.6T, and additional $750B.
Should these amounts be subtracted from the publicly held debt since in all probability the Federal Reserve will hold them indefinitely; in effect having printed money to replace bonds issued.
In effect that means President Bush’s administration would have increased publicly held debt $2.2T and President Obama’s administration would have increased it $3T so far. However, since a $2.7T increase in the debt ceiling has been approved and virtually all new borrowing has been publicly held for the last few years, that would imply the debt will increase to $12.7T ($11.1T net reserve holdings), a total of $$6.4T ($5.7T net of reserve balances) under President Obama. Of course, a QE3 would increase the reserve balances further.
Since the bonds the Fed holds are unlikely to ever be net sold, the Fed is part of the federal government, and the interest over expenses is returned to the federal government, shouldn’t this be deducted from the public debt?
Note: this doesn’t include the approximately $1T held by the Fed in Fanne Mae/Freddie Mac debt and mortgage backed securities.
Summary:
| Date |
Debt |
Publicly Held |
Net Reserves |
| 1/2001 |
$5.7T |
$3.3T |
$3.3T |
| 1/2009 |
$10.6T |
$6.3T |
$5.5T |
| 8/2011 |
$14.6T |
$10,0T |
$8.4T |
| 1/2013 est |
$16.3T |
$12.7T |
$11.1T |
