In a Bloomberg article about the multi-year highway bill that was Paul Ryan’s first accomplishment as Speaker of the House, there were two paragraphs that intrigued me:
The $339 billion House highway plan, H.R. 22, would be financed in part by surplus capital from the Fed. That mechanism — sponsored by Representative Randy Neugebauer, a Texas Republican — was adopted just minutes before final passage of the highway measure. The Fed’s surplus capital comes from the nation’s 12 reserve banks, and totaled $29.3 billion as of Oct. 29.
House members agreed to abandon the Senate’s funding mechanism, which would reduce to 1.5 percent the annual 6 percent dividend national banks receive from the Fed. Banks vigorously fought that provision, and a group comprised of 27 banking organizations sent House leadership a letter Wednesday endorsing Neugebauer’s amendment.
And seems like a rather strange development. First, between 2009 and 2012, the yearly remit was about $96B. Something has taken a huge bite out of the surplus for it to equal not quite $30B as of Oct. 29 while interest rates haven’t risen yet.
Think about this: We “print ‘em up” to loan ourselves money and we pay ourselves interest on the loan that goes to the Fed. Then we take the interest paid on the loan from the Fed to pay for highways. If a tree falls in the forest, and nobody hears it, did it even happen?
It’s a reasonable question to ask.
Not being well versed in the Fed’s surplus account, I did a search and found this write up on it by Marvin Goodfriend. I can’t say that I read this paper the first time and didn’t end with more questions than answers. I had to read it twice. And I think it says the surplus is meaningless to the Treasury and in an economic sense. But Mr. Goodfriend can find all sorts of reasons why Congress should not covet it, and amidst the protests on the basis of independence, and on IoR and IoER, and maintenance of the 2% target, none of them are very clear in importance.
Does anyone outside of the Fed and national banking system care if the Fed runs out of surplus? I do not care if the Fed runs out of surplus to maintain programs it shouldn’t be maintaining to hit a target it doesn’t care about hitting. At this point in time, those programs are contributing factors in preventing the Fed from hitting the target while incentivizing the raising nominal rates in an economically harmful way.
I do not know much about Mr. Goodfriend, with the exception of contributing to the New Synthesis (that made me feel ill when I got to the part about a need to MAINTAIN THE TARGET at all costs or face QE consequences. Just where was Mr. Goodfriend during the 2008 crisis? Why wasn’t he vocal about tight money and the fragility of the IT scheme?). But I think I know enough to doubt his credibility in advocacy for the general welfare just because he was mum about the dangers of the regime as they were realized and instead thinks a paper should be written to save IoER and Fed independence. Just maybe, in a general way, if he’s for it, I’m against it until being convinced otherwise.