Federal Reserve to Return $76.9 Billion to US Treasury From What Central Bank Earned in 2011

“Right about the same size as the payroll tax cut, I believe”

$60B per SS FICA point (uncapped Medicare FICA point closer to $80B),
so two point reduction in SS FICA = $120B.

Its a pity Obama’s American Job Act got shot down.
4 points from employee side and 2 points from small business employers (call it equivalent to 1 point from all employers).
That would have been a $300B fiscal loosening. There was another $150B or so of stimulus spending (including Dean Bakers’s work sharing plan) that made it not a half-bad proposal, though obviously a $900B package would have been twice as good.

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chewitup Reply:
January 11th, 2012 at 9:51 am

@beowulf,
Correct me if I’m wrong. Payroll tax cut dollars would essentially be immediately spent on either goods and services or used to pay down debt. The 76.9 billion dollars was income that would not have been spent. It is interest income that would sit in portfolios. Nonetheless, it still removes net financial assets from the private sector. Thanks.

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WARREN MOSLER Reply:
January 11th, 2012 at 12:36 pm

right, no telling what the actual propensity to spend is on interest income from treasury securities.
when i asked fed research people they said they thought it was reasonably high at the macro level.

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chewitup Reply:
January 11th, 2012 at 1:02 pm

@WARREN MOSLER,
With a QE, what percent of those treasuries are owned by banks vs. managed money accounts? Some have blamed QE for a commodity price surge due to those dollars going into riskier investments. Propensity to spend may have actually been negative with QE.

WARREN MOSLER Reply:
January 12th, 2012 at 7:53 am

very few in banks.

it’s not about ‘where those dollars go’ its about the subsequent term structure of rates.

and it’s about frightening portfolio managers into making shifts, not their actual cash flows

Imagine how that works.

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