Ratios

So we can go to FRED and find the numbers on Federal Debt Held By Federal Reserve Banks (FDHBFRB) and compare it to the Gross Federal Debt (GFDEBT):

GRAPH #1

Those are both discontinued series, ending in 1998. So we can do the same thing using New data series (FDHBFRBN and GFDEBTN):

GRAPH #2

The first graph shows an increase in the ratio from 1955 to 1973 or so, roughly commensurate with the "golden age" that followed World War Two. It shows decline from 1975 to 1992. And it shows slight increase from 1992 to 1998.

The second graph repeats the "decline" part of the first. It repeats the slight increase and extends it beyond 1998 to 2003. And it shows slight decline thereafter, until the recent disturbance. Without looking at the numbers, I presume the sharp drop during the recent recession is a "denominator problem." That is, Fed holdings of U.S. debt didn't drop. But the trend-line dropped because of the sudden large increase in federal debt in response to the sudden large recession.

One can say that Federal Reserve holdings of federal government debt are low by historical standards. One might even suggest they ought to be increased. An increase of this nature would increase the quantity of money -- the quantity of interest-free money -- in circulation. Assuming, of course, they get it into circulation and not just into reserve accounts and corporate coffers and other hoarding hiding places.

Oops, I didn't post this first on my testing and development blog.

Taking a second look at the second increase, the "slight" increase that runs from 1992 to 2003 about, it occurs to me that this increase is commensurate with the golden decade described by Dean Baker and John Schmitt in The Real Economic Crisis -- "From the mid-1990s ... to ... the second half of 2004."

These correspondences are not coincidence. Interesting, however, that the first uptrend, while it occurred during the "golden age" did not prevent the end of that period of good economic performance. Other important factors -- such as the growing accumulation of private-sector debt -- are not considered in this post.