MAKING SENSE -- March 5, 2012 at 3:09 PM EDT
What Is Bernanke Doing About the Fed's Stockpile of U.S. Debt?
Photo of Federal Reserve Chairman Ben Bernanke by Peter Larson/Medill News Service.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Monday's query:
Name: Enrique G. Palacio
Question: I recently found data indicating the Federal Reserve holds U.S. government debt worth $6.328 TRILLION. China "only" holds $1.132 trillion. How is the Fed going to unwind the massive balance sheet it has created under [Federal Reserve Chairman Ben] Bernanke? How does that get done? You would help me and many more Americans if we could understand what Bernanke is really doing. Former Fed chairs have avoided the subject.
This graphic has been updated. See below for details.
Intragovernmental holdings include the Medicare Trust Fund and the Social Security Trust Fund. Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria. Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, Panama and British Virgin Islands.
Paul Solman: The current Fed Chairman Ben Bernanke has not avoided the subject. He has said how he will unwind, in your word. He calls it the Fed's "exit strategy." Either the Fed will sell many of the securities it bought during the crisis, to relieve financial institutions that were stuck with them, or it will simply sell U.S. Treasuries, which it has bought in order to pump new money into the economy, or it will raise the interest rate it is currently paying financial institutions to redeposit money -- with the Fed, as we've explained before:
Or the Fed will do all three.
Update | 4:33 p.m.: An earlier version of the U.S. Government Debt graphic had an incorrect height for the Federal Reserve and Intragovernmental Holdings. Thanks to our readers who spotted the error.