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Did the U.S. government just achieve a surplus?

A closer look at our national accounts

Almost all governments run deficits, so it’s a big deal when a government achieves a surplus. This graph includes data for all levels of U.S. government (local, state, and federal) on the net result of their lending and borrowing: A net deficit appears below the zero line, and a net surplus appears above the zero line. Notice the sudden jump in the fourth quarter of 2017 that reaches just above zero? This is a seasonally adjusted data series, by the way, so this jump has nothing to do with the regular influx of tax payments as the filing deadline approaches. (And that particular seasonal jump is in the second quarter, anyway.) So what’s going on here?

This jump from deficit to surplus has to do with the 2017 Tax Cuts and Jobs Act. One of its provisions is a one-time tax of foreign corporate earnings from 1986 to 2017. The so-called repatriation tax. This one-time capital transfer from businesses to government is estimated by the Bureau of Economic Analysis to be about $250 billion. Converted to annual rates, this implies a $1 trillion jump in government revenue in the fourth quarter that will not happen again. If we deduct this $1 trillion, the series actually moves downward from the third quarter’s value.

How this graph was created: Search for “net lending,” click on the government series, then select “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: AD01RC1Q027SBEA

What’s the return on a certificate of deposit?

A look at CDs for our CDth blog post

We’re celebrating our 400th FRED Blog post by writing about the certificate of deposit—which is abbreviated as CD, which is also Roman for 400.

A CD is a savings vehicle that allows anyone to earn a little more interest than regular savings accounts provide. And the longer you commit your savings to a CD, the more interest you get. The Federal Deposit Insurance Company—which is abbreviated as FDIC, which is also Roman for F599—collects information about CDs in all its member banks and averages them in two categories: jumbo (over $100,000) and non-jumbo. This graph shows all the non-jumbo maturities listed in FRED. By the way, jumbo CDs offer a slightly higher return, which you can see if you create another graph.

How this graph was created: Search for “CD rate,” check the series you want, and click “Add to Graph.” From the “Edit Graph” panel, open the “Format” panel and change the order of the lines to sort them by maturity (this process may take some time).

Suggested by Christian Zimmermann.

View on FRED, series used in this post: CD12NRNJ, CD1NRNJ, CD24NRNJ, CD36NRNJ, CD3NRNJ, CD48NRNJ, CD60NRNJ, CD6NRNJ

Who’s buying Treasuries?

Domestic vs. foreign ownernship of U.S. federal debt

As long as a government runs deficits, it has to find buyers for its bonds. In the years after the Great Recession, the Federal Reserve was a willing buyer of U.S. Treasury bonds. Since 2014, though, the Fed has put its buying spree on hold. So, somebody else must be taking up the slack. But who? The graph above addresses this question. Contrary to some reports, foreigners are not soaking up federal government debt. It seems to be domestic private investors, given that their holdings have continued increasing, while foreigners’ holdings have not. In terms of shares, as shown in the graph below, this becomes even clearer. It looks like the ownership of federal debt is actually shifting away from foreign investors toward domestic investors. (Take a look back at this FRED Blog post from May 2014.)


How these graphs were created: For the first, search for “federal debt held,” check the three series, and click on “Add to Graph.” For the second, start with the first: From the “Edit Graph” menu, open the panel for the line with the debt held by private investors, add to it the series with foreign debt holders, apply formula a-b, and restrict the dates to the past ten years. Finally, from the “Format Graph” tab, select graph type “Area” with stacking “Percent.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: FDHBFIN, FDHBFRBN, FDHBPIN

Getting back to normal? Part 2

Are real interest rates trending down to "normal"?

In our previous post, we mentioned that the Federal Open Market Committee (FOMC) is trying to normalize interest rates by gradually increasing the target for the federal funds rate. But what is the “normal” interest rate? Some people are arguing that it’s actually lower than what it has been before. One way to try to identify this normal state is by looking at long-term trends in interest rates: Presumably, long-term forces are what move the normal level of interest rates. (In contrast, interest rates respond in the short term to economic fluctuations rather than trends.) So we’ve graphed three popular interest rates that have a longer time series: the 1-year Treasury bond rate, Moody’s Aaa corporate bond rate, and the federal funds rate.

Can you see a trend? Of course, you can. There’s a trend increase until the end of the 1970s and then a trend decrease. And, of course, this has to do with the history of inflation. This is why people tend to discuss trends in real interest rates without the inflation component. But it’s not perfectly clear how to determine that inflation component: Indeed, interest rates are driven by markets and what they think inflation will be over the life of the bond or the period of credit. The data we have cover past inflation. While past and future inflation may be correlated, they’re not the same thing. Over the longer run, however, using realized inflation as a proxy for expected inflation works reasonably well, with exceptions. So we move to the second graph, where we’ve taken the same three interest rates and subtracted the CPI inflation rate from each. Do we see a downward trend? It looks like there’s one from 1980 to the Great Recession. After that, it’s subject to debate.

How these graphs were created: For the first graph, search for “1- year treasury rate” and take the monthly, constant maturity series. Then from the “Edit Graph” section, use the “Add Line” option and search for and add “aaa” and then also “fed funds rate,” each time taking the monthly rate. Finally, start the graph in 1955. For the second graph, repeat this process for each line: search for and add “CPI,” modify its units to “Percent Change from Year Ago,” and apply formula a-b.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: AAA, CPIAUCSL, FEDFUNDS, GS1

Getting back to normal?

Normalization of the federal funds rate may not look so normal

This FRED graph shows the federal funds rate for approximately the past 10 years. This is the interest rate that the Federal Open Market Committee (FOMC) targets. It’s easy to see that this interest rate has been low for most of the period shown here. But lately it’s been soaring. Or so it seems.

The FOMC is currently pursuing a policy of normalization: They’re getting the federal funds rate back to “normal.” Of course, in the graph above, the rate doesn’t look anything like normal. One has to keep in mind, however, that monetary policy has been exceptional (that is, not very normal) for the past ten years. Interest rates have been low like never before. Actually, they’ve been very close to zero for a long period. So long, in fact, that some young adults have never witnessed higher interest rates. But if you play with the the slider at the bottom of the graph to expand the time range, it quickly becomes obvious how exceptional this recent period has been and how far we still are from “normal” interest rates. Except for the period around 2003, one has to go all the way back to 1961 to find a rate as low as the current 1.5%.

How this graph was created: Search for “federal funds rate,” take the monthly series, and restrict the graph to start on 2008-12-01.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: FEDFUNDS

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