US Treasury

From Riski

Jump to: navigation, search


Contents

Background

The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue. The Department is administered by the Secretary of the Treasury, who is a member of the Cabinet.

The first Secretary of the Treasury was Alexander Hamilton, who was sworn into office on September 11, 1789.

Hamilton was asked by George Washington to serve after first having asked Robert Morris (who declined, recommending Hamilton instead). Hamilton almost single-handedly worked out the nation's early financial system, and for several years was a major presence in Washington's administration as well. His portrait is on the obverse of the U.S. ten-dollar bill and the Treasury Department building is shown on the reverse.

Besides the Secretary, one of the best-known Treasury officials is the Treasurer of the United States, who receives and keeps the money of the United States. Facsimile signatures of the Secretary and the Treasurer appear on all modern United States currency.

The Department prints and mints all paper currency and coins in circulation through the Bureau of Engraving and Printing and the United States Mint. The Department also collects all federal taxes through the Internal Revenue Service, and manages U.S. government debt instruments.

Responsibilities

The basic functions of the Department of the Treasury include:

  • Managing federal finances;
  • Collecting taxes, duties and monies paid to and due to the U.S. and paying all bills of the U.S.;
  • Producing all postage stamps, currency, and coinage;
  • Managing government accounts and the United States public debt;
  • Supervising national banks and thrift institutions;
  • Advising on domestic and international financial, monetary, economic, trade and tax policy – fiscal policy being the sum of these, and the ultimate responsibility of Congress.
  • Enforcing Federal finance and tax laws;
  • Investigating and prosecuting tax evaders, counterfeiters, forgers, smugglers, illicit spirits distillers, and gun law violators.

With respect to the estimation of revenues for the executive branch, Treasury serves a purpose parallel to that of the Office of Management and Budget for the estimation of spending for the executive branch, the United States Congress Joint Committee on Taxation for the estimation of revenues for Congress, and the Congressional Budget Office for the estimation of spending for Congress.

The term Treasury reform usually refers narrowly to reform of monetary policy and related economic policy and accounting reform. The broader term monetary reform usually refers to reform of policy of institutions such as the International Monetary Fund.

US gold reserves

So, I spent some time reading the relevant source documents, and have decided to publish this little fact sheet here, so that one might at least be able to find some of the basic facts about the US gold holdings on the books of the Treasury and the Fed in one place, with references.

There is also a little detail about the SDRs. It should be noted that because SDRs may be added to the Treasury's books, as in the recent allocation from the IMF, it does not mean necessarily that they are monetized by the Fed and placed on their own balance sheet.

Not getting into issues of where the gold is, what claims there may be on it, and what fineness it may actually be, according to the US Treasury:

The US currently holds 261,499,000 fine troy ounces in its reserves. US International Reserve Position, US Treasury

The gold is valued on the books at $42.2222 per fine troy ounce.

This represents a total value of $11,041,063,078.

This value appears on the Treasury's International Reserve Position US Treasury on Line 4.

Since there are 32150.7466 troy ounces in a tonne, the US Treasury is holding 8,133.528072 tonnes of fine gold.

Federal Reserve Gold Certificates

The Federal Reserve holds $11,037,000,000 in gold certificates as assets on its Balance Sheet as shown in their weekly H.41 report. The Fed has no physical gold of its own. According to my reading of the relevant law, the Fed is not able to place claims upon or issue those gold certificates to any other entity other than the 12 federal reserve banks.

With regard to the Fed's Gold Certificates here is some history by way of explanation:

Acting under this authority [the Emergency Banking Act of March 9, 1933], the secretary of the Treasury issued orders dated December 28, 1933, and January 15, 1934, the latter requiring all gold coin, gold bullion, and gold certificates to be delivered to the Treasurer of the United States on or before January 17, 1934.

A new type of gold certificate, series of 1934, in denominations of $100, $1,000, $10,000, and $100,000, was issued only to Federal Reserve banks against certain credits established with the Treasurer of the United States. These certificates are not paid out by Federal Reserve banks and do not appear in circulation. They bear on their face the wording: "This is to certify that there is on deposit in the Treasury of the United States of America dollars in gold, payable to bearer on demand as authorized by law."

Gold certificates, however, have not been printed since January, 1935. Under the Gold Reserve Act of January 30, 1934, all gold held by the Federal Reserve banks was transferred to the U.S. Treasury, in accordance with Presidential Proclamation of January 31, 1934, the former receiving the gold certificate credits on the books of the Treasury at the former statutory price for gold $20.67 per ounce. Gold assets were valued at $35 per fine troy ounce, giving effect to the devaluation January 31, 1934, until May 8, 1972, when they were revalued at $38 pursuant to the Par Value Modification Act, P.L. 92-268, approved March 31, 1972. The increment amounted to $822 million.

Gold assets were subsequently revalued at $42.22 pursuant to the amendment of Section 2 of the Par Value Modification Act, P.L. 93-110, approved September 21, 1973. This increment amounted to $1,157 million. All of the U.S. Treasury's monetary gold stock valuation, including the preceding revaluation increments, has been monetized by the U.S. Treasury by the issuance to the Federal Reserve banks of $11,160,104,000 for their gold certificate account (total as of close of 1980). In addition, the U.S. Treasury monetized $2,518 million (as of close of 1980) of the U.S. special drawing rights by issuance to the Federal Reserve banks for their special drawing rights certificate account.

On the books of the Federal Reserve banks, neither the gold certificate account nor the special drawing rights certificate account plays any restrictive role in Federal Reserve banks' operations. With the U.S. losing monetary gold in recent years of balance-of-payments deficits, causing decline in gold certificates (credits), two restraints were eliminated: P.L. 89-3, March 3, 1965, eliminated the requirement contained in Section 16 of the Federal Reserve Act for the maintenance of reserves in gold certificates by Federal Reserve banks of not less than 25% against Federal Reserve bank deposit liabilities; and P.L. 90-269, March 18, 1968, eliminated the remaining provision in Section 16 of the Federal Reserve Act under which the Federal Reserve banks were required to maintain reserves in gold certificates of not less than 25% against Federal Reserve notes.

Gold certificates (credits) held by the individual 12 Federal Reserve banks, therefore, merely reflect the total of monetary gold held by the U.S. and also the individual Federal Reserve bank holdings of gold certificates (credits) to their credit on the books of the INTER-DISTRICT SETTLEMENT ACCOUNT. Nevertheless, both the gold certificate account and special drawing rights account at Federal Reserve banks were utilized as eligible assets to serve as part of the 100% collateral pledged with the Federal Reserve agent at each Federal Reserve bank for issues of Federal Reserve notes. (The Depository Institutions Deregulation And Monetary Control Act Of 1980 removed the collateral requirements for Federal Reserve notes held in the vaults of Federal Reserve banks.)

Encyclopedia of Banking & Finance (9th Edition) by Charles J Woelfel

Does any of this amount to a hill of beans? Perhaps, but probably not. At least the next time I need to look up some of these facts and history to explain or correct a question or misunderstanding, I will not have to look all around the web for it again, and wade through many links of incorrect misinformation and rubbish to find it.

This is in no way meant to imply that the Treasury actually possesses the gold it says it has, the fineness of the gold, and the nature of any claims that might be on that gold. This is not a trivial issue as the estimates of the fineness of the gold have shown that a meaningful portin of it may be 'coin melt' and not of deliverable quality unless it has been further refined. It is said that the Bank of England recently discovered that some of their own gold stocks were not suitable for a delivery to the London Bullion Market Association (LBMA) for example.

By the way, and just as a point of curiosity, I calculated that if the Fed wished to back its balance sheet with all the gold in the US Treasury, the amount today would be approximately $8,000 per troy ounce. Don't hold your breath. LOL

Some of this may become an issue IF the SDR does become the international reserve currency, and IF gold is added to the mix of its basket of currencies as some countries like China and Russia have requested...

...And in case you were wondering, here is a recent lineup of official gold reserves from the major countries around the world.

Treasury and the debt limit

On December 24, the Senate passed a vote by a razor thin margin (with not a vote to spare) to raise the Federal debt ceiling from $12,104 billion to $12,394 billion. The actual debt ceiling increase took effect on December 28. And as the chart below shows, the Treasury's cash flow projections were spot on: 3 days later, and the debt subject to limit surged to $12,254, a jump of over $200 billion in 2 days, and a whopping $150 billion over the old debt ceiling. Three days is all the buffer the administration's reckless spending spree has afforded this country to avoid bankruptcy.

Had one more Democratic vote dissented from the stopgap measure, the US would now be in technical default. There is just $140 billion left before the revised debt ceiling is breached. We hope for the country's sake that Bill refunding in January is massive, because as we already pointed out, on January 7th we expect another ~$130 of new Treasuries to be announced for auction by January 15th. And then there are two more weeks in January... Which is why the Treasury better be using that TARP money to pay down all it can, because if the general population understands how close this nation was to the fiscal brink, many more answers may be demanded out of the ruling party as to how it could allow things to get so out of hand.

Treasury details the Recovery Act

Treasury Highlights Recovery Act Impact

Report Details Cumulative, State-by-State Data on Treasury's Recovery Act Programs, Including $66.1 Billion in Tax Benefits to Date for Individuals, Families, Businesses

WASHINGTON – As part of an effort to highlight the success of the American Recovery and Reinvestment Act (Recovery Act) in revitalizing communities across the country, the U.S. Department of the Treasury today released a report providing state-by-state data on Treasury program funding. The report, issued around the 200 day anniversary of the Recovery Act, details funds provided to states, local communities, and families through a variety of programs, including the Making Work Pay Tax Credit, payments for renewable energy production, funds for affordable housing development, and Build America Bonds.

"In 200 days, the Recovery Act has made significant progress in revitalizing our communities and providing the basis for economic growth," said Treasury Deputy Secretary Neal Wolin. "Through innovative programs established by the Recovery Act, the Treasury Department has provided tax relief to millions of families, supported increased development of affordable housing and clean energy projects, and provided new tools for states and communities to fund much needed infrastructure projects."

Highlights of the impact from Treasury's Recovery Act programs during the first 200 days include:

  • $66.1 billion in estimated tax benefits provided to individuals, families, and businesses through the implementation of various tax provisions. The Making Work Pay credit has been a significant element of these provisions.
  • $502 million in payments made to promote renewable energy production throughout the country
  • $2.3 billion provided to 37 states to spur the development of affordable housing
  • $28.2 billion in Build America bonds issuances to help 37 states finance a variety of public improvement projects

The report also provides information on the First Time Homebuyer's Tax Credit, the $250 one- time stimulus payments, New Markets Tax Credits, Qualified School Construction Bonds, and Recovery Zone Bonds. The comprehensive report is available here. Additional information on Treasury's Recovery Act programs follows:

Making Work Pay Tax Credit: In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act provides a credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. The tax credit is calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

Recovery Zone Bonds: Recovery Zone Economic Development Bonds are one type of taxable Build America Bond that allow state and local governments to obtain lower borrowing costs through a new direct federal payment subsidy, for 45 percent of the interest, to finance a broad range of qualified economic development projects, such as job training and educational programs. Recovery Zone Facility Bonds are a type of traditional tax-exempt private activity bond that may be used by private businesses in designated recovery zones to finance a broad range of depreciable capital projects. Both of these are allocated directly to counties and large municipalities

Qualified School Construction Bonds: Investors who buy these bonds receive tax credits worth 100 percent of the interest, allowing state and local governments to obtain financing without having to pay any interest. States may directly issue the bonds on behalf of eligible schools or provide school districts with the authority to issue the bonds within the state.

Qualified Energy Conservation Bonds: These bonds are authorized under an expanded tax credit bond program of the Recovery Act of 2009 for states and large local governments based on population data. The bonds are tax credit bonds that provide a federal subsidy for repair and rehabilitation of public schools and related authorized purposes through a federal tax credit to investors intended to cover 70 percent of the interest on the bonds.

Build America bonds: Under the Build America Bonds program, Treasury makes a direct payment to the state or local governmental issuer in an amount equal to 35 percent of the interest payment on the Build America Bonds. Potential investors include pension funds that traditionally do not hold tax exempt bonds and foreign investors. These investors have been important additions to the market for municipal debt.

One-time $250 Payments: Treasury's Financial Management Service, in coordination with the Social Security Administration, the Railroad Retirement Board, and the Department of Veterans Affairs, have issued more than 54 million Economic Recovery payments to beneficiaries totaling more than $13 billion.

Community Development Financial Institutions: The CDFI Fund makes monetary awards (grants, loans and other investments) on a competitive basis to certified CDFIs. A CDFI is a specialized financial institution that works in low-income communities or serves individuals or businesses that lack access to mainstream financial institutions. Among many financial services, CDFIs provide capital to small businesses and micro-enterprises; mortgage loans to first-time homebuyers; financing to support the development of affordable housing projects and community facilities; and retail banking services to the unbanked.

New Markets Tax Credit: With the increased investment authority made available through the Recovery Act, this program incentivizes private-sector capital investment in distressed communities across the country to create jobs, stimulate economic growth, and jumpstart the lending necessary for financial stability. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year period.

Affordable Housing Payments: Under this program, state housing agencies that apply receive funds to finance the construction or refurbishment of qualified affordable housing developments. Applicants agree to forgo tax credits down the line in favor of an immediate payment. Through this program, the Treasury Department works with state housing agencies to jump start the development or renovation of qualified affordable housing across the country.

Renewable Energy Payments: The Recovery Act authorized Treasury to make direct payments to companies that create and place in service renewable energy facilities. Previously, these companies could file for a tax credit to cover a portion of the renewable energy project's cost. Under the new program, applicants would agree to forgo tax credits down the line in favor of an immediate payment.

First Time Homebuyer's Tax Credit: Taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before December 1 have a special option available for claiming the tax credit either on their 2008 tax returns or on their 2009 tax returns next year. The maximum credit is $8,000.

Treasury Borrowing Advisory Committee minutes

"... DAS Rutherford opened the discussion with a presentation to the Committee which highlighted current fiscal conditions and financing needs. The presentation began with a review of the budget outlook and projections for the upcoming year. DAS Rutherford noted that net receipts were expected to be 15% of GDP, while outlays were expected to be 25% of GDP.

Rutherford also noted that Administration's deficit estimate for FY2010 was expected to print at 11% of GDP, but is expected to moderate in coming years to 4% of GDP. Rutherford also said that the pace of decline in year-over-year corporate tax receipts had slowed in the first quarter of FY 2010. In the past, these receipts have led changes in other receipt categories. While the deceleration was favorable, there remains uncertainty about the timing and level of economic recovery. DAS Rutherford then turned to Treasury's financing over the past quarter and plans for future borrowing.

DAS Rutherford highlighted that cumulative net coupon issuance since FY 2007 had been significant, led by the 5-year point along the curve. Since the beginning of FY 2007 Treasury has increased nominal auction sizes consistently to address the sharp rise in financing needs. In addition, new securities and reopenings were added to the auction calendar.

Rutherford indicated that Treasury believes that the current auction calendar provides debt managers with sufficient flexibility to address a range of expected borrowing needs. As a result, barring any unexpected changes in financing needs, nominal auction sizes were not expected to rise further.

Going forward, as the fiscal outlook improves, DAS Rutherford indicated that debt managers are contemplating a reduction in coupon sizes. He indicated that the pace of cuts will largely depend on the strength of the economic recovery.

Treasury proposes retirement savings options

  • Expand opportunities for automatic enrollment in 401(k) and other retirement savings plans
  • Make it easier for more than 100 million families to save a portion or all of their tax refunds
  • Enable workers to convert their unused vacation or other similar leave into additional retirement savings, and
  • Help workers and their employers better understand the available options for tax-favored retirement saving through clear, easy-to-understand language.

Community Development Financial Institutions Fund

Through monetary awards and the allocation of tax credits, the Community Development Financial Institutions Fund (CDFI Fund) helps promote access to capital and local economic growth in urban and rural low-income communities across the nation.

Through its various programs, the CDFI Fund enables locally based organizations to further goals such as: economic development (job creation, business development, and commercial real estate development); affordable housing (housing development and homeownership); and community development financial services (provision of basic banking services to underserved communities and financial literacy training).

The CDFI Fund accomplishes this through the following programs:

  • Bank Enterprise Award (BEA) Program;
  • Capital Magnet Fund (CMF)
  • Community Development Financial Institutions (CDFI) Program;
  • New Markets Tax Credit (NMTC) Program; and its
  • Native Initiatives, includes the Native American CDFI Assistance (NACA) Program
  • Certification – Community Development Entity (CDE)
  • Certification – Community Development Financial Institution (CDFI)

Within just 120 days of the Recovery Act’s enactment, the CDFI Fund awarded a total of $98 million in financial assistance grants through the CDFI Program and Native American CDFI Assistance Program.

Subsequently, 100 percent of the funds were disbursed within 60 days of the award announcement, enabling CDFIs to quickly expand lending activities. In addition, the CDFI Fund solicited and reviewed an aggregate total of over 200 new applications received under supplemental rounds of the CDFI and NACA Programs.

Earlier this week, we announced the award recipients of $4.4 million through the NACA Program, and $52.7 million will be awarded later this week through the CDFI Program.

The CDFI Fund also re-opened the 2008 New Markets Tax Credit Program application round to award an additional $1.5 billion of Recovery Act allocation authority within 100 days of enactment, and closed all of the award agreements within 30 days of the award announcement. An additional $5 billion in New Markets Tax Credits for the 2009 round will be announced next month.

Treasury enhances CDFI initiative

In October, President Obama announced a new program under the Troubled Asset Relief Program (TARP) to invest lower-cost capital in Community Development Financial Institutions (CDFIs) that lend to small businesses in the country's hardest-hit communities. Under this program, CDFI banks, thrifts and credit unions – which have been certified by Treasury as targeting more than 60 percent of their small business lending and other economic development activities to underserved communities – would be eligible to receive capital investments at a dividend rate of 2 percent, compared to the 5 percent rate that was offered under the Capital Purchase Program (CPP).

Key Terms and Enhancements to TARP Initiative to Support CDFIs

  • As Announced in October, Lower-Cost Capital Available to CDFIs at 2 Percent Rate
  • Increase the Maximum Amount of Capital Available to CDFIs
  • Provide Capital from Treasury to Match Private-Sector Investments

Treasury Secretary maintains closest ties to Wall Street

Even during his most frenzied days, when Congress is demanding answers or the president himself is calling, Treasury Secretary Timothy Geithner makes time to talk to a select group of powerful Wall Street bankers.

They are a small cadre of businessmen who have known and worked with Geithner for years, whose multibillion-dollar companies all survived the economic crisis with help from U.S. taxpayers.

When they call, Geithner answers. He has spoken with them immediately after hanging up with President Barack Obama and before heading up to Capitol Hill, between phone calls with senators and after talking with the Federal Reserve chairman, according to a review by The Associated Press of seven months of his appointment calendars.

The calendars, obtained by the AP under the Freedom of Information Act, offer a behind-the-scenes glimpse at the continued influence of three companies — Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. — whose executives can reach the nation's most powerful economic official on the phone, sometimes several times a day.

There is nothing inherently wrong with senior Treasury Department officials speaking regularly with industry executives, or even with the secretary keeping tabs on the market's biggest players, even though critics say Geithner risks succumbing too much to these bankers' self-interested worldview.

"It's appropriate for Treasury officials to keep in touch with those who work in the markets every day, particularly when the economy and the markets are so fragile," Treasury spokesman Andrew Williams said.

What the calendars show, however, is that only a select few can call the treasury secretary. After one hectic week in May in which the U.S. faced the looming bankruptcy of General Motors and the prospect that the government would take over the automaker, Geithner wrapped up his night with a series of phone calls.

First he called Lloyd Blankfein, the chairman and CEO at Goldman. Then he called Jamie Dimon, the boss at JPMorgan. Obama called next, and as soon as they hung up, Geithner was back on the phone with Dimon.

While all this was going on, Geithner got a call from Rep. Xavier Becerra, a California Democrat who serves on committees that help set tax and budget policies. Becerra left a message.

In the first seven months of Geithner's tenure, his calendars reflect at least 80 contacts with Blankfein, Dimon, Citigroup Chairman Richard Parsons or Citigroup CEO Vikram Pandit. Geithner had more contacts with Citigroup than he did with Rep. Barney Frank, D-Mass., the lawmaker leading the effort to approve Geithner's overhaul of the financial system. Geithner's contacts with Blankfein alone outnumber his contacts with Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee.

Partly this is explained by the extraordinary clout of these companies. Goldman, JPMorgan and Citigroup are among the dominant players on Wall Street. Their executives can move not just markets but entire economies. Treasury invested heavily in all of them to keep the industry afloat.

But size does not tell the whole story. Treasury has a huge financial stake in North Carolina-based Bank of America Corp., but CEO Ken Lewis appears on Geithner's calendars only three times. Morgan Stanley CEO John Mack also appears three times.

Geithner's relationship with Goldman, JPMorgan, Citigroup and their executives dates to his tenure as president of the Federal Reserve Bank of New York. As one of Wall Street's top regulators, Geithner worked closely with executives and built relationships he brought with him to his corner office at the Treasury Department.

The prominence of those relationships is clear by the company they keep on Geithner's calendars. On March 24, just after Geithner announced plans to help banks sell off toxic debts left over from the housing market meltdown — which stood to be a boon for big banks — his calendars reflect a busy morning. He had a briefing on terrorism financing, a meeting on tightening financial regulations and a prep session for congressional testimony.

Geithner emerged to take just three phone calls, from Vice President Joe Biden, New York Attorney General Andrew Cuomo and shortly before heading to Capitol Hill, from Dimon.

Officials at JPMorgan, Citigroup and Goldman had no comment on Geithner's calendars.

Geithner's predecessor at Treasury, Henry Paulson, similarly kept in close touch with Wall Street power brokers. Though his calendars showed many contacts with bankers at the height of the banking crisis, they showed frequent calls with Blankfein at key times. Paulson came to Treasury from Goldman.

At the New York Fed and then at Treasury, Geithner helped put together multibillion-dollar taxpayer bailouts for Wall Street investment firms, including Goldman, JPMorgan and Citi. Even banks that have repaid the money still enjoy massive subsidies. Their quick returns to record profits and million-dollar bonuses sparked outrage.

Critics said the government was too quick to help the banks and was unwilling to let them suffer the consequences of their bad bets.

Geithner's calendars could contribute to the perception that the treasury secretary is too close to Wall Street, said Simon Johnson, a former chief economist with the International Monetary Fund and professor at the Massachusetts Institute of Technology's Sloan School of Management. "Your worldview in the middle of a crisis depends on whom you talk to and what their perspective is, and you need a broad cross-section of opinions to truly understand what's happening," Johnson said.

By seeking information from such a narrow group of contacts, Johnson said, Geithner risks limiting his exposure to the views of his trusted banker colleagues.

Geithner must believe he can set aside their inherent biases, he said, adding, "I don't see how you do that."

References


Personal tools