A Politicized Fed Endangers the Economy



It is time to depoliticize monetary policy. First, instead of making the Fed’s mandate broader, Congress should consider narrowing it to one of price stability. The Fed’s contribution to achieving full employment should be through focusing on long-term price stability. Next, as we learn to live with Covid and as the economy continues to recover, the Fed must go beyond merely tapering its bond purchases. It must set out a credible process and timetable to unwind its balance sheet.

Should the Fed be called on again to exercise emergency powers, Congress must ensure those powers are of limited duration and that any credit facilities created are quickly transferred to the Treasury Department. Finally, the more improvisational and discretionary the Fed’s conduct of monetary policy, the more difficult it is to withstand political pressures. The Fed should move to a monetary-policy framework that is more systematic, predictable and transparent.

If politicized monetary policy doesn’t prove transitory, it is doubtful the Fed will be able to deliver either stable prices or maximum employment.

Author(s): Jeb Hensarling

Publication Date: 17 Jan 2021

Publication Site: WSJ



Full report link: https://www.financialresearch.gov/annual-reports/files/OFR-Annual-Report-2021.pdf



Office vacancy rates have
risen modestly to 18.3%
(see Figure 8). However,
actual office usage has
declined much more as the
work-from-home response
to the pandemic became
widespread. This decline
has had limited financial
impact to date because
office rentals are usually
held in multiyear leases
with credit-worthy tenants
(see Figure 9). However,
there is considerable uncertainty about whether and
how demand for office
space will change over the
long run.

Author(s): Office of Financial Research

Publication Date: 17 Nov 2021

Publication Site: Office of Financial Research, Treasury Department

Annual Report on the Insurance Industry




Catastrophe losses of $61 billion in 2020 were notably more severe than in 2019, with a record number of
catastrophic events in the United States in 2020.46 Despite the more severe catastrophic event
losses, lower losses in personal and commercial auto and workers’ compensation lines kept total
loss and loss adjustment expenses flat from 2019 to 2020. Reserve development was again
favorable in 2020, adding to underwriting profits. Figure 24 shows losses from catastrophic
events in the United States since 2016, and Figure 25 shows reserve development over the same
period.47 The expense ratio decreased very slightly from 2019 to 2020.

Publication Date: September 2021

Publication Site: Federal Insurance Office

Annual Report on the Insurance Industry — 2021

Link: https://home.treasury.gov/system/files/311/FIO-2021-Annual-Report-Insurance-Industry.pdf



Figure 15 shows that the average risk-based capital ratio for the L&H sector declined slightly in

  1. Specifically, statutory capital and surplus was 4.26 times the level of minimum required
    regulatory capital on average in 2020 compared to 4.31 times the required level in 2019.

L&H sector net income of $22 billion in 2020 was less than one-half of 2019 levels, affecting the
potential for capital generation. The sector reported a nearly 10 percent increase in death and
annuity benefit expenses, which contributed to a ratio of total benefit expenses to premiums
earned of 50 percent in 2020, rising substantially from 44.4 percent in 2019. According to Fitch
Ratings, life insurer operating results in 2020 were largely impacted by higher claims paid,
primarily due to increased mortality from COVID-19.24

Certain leverage ratios indicate that L&H insurers faced balance sheet pressures in 2020. The
greater financial flexibility afforded by steady leverage ratios has enabled insurers to consistently
fulfill policyholder obligations by: (1) returning a profit by investing the premiums received
from underwriting activities; and (2) limiting the risk exposure from the policies underwritten.
Insurers also employ reinsurance in order to move some of the risks off their own balance sheets
and on to those of reinsurers. Figure 16 provides a view of the L&H sector’s general account
leverage for the last 10 years.

Author(s): Fderal Insurance Office

Publication Date: September 2021

Publication Site: U.S. Dept of the Treasury

Yellen, IRS Push Democrats to Require Banks to Report Taxpayers’ Annual Account Flows

Link: https://www.wsj.com/articles/yellen-irs-push-democrats-to-require-banks-to-report-annual-account-flows-11631727020


Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig pressed lawmakers Wednesday to give the Internal Revenue Service more information about taxpayers’ bank accounts, as the Biden administration tries to salvage its tax-compliance proposal.

In letters to lawmakers, the administration officials again asked Congress to require banks to report annual inflows and outflows from bank accounts with at least $600 or at least $600 worth of transactions, a proposal aimed at letting the IRS target its audits more effectively. It would generate about $460 billion over a decade to cover the costs of Democrats’ planned expansion of the social safety net and climate-change policies, according to the administration.

But after a flurry of opposition from banks and credit unions, House Democrats omitted the proposal from their list of tax-policy changes this week. That was a sign that it lacked the support in the party to advance, though a scaled-back version raising about half as much money could still emerge from ongoing talks between administration officials and Congress.

Author(s): Richard Rubin and Orla McCaffrey

Publication Date: 15 Sept 2021

Publication Site: Wall Street Journal

Larry Summers: Treasury Borrowing Has Gotten “Bizarre”

Link: https://www.thewealthadvisor.com/article/larry-summers-treasury-borrowing-has-gotten-bizarre


Former U.S. Treasury Secretary Lawrence Summers said the Federal Reserve’s massive bond-buying program is resulting in a “bizarre” situation in which the government’s funding structure is overly focused on the short-term.

Under its quantitative easing program, the Fed purchases longer-term Treasuries and the money it creates to buy them ends up in the accounts that banks hold with the central bank, in the form of overnight reserves.

These reserves earn a rate of interest that’s linked to changeable overnight benchmarks — currently 0.15% per year. That, in effect is the rate the government, through the Fed, is paying to borrow this money.

At the same time, any payments the government makes on Treasury bonds to the Fed is ultimately a flow from one part of the government to another and, arguably, cancels itself out in the end. So the upshot is the government owes, in real terms, less longer-term fixed-rate debt and more shorter-term floating-rate debt.

Author(s): Bloomberg

Publication Date: 15 August 2021

Publication Site: The Wealth Advisor

The Federal Insurance Office: Looking Back, Looking Forward

Link: https://www.rstreet.org/2021/05/19/the-federal-insurance-office-looking-back-looking-forward/

Full pdf: https://www.rstreet.org/wp-content/uploads/2021/05/Final-No-231-FIO.pdf



1) The FIO was created in the wake of the financial crisis, as part of the Dodd-Frank Act. It has since been active on two fronts: as a source of information about the insurance industry for the U.S. Department of the Treasury and other branches of government, and as a representative of the insurance industry in international negotiations.

2) The FIO has had a challenging first decade. Since its launch, insurers have been concerned that the introduction of a new federal body, like all bureaucracies, is the camel’s nose in the tent, which would eventually lead to attempted expansion of its scope. Today, even though many have come to accept the FIO—provided it does not attempt to exceed its authority—there are still efforts to abolish it.

3) In the past, government restrictions of the free market with involvement in insurance have proven inefficient and anticompetitive. Should the FIO advance legislative attempts to address “affordability and accessibility” of insurance, it will likely contribute to the disruption of an efficient private market closely regulated at the state level.

Author(s): Jerry Theodorou

Publication Date: 19 May 2021

Publication Site: R Street Institute

Treasury Rescue Won’t Bail Out Chicago, New Jersey From Debt

Link: https://news.yahoo.com/treasury-lifeline-won-t-bail-190632365.html


(Bloomberg) — The U.S. Treasury Department is sending a message to states and cities that the billions in aid from the American Rescue Plan should provide relief to residents, not their governments’ debt burdens.

The department on Monday released guidance on how state and local governments can use $350 billion in funding from President Joe Biden’s $1.9 trillion rescue package. The funds are intended to help states and local governments make up for lost revenue, curb the pandemic, bolster economic recoveries, and support industries hit by Covid-19 restrictions. In a surprise to some, these funds can’t be used for debt payments, a potential complication for fiscally stressed governments that had already etched out plans to pay off loans.


Illinois Governor J.B. Pritzker had suggested using some of the state’s $8.1 billion in aid to repay the outstanding $3.2 billion in debt from the Federal Reserve’s emergency lending facility and to reduce unpaid bills. Illinois was the only state to borrow from the Fed last year, tapping it twice. On Tuesday, Jordan Abudayyeh, a Pritzker spokesperson, said the administration is “seeking clarification” from the Treasury on whether Illinois can use the aid to pay back the loan from the Fed.


The rule could also affect New Jersey, which sold nearly $3.7 billion of bonds last year to cover its shortfall during the pandemic. Assembly Republican Leader Jon Bramnick, a Republican, in April had called for Governor Phil Murphy, a Democrat, to use some of the federal aid to pay down the state’s debt.

Author(s): Shruti Date Singh, Amanda Albright

Publication Date: 11 May 2021

Publication Site: Yahoo Finance

Coronavirus State and Local Fiscal Recovery Funds

Link: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds



Treasury is launching this much-needed relief to:

Support urgent COVID-19 response efforts to continue to decrease spread of the virus and bring the pandemic under control

Replace lost revenue for eligible state, local, territorial, and Tribal governments to strengthen support for vital public services and help retain jobs

Support immediate economic stabilization for households and businesses

Address systemic public health and economic challenges that have contributed to the inequal impact of the pandemic

The Coronavirus State and Local Fiscal Recovery Funds provide substantial flexibility for each government to meet local needs—including support for households, small businesses, impacted industries, essential workers, and the communities hardest hit by the crisis. These funds can also be used to make necessary investments in water, sewer, and broadband infrastructure.

Concurrent with this program launch, Treasury has published an Interim Final Rule that implements the provisions of this program.

Date Accessed: 17 May 2021

Publication Site: Treasury Department

Goldman, Morgan Stanley Limit Losses With Fast Sale of Archegos Assets

Link: https://www.wsj.com/articles/goldman-morgan-limit-losses-with-fast-sale-of-archegos-assets-11617062028?mod=djemwhatsnews


The steep losses at Archegos come as a council of top U.S. regulators known as the Financial Stability Oversight Council is already scheduled to meet on Wednesday to discuss hedge-fund activity during the pandemic-triggered crisis. The meeting is the first for the risk council during the Biden administration, which has pledged to scrutinize financial weaknesses revealed by the pandemic-triggered market tumult from March 2020. The council is made up of the heads of the Treasury Department, Federal Reserve and other agencies.

Mr. Dweck, the consultant, pointed to a case that many on Wall Street are hearing echoes of this week: Long-Term Capital Management, a massive hedge fund that blew up in 1998. Firms learned the full extent of the hedge fund’s problems only when government officials summoned them to Long-Term’s offices to pore over its records, he said.

“The upshot is, you’re going to have stuff like this happen,” Mr. Dweck said.

Author(s): Maureen Farrell, Margot Patrick, Juliet Chung

Publication Date: 30 March 2021

Publication Site: Wall Street Journal