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T Accounts of monetary operations

by on March 27, 2015

Put together by Nathan Cedric Tankus

Scenario one: Federal Reserve purchases a government bond from Individual investor

Federal Reserve
Assets Liabilities
+ government bond +Reserves held in Commercial bank’s reserve account
Treasury
Assets Liabilities
Commercial banks (private sector)
Assets Liabilities
+Reserves held in Commercial bank’s reserve account + deposit owed to  Individual investor
Non-Commercial banks (private sector)
Assets Liabilities
+ deposit owed to Individual investor

– government bond

 

 

 

Scenario two: Federal Reserve sells a Treasury Security to a Primary dealer

Federal Reserve
Assets Liabilities
-Treasury Security -Reserves held in Commercial bank’s reserve account
Treasury
Assets Liabilities
Commercial banks (private sector)
Assets Liabilities
-Reserves held in Commercial bank’s reserve account – Deposit owed to Primary Dealer
Non-Commercial banks (private sector)
Assets Liabilities
– Deposit owed to Primary Dealer

+Treasury Security

 

 

 

 

Scenario three: Individual investor purchases a Treasury Note at a Treasury Auction

Federal Reserve
Assets Liabilities
+ Reserves held in Treasury’s Reserve account

-Reserves held in Commercial bank’s reserve account

Treasury
Assets Liabilities
+ Reserves held in Treasury’s Reserve account + Treasury Note
Commercial banks (private sector)
Assets Liabilities
–Reserves held in Commercial bank’s reserve account -Deposit owed to individual investor
Non-Commercial banks (private sector)
Assets Liabilities
+Treasury Note

– Deposit owed to individual investor

 

 

Scenario four : Treasury Pays interest on a particular Treasury note held by an individual investor

Federal Reserve
Assets Liabilities
-Reserves held in Treasury’s Reserve account

+Reserves held in Commercial bank’s reserve account

Treasury
Assets Liabilities
-Reserves held in Treasury’s Reserve account
Commercial banks (private sector)
Assets Liabilities
+ Reserves held in Commercial bank’s reserve account + Deposit owed to individual investor
Non-Commercial banks (private sector)
Assets Liabilities
+Deposit owed to individual investor

 

Scenario five: Individual worker pays Social Security payroll tax

Federal Reserve
Assets Liabilities
+Reserves held in Treasury’s Reserve account

-Reserves held in Commercial bank’s reserve account

Treasury
Assets Liabilities
+Reserves held in Treasury’s Reserve account [Social Security Trust fund memo:  Individual worker owed additional x amount of retirement benefits]
Commercial banks (private sector)
Assets Liabilities
-Reserves held in Commercial bank’s reserve account – Deposit owed to individual worker
Non-Commercial banks (private sector)
Assets Liabilities
– Deposit owed to individual worker

 

 

Scenario six: Treasury deposits monthly payment in an Individual Retiree’s Commercial bank checking account

Federal Reserve
Assets Liabilities
-Reserves held in Treasury’s Reserve account

+Reserves held in Commercial bank’s reserve account

Treasury
Assets Liabilities
-Reserves held in Treasury’s Reserve account [Social Security Trust fund memo:  Individual  retiree owed x amount of monthly payments]
Commercial banks (private sector)
Assets Liabilities
+Reserves held in Commercial bank’s reserve account + Deposit owed to individual retiree
Non-Commercial banks (private sector)
Assets Liabilities
+ Deposit owed to individual retiree

 

Scenario seven: Commercial bank A makes a loan to Commercial bank B on the Fed Funds market.

Federal Reserve
Assets Liabilities
-Reserves held in Commercial bank A’s reserve account

+Reserves held in Commercial bank B’s reserve account

Treasury
Assets Liabilities
Commercial bank A (private sector)
Assets Liabilities
-Reserves held in Commercial bank’s reserve account

+Loan to Commercial bank B

Commercial bank B (private sector)
Assets Liabilities
+Reserves held in Commercial bank’s reserve account +Loan to Commercial bank B
Non-Commercial banks (private sector)
Assets Liabilities

Scenario eight: The Federal Reserve invests excess funds in Treasury’s reserve account at a commercial bank

Federal Reserve
Assets Liabilities
-Reserves held in Treasury’s reserve account

+Reserves held in Commercial bank’s reserve account

Treasury
Assets Liabilities
-Reserves held in Treasury’s reserve account

+Deposit owed to Treasury

Commercial bank (private sector)
Assets Liabilities
+Reserves held in Commercial bank’s reserve account +Deposit owed to Treasury
Non-Commercial banks (private sector)
Assets Liabilities

Scenario nine: The Federal Reserve withdraws Treasury deposit at a commercial bank

Federal Reserve
Assets Liabilities
+Reserves held in Treasury’s reserve account

-Reserves held in Commercial bank’s reserve account

Treasury
Assets Liabilities
+Reserves held in Treasury’s reserve account

-Deposit owed to Treasury

Commercial bank (private sector)
Assets Liabilities
-Reserves held in Commercial bank’s reserve account -Deposit owed to Treasury
Non-Commercial banks (private sector)
Assets Liabilities

Scenario eleven: The Federal Reserve raises Fed Funds rate

Federal Reserve
Assets Liabilities
[Memo: owes more future interest on floating rate liabilities]

Δ market value of fixed rate liabilities

[Memo: owes more future interest on floating rate liabilities]

Δ market value of fixed rate liabilities

Treasury
Assets Liabilities
[Memo:owed more future interest on floating rate assets]

Δ market value of fixed rate assets

[Memo: owes more future interest on floating rate liabilities]

Δ market value of fixed rate liabilities

Commercial bank (private sector)
Assets Liabilities
[Memo:owed more future interest on floating rate assets]

Δ market value of fixed rate assets

[Memo: owes more future interest on floating rate liabilities]

Δ market value of fixed rate liabilities

Non-Commercial banks (private sector)
Assets Liabilities
[Memo:owed more future interest on floating rate assets]

Δ market value of fixed rate assets

[Memo: owes more future interest on floating rate liabilities]

Δ market value of fixed rate liabilities

Scenario twelve: The Federal Reserve lowers the Fed Funds rate

Federal Reserve
Assets Liabilities
[Memo: owed less future interest on floating rate liabilities]

market value of fixed rate liabilities

[Memo: owes less future interest on floating rate liabilities]

market value of fixed rate liabilities

Treasury
Assets Liabilities
[Memo: owed less future interest on floating rate liabilities]

market value of fixed rate liabilities

[Memo: owes less future interest on floating rate liabilities]

market value of fixed rate liabilities

Commercial bank (private sector)
Assets Liabilities
[Memo: owed less future interest on floating rate liabilities]

market value of fixed rate liabilities

[Memo: owes less future interest on floating rate liabilities]

market value of fixed rate liabilities

Non-Commercial banks (private sector)
Assets Liabilities
[Memo: owed less future interest on floating rate liabilities]

market value of fixed rate liabilities

[Memo: owes less future interest on floating rate liabilities]

market value of fixed rate liabilities

Scenario thirteen : Federal Reserve Pays interest on a particular Reserve account held by a Commercial bank.

Federal Reserve
Assets Liabilities
+Reserves held in Commercial bank’s reserve account
Treasury
Assets Liabilities
Commercial banks (private sector)
Assets Liabilities
+ Reserves held in Commercial bank’s reserve account
Non-Commercial banks (private sector)
Assets Liabilities

Scenario fourteen: Individual worker borrows money from Commercial bank

Federal Reserve
Assets Liabilities
Treasury
Assets Liabilities
Commercial banks (private sector)
Assets Liabilities
+Individual worker’s  promise to pay principal and interest + Deposit owed to individual worker
Non-Commercial banks (private sector)
Assets Liabilities
+ Deposit owed to individual worker +Individual worker’s  promise to pay principal and interest

 

Scenario fifteen: Individual worker A borrows money from Commercial bank A and purchases House from individual worker B with checking account at Commercial Bank A

Federal Reserve
Assets Liabilities
Treasury
Assets Liabilities
Commercial banks (private sector)
Assets Liabilities
+Individual worker A’s  promise to pay principal and interest + Deposit owed to individual worker B
Non-Commercial bank (private sector)
Assets Liabilities
+ Deposit owed to individual worker B +Individual worker A’s  promise to pay principal and interest

Scenario fifteen: Individual worker A borrows money from Commercial bank A and purchases House from individual worker B with checking account at Commercial Bank B

Federal Reserve
Assets Liabilities
+Reserves held in Commercial bank B’s reserve account

-Reserves held in Commercial bank A’s reserve account

Commercial bank A (private sector)
Assets Liabilities
+Individual worker A’s promise to pay principal and interest

-Reserves held in Commercial bank A’s reserve account

Commercial bank B (private sector)
Assets Liabilities
+Reserves held in Commercial bank B’s reserve account + Deposit owed to individual worker B
Non-Commercial banks (private sector)
Assets Liabilities
+ Deposit owed to individual worker B +Individual worker A’s  promise to pay principal and interest

Solution one: Solve Social Security alleged “potential bankruptcy” by making the Treasury legally responsible to pay all Social Security benefits. This is already done with Medicare Part B and D

 

“Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D, which provides access to prescription drug coverage, are both projected to remain adequately financed in to the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs”

 

– A summary of the 2011 annual Social Security and Medicare Trust Fund reports

 

http://www.ssa.gov/history/pdf/tr11summary.pdf

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One Comment
  1. Ben Johannson permalink

    An excellent quick-reference. Thanks for providing this.

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