Editor's Note: Below is a brief excerpt from today's Early Look written by U.S. Macro analyst Christian Drake. Click here to learn more.
In recent years, global central bank policies aimed a lowering interest rates and inflating financial asset prices have served to further perpetuate that privilege.
Indeed, recall the circular flow of QE mechanics:
The Treasury issues debt --> the Fed buys the debt --> the Treasury pays the Fed interest --> the Fed gives the money back to the Treasury.
In addition to directly lowering the cost of U.S. external liabilities via large scale asset purchases, remittances from the Fed – at ~$80B/yr and equivalent to ~35% of federal net interest expense – takes the effective cost of capital for the Treasury further towards 0%.
