NYT: Because the Fed mostly holds debt issued by the federal government, its profits — which totaled $91 billion in 2012 — are largely payments from the government. By returning that money to the government, the central bank in effect is letting the government borrow at no cost.
Earnings in the sense the Congressional seigniorage are profits from owning the fed. These are Jan 2013 numbers and the Fed held about 1.7 trillion in debt, at the time. The $91 billion comes from 1.7 trillion held by the Fed. Assuming the securities held by the Fed are liquid reserves, then the Fed, and government, earns about 5.0% on its reserves. The economy earns about 2.3% on its reserves, the growth rate optimally invested in liquid markets. Reserves are about 15% of operational flow, so the Fed is ill matched, having 50% of the reserves it needs to match the economy, or 8% reserves. The Fed moves twice as slow.
The economy, at equilibrium, will always generate a 15% variation in GDP growth, or a 15% variation in the real yield curve. Fed operations will always generate an 8% variation in the Treasury curve. The difference, 7%, is the Fed induced delays in Treasury curve, the error between what the Fed thinks and what is real. That is free money to Soros and the Treasury curve betters. Well, 17 trillion are rolled over in the Treasury curve, and the rates on that about 4% in real terms, so Soros Treasury curve betters can earn .04 * 17 Trillion * .07, or 4 billion a year.
Reserves and accuracy in the model.
Reserves are a very well measured, liquid Gaussian noise single that the firm intends to impose on cash flow. The firm knows the variation in inventory to high accuracy, and knows the reserve variation to high accuracy. Thety are well matched and equally uncertain. The high accuracy of measuring reserves comes from liquidity, which varies by less than 3%. The high accuracy of measuring inventory flow is from the firm using a Huffman encoder over the sequence, in the past, or known arrivals. The equivalence between liquidity and accuracy is from the transaction rate, high, it sits way left on the yield curve of goods. The liquid good still imposes its own 15% variation on GDP changes, but it counts in much higher quantization levels, it carries more types of -log(i) So, real goods sticky because they impose a bandwidth limit on themselves. So, you see, Soros and government agree, government imposes a 8% volatility, and Soros has a 15%. Soros counts twice as fast as government, to within a 3% accuracy. He is the first to reverse engineer the Fed, his reaction time, two quarter, aha, there is Nyquist. Soros gets the most accurate measurement the soonest.
We can define the Plank limit. It is twice the bandwidth, (left on the curve) between liquidity times -1/2*log(1/2). Or so, don't quote me. But that is he next -ilog(i) down the curve. Twice that quantum limit is your best liquid thing, at equilibrium.
The issue here is why the 15%? That is Pauli exclusion. The any Gaussian decompose to the Nyquist. Take the Bell, divide it in half, take a sigma chunk, your have two delivering containers. The tails get you a reserve. Nyquist applies, it is fundamental to minimizing transactions. So that number is the SNR in the Shannon equation. The firm is taking entries, which deliberately share 15% of the roadways. The bandwidth is at the other side. Well covered with liquidity, then, the real issue is the bandwidth between the liquid thing and the illiquid. Hence the drive for faster money, faster trades, the firm wants to encode with more symbol capability then the illiquid which measure bigger things. The key is well covered, like a smart card that can mange many currency contracts.
The rule then, in retail, is no more than two in a line. 1.65, no problem. That means the, at just below Nyquist, 1.65 customers in line then the clerk gets sampled the mostest That is nearly the Nyquist, optimum. Nyquist and Pauli can be viewed as the optimum sampler.
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