September 1, 2012

THANKS, BEN:

How Fed stimulus earns a profit for taxpayers (Annalyn Censky, September 1, 2012, Money)

The Fed then earns interest on the Treasuries it holds, and while interest rates are very low, the sheer mass of bonds the Fed holds nevertheless makes for quite a windfall.

The Fed earned a $77.4 billion profit last year, and of that, most was from interest payments. The year before, it earned $81.7 billion, and in 2009, it earned $53.4 billion.

That's up significantly from the pre-crisis years, when the Fed had a much smaller portfolio, with far fewer bonds. In 2007, it earned $38 billion.

After paying some of its own administrative expenses, the Fed turns most of those profits over to Treasury, which can use them to pay government bills.

So indeed, quantitative easing reduces the deficit and debt - but remember, the impact is just a drop in the bucket, when it comes to the $15 trillion national debt.

Note that the Fed might be holding down the deficit through two other channels: Simply by keeping interest rates low, it makes it cheaper for the U.S. government to borrow. Second, if the Fed's policies are working to boost the economy, they are also probably boosting tax revenue for the government.

His pledge to replace Mr. Bernanke is among Mitt's worst purely political moves.  Fortunately, he isn't serious.

Posted by at September 1, 2012 5:32 AM
  

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