Wednesday, January 18, 2012
Fed Announces Record Profits for Second Time in Three Years
The Federal Reserve paid the federal government $76.9 billion in 2011, the second highest amount in history. In 2010, the Fed paid the government an all-time record of $79.3 billion.
And in 2009, the Fed paid $52 billion to the government, which was, at the time, the highest earnings in the central bank's history.
Are you sensing a pattern here?
The central bank says it "earned" the money from investments made to bolster the U.S. economy. The Fed began buying Treasury bonds and mortgage-backed securities during the 2008 financial crisis and subsequent recession to try to lower long-term interest rates.
The Fed makes money from interest earned on its portfolio of securities. After covering its expenses, the Fed makes a payment of the remaining amount to the Treasury Department.
Well, that's the official story.
The reality is that the Fed has been legally granted the license to print money by the U.S. Congress. The Fed is able to conjure money out of nothing — in essence, out of thin air — to buy Treasuries.
This allows the government to fund its deficit spending, even when there aren't enough available buyers on the open market to meet the government's absolutely massive borrowing needs.
All the Fed's purchases have pushed the central bank's balance sheet to $2.9 trillion, more than three times the size of its balance sheet before the financial crisis struck in the fall of 2008.
This means that the money supply has increased by more than 300 percent in roughly three years. That should scare you because it is the textbook definition of inflation.
Such massive increases in the money supply, especially over such a brief period, raise the specter of rapidly rising price inflation. This is especially true if the central bank is unable to tighten, or mop up all that excess money, when the economy eventually recovers.
There are many who doubt that the Fed has sufficient tools to stabilize inflation over the longer term since the federal funds rate is already at zero. You could say that the Fed may be fighting a battle without any further ammunition.
Inflation is simply the increase of the money supply. When all of this money is brought into creation without a corresponding increase in goods and/or services, inflation ultimately results.
Our money is being devalued and, ultimately, that's all inflation really is.
The $2.9 trillion expansion of the Fed's balance sheet is only what it admits to publicly. The Fed is in the business of secrecy and operates in the most opaque manner.
Bloomberg recently reported that the Fed secretly loaned $7.7 billion in freshly created money to banks and financial institutions around the globe during the financial crisis. A sum that large is just mind-boggling.
The Fed's entire method of operation is a charade. It prints money backed by nothing, lends it out to global financial institutions and is able to legally profit from it. This is outrageous because the Fed is a cartel of privately owned banks and actually has shareholders.
Interest earned on the Fed's portfolio of securities should not qualify as earnings. It is nothing less than manipulation — a rigged game. What other industry has the extraordinary privilege of creating something out of nothing, at no cost, and is then able to then profit from it?
The legal ability to create money out of thin air amounts to larceny and counterfeiting on a massive scale. It should be viewed as a criminal activity by a criminal enterprise.
But the Fed was granted this extraordinary privilege by the U.S. Congress back in 1913. Since that time, particularly since the U.S. went off the gold standard in 1971, the value of the dollar has been steadily losing value.
The dollar declined 40% in the 25-year period from 1985 to 2010, and 80% since 1970.
That is the end result of unchecked, unfettered money-printing.
And that's the business of the Federal Reserve.