MNeagle
10th January 2011, 09:29 AM
WASHINGTON (MarketWatch) — The Federal Reserve Board announced Monday that it sent a record $78.4 billion to government coffers last year as a by-product of its aggressive asset purchase plan to spur the economy.
The Fed’s payments represents a $31 billion from the previous record in 2009.
Under Fed policy, residual earnings of all 12 Fed banks are distributed to the Treasury after providing for the costs of operations and dividend payments.
To battle the deepest recession since the Great Depression, the Fed launched unprecedented efforts to rescue the financial sector and the economy.
The overwhelming part of the profits came from the purchase of $1.73 trillion in housing-related assets, the so-called first round of quantitative easing.
It also earned money off the emergency loan assistance it extended to financial institutions, while expenses totaled $4.3 billion.
Many economists are worried that a second round of quantitative easing, a $600 billion bond buying plan started last November, will lose money.
Yields on 10-year Treasurys have climbed to 3.31% from 2.59% when the program was announced — indicating the value of the bonds the Fed has bought has dropped. In addition, the Fed might be forced to sell bonds to swiftly exit its easy monetary policy.
Some analysts are worried the losses might put political pressure on the Fed if it were seen as losing money.
In testimony to Congress last week, Fed Chairman Ben Bernanke downplayed this concern. He said the controversial $600 billion bond buying plan would not end up costing taxpayers.
Bernanke said the “worst-case scenario” would be that the central bank would not make remittances to the government for a couple of years but Treasury would receive more tax revenues as a result of a healthier economy.
http://www.marketwatch.com/story/fed-sent-784-billion-to-treasury-last-year-2011-01-10?siteid=rss&rss=1
The Fed’s payments represents a $31 billion from the previous record in 2009.
Under Fed policy, residual earnings of all 12 Fed banks are distributed to the Treasury after providing for the costs of operations and dividend payments.
To battle the deepest recession since the Great Depression, the Fed launched unprecedented efforts to rescue the financial sector and the economy.
The overwhelming part of the profits came from the purchase of $1.73 trillion in housing-related assets, the so-called first round of quantitative easing.
It also earned money off the emergency loan assistance it extended to financial institutions, while expenses totaled $4.3 billion.
Many economists are worried that a second round of quantitative easing, a $600 billion bond buying plan started last November, will lose money.
Yields on 10-year Treasurys have climbed to 3.31% from 2.59% when the program was announced — indicating the value of the bonds the Fed has bought has dropped. In addition, the Fed might be forced to sell bonds to swiftly exit its easy monetary policy.
Some analysts are worried the losses might put political pressure on the Fed if it were seen as losing money.
In testimony to Congress last week, Fed Chairman Ben Bernanke downplayed this concern. He said the controversial $600 billion bond buying plan would not end up costing taxpayers.
Bernanke said the “worst-case scenario” would be that the central bank would not make remittances to the government for a couple of years but Treasury would receive more tax revenues as a result of a healthier economy.
http://www.marketwatch.com/story/fed-sent-784-billion-to-treasury-last-year-2011-01-10?siteid=rss&rss=1