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Source link: http://archive.mises.org/11553/the-danger-behind-the-feds-exceptional-profits/

The Danger behind the Fed’s Exceptional Profits

January 28, 2010 by

We are in the midst of a serious recession, with high unemployment, housing in a slump, and the stock market making only small steps toward recovery. Meanwhile, the Fed is making profits. FULL ARTICLE by Mateusz Machaj

{ 5 comments }

Kim Bo January 28, 2010 at 7:43 am

So the FED made huge profits, didn’t it ?

I can’t help but to question myself, just exactly what wealth did the FED create ?

What did the FED contribute to the economy ? What did the FED traded in exchange for those profits ?

The hot dog stand in front of my office has to produce hot dogs before it can sell them for a profit.

Whenever I purchase one of their oversized and extremely delicious hot dogs, I am richer of a hot dog and the stand is richer of $4.00. Their food is so great, they deserve all the profit they can take and I even leave them a tip.

But what did the FED produce ? Where’s the commodity ? Where’s the service ? Where’s the happiness ? Where’s the wealth ?

Seems to me like the FED only takes wealth, it produces NOTHING !

Patrick Barron January 28, 2010 at 8:20 am

It is always good to have one’s analysis reinforced by someone so eloquent. A couple weeks ago, when the news of the Fed’s “profit” was released, someone from my email group crowed that the Fed’s policy was working. I told the group that the Fed was insolvent–that its assets were not worth their booked value. I thank the author for taking me through the mechanism of this accounting trick.

Well done!

fundamentalist January 28, 2010 at 9:46 am

That’s exactly what the central bank of Germany did in the 1920′s hypeinflation. The state deficit was huge, so the state issued debt to pay it and the central bank bought the debt.

joebhed January 28, 2010 at 4:08 pm

central government planner here

Just to clarify – the Fed is not a private bank, but it is a private corporation engaged in credit creation, and the real profits are made by its subsidiary membership -private banks.
Sort of like a non-profit that owns profit-making subsidiaries.

“Contrary to the claims of some groups, the Fed is not a private bank: it cannot keep the profits earned from holding public debt.”
It cannot?
Where does it say that?
Donald Kohn said the Fed might cancel its Treasury RE-payments in order to fund domestic and foreign expansion needs. Cannot?
Actually, it can.

“Over 90 percent of the money that the Treasury pays the Fed goes … back to the Treasury. Thus, the modern state receives earnings from printing money while giving a small fee to its financial intermediary.”
Which is it?
If it is a RE-payment of the government’s interest payments(and it is), then the “state” doesn’t receive any payments from printing money – because the state doesn’t print money, it borrows money, as insane as that may be.

“Or better yet, the Fed can pay the Treasury several times more by printing trillions of US dollars, buying companies on Wall Street, and achieving small dividends.”
Foolish poppycock. And you know it.
The Fed can only lend against collateral, however paltry.

“Unlike most financial institutions, the Fed does not comply with the “mark to market” rule,”
uummm…. excuse me, nobody is complying to the MTM rules, and that is what has kept this song and dance going for this long.

“If it came to this, there are two possible scenarios. In the first, the central bank would be recapitalized by the Treasury.” ha ha.
FIRST, the Treasury would need the power to ‘capitalize’, which it does not have, unless it would be $Trillions in quarters.

Abolish the Fed.
Implement full-reserve banking.
Restore the monetary sovereignty of the United States back to the people, acting through its Congress.
The Money System Common.

Avril Swenson September 8, 2010 at 2:34 am

Rather interesting blog you’ve got here. Thanks the author for it. I like such topics and anything that is connected to this matter. I definitely want to read a bit more soon.

Avril Swenson
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