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Federal Reserve pays government $88.9 billion

By Martin Crutsinger

AP Economics Writer

LAST UPDATED: 07:37 a.m. HST, Jan 10, 2013

WASHINGTON » The Federal Reserve paid the federal government a record $88.9 billion in 2012. The central bank earned the money from the Treasury bonds and mortgage-backed securities it has purchased to drive interest rates lower and boost the economy.

The Fed said today that the 2012 payment was up 17.9 percent from 2011 when it paid the federal government $75.4 billion. It also surpassed the previous record payment of $79.3 billion made in 2010.

The Fed began buying Treasury bonds and mortgage bonds during the last recession and has kept up the effort since the downturn ended in June 2009 in an effort to boost the sub-par recovery and lower high unemployment. It is currently purchasing $85 billion in bonds each month.

Fed officials say the massive bond buying, known as quantitative easing, is needed until economic growth is stronger. But critics contend that the bond purchases could ultimately lead to higher inflation.

All of the Fed's purchases have pushed the central bank's balance sheet to $2.92 trillion, more than three times the size of the Fed's holdings before the financial crisis struck in the fall of 2008.

The Fed is funded 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. Before the Fed launched the first bond buying program in 2008, its annual payments had averaged below $30 billion for the previous three years.

The 2012 payment to the Treasury was reduced by $387 million which went to fund the operations of the Consumer Financial Protection Bureau and the Office of Financial Research, two new agencies created by the 2010 Dodd-Frank Act which overhauled the government's financial regulations. Republicans opposed having these agencies receive their operating funds from the Federal Reserve rather than going through the normal appropriations process in Congress.

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HD36 wrote:
You can see the Fed at work today. The 10 yr yeild is up .03 and yet the 30 year is up only .01 to 3.07. Since they ran out of short term treasuries to continue operation twist, they're buying long term outright. In a normal market, the longer time period you loan someone money, the higher the interest rate you get. The Fed must keep interest rates low so that the government can at least make the interest payments on the debt. Problem is, they can't keep loaning the government money without debasing the dollar. We now have the biggest bond bubble in history. When it pops knowbody knows. This would be devastating because the dollar will also collapse.
on January 10,2013 | 08:42AM
mcc wrote:
We should have remined with gold being the standard. Now we have worthless paper.
on January 10,2013 | 11:03AM
what wrote:
That's right boys and girls, this is how it works. When the Federal Reserve buys Treasuries, they pay for it with money magically pulled out of thin air! Isn't that awesome? And then when the Fed earns interest on those treasuries, they can use it to pay themselves a nice paycheck and pay expenses on those nice Fed offices. And whatever money they don't want, they generously give back to the government.
on January 10,2013 | 11:23AM
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