When the Federal Reserve conducts its operations, it earns a profit. After deducting their operating expenses, the Federal Reserve returns any surplus profit to the Treasury. Hooray for the Federal Reserve! They manage the economy, and make a profit for the government!
When the Federal Reserve monetizes the debt or buys bonds, the Federal Reserve makes a guaranteed riskless profit. The Federal Reserve creates new money and buys bonds. The interest on those bonds is the Federal Reserve’s “profit”. That interest is returned to the Treasury.
There’s a huge fallacy. It’s in the “creates new money” clause. The Federal Reserve earns a nominal profit of $30B when buying bonds. However, they created $1T+ of inflation when they bought those bonds.
The Federal Reserve has no cost of capital. If the Federal Reserve wants to buy a bond, they create new money and buy the bond. If I want to buy an asset, I have to work for that money. The Federal Reserve creates new money whenever they buy something.
The “interest payment profit” is not real profit. The Federal Reserve caused inflation to get that profit.
For example, suppose the Federal Reserve creates $1T in inflation, to earn a “profit” of $30B. Superficially, the Federal Reserve turned over $30B of interest payments to the Federal government. However, there was $1T of inflation. The Federal government didn’t gain $30B. There was an inflation loss of $970B. If there was no Federal Reserve, the Federal government could have directly spent $1T, instead of getting a $30B payment from the Federal Reserve.
Where did the $970B go? It went into the pockets of banksters. The inflation caused by the Federal Reserve is much greater than the “profit” turned over to the government. The difference goes to banksters.
The “benefit” of the Federal Reserve is not the $30B of “profit”. The Federal Reserve prints new money and gives it to their bankster friends. There is no public disclosure of who got how much. If a bond is worth $0.5B but the Federal Reserve pays $1B, that’s a $0.5B gift to a bankster. The real “profit” from the Federal Reserve is the ability to print money and lend it cheaply, without any public disclousre or oversight.
There is no public disclosure. The total amount of Federal Reserve money-printing is a well-guarded secret. The Federal Reserve can give as much money as they want, to whoever they want, without telling anyone.
State comedians make a big deal out of how the Federal Reserve is “politically independent”. What that really means is “Federal Reserve banksters can steal as much as they want, via inflation, without telling anyone, not even Congress or the President.”
Banksters earn a ton of money off a corrupt monetary system and the Federal Reserve. With a virtually unlimited source of money, they can always lobby to block real reform. With a virtually unlimited source of cheap debt, banksters arranged for leveraged buyouts of all the media corporations, so that all the “right” people control all the big media corporations. Even though the Federal Reserve is evil, the mainstream media never criticizes the Federal Reserve.
I am offended every time I hear that fallacy. “The Federal Reserve turns all surplus profit to the Federal government. Hooray for the Federal Reserve!” That ignores inflation. In order to “earn” a nominal profit of $30B, the Federal Reserve causes much more than $30B of inflation. The Federal Reserve doesn’t make money for the government and taxpayers. The Federal Reserve costs money, in the form of inflation. That money goes into bankster pockets, without any public disclosure of who got what.