Posted on 01/13/2017 10:18:48 AM PST by Lorianne
Circuitous hidden wonders of paying interest on “excess reserves.”
The Federal Reserve just went through its annual ritual of disclosing its preliminary results for the year: The income it earned less its operating expenses, according to central bank accounting, and how much of these earnings it is remitting, as it does every year, to the US Treasury Department. But this statement includes another nugget.
In 2016, the Fed paid our favorite banks $12 billion in interest on their “excess reserves” held at the 12 regional Federal Reserve Banks (the New York Fed, the Boston Fed, the Dallas Fed, the San Francisco Fed, etc.). But wait… who’s actually paying that $12 billion?
Is it just a well-earned freebie for the banks, conjured up out of nothing, in Fed-style? Nope. The taxpayer paid the $12 billion to the banks. Here’s how.
The Fed earns interest income from the $2.46 trillion in Treasury securities and from the $1.74 trillion in Agency mortgage-backed securities on its balance sheet. These are the securities the Fed bought from its Primary Dealers with money that it had created under the QE program. So now, it’s collecting the coupons. This is its income.
After subtracting its operating expenses ($709 million in 2016) and the interest it pays to the banks for their “excess reserves,” it remits the remainder to the Treasury Department. This is revenue for the US government, which can use every dime it gets.
According to the Federal Reserve Board’s preliminary estimates of its 2016 results, it will pay the Treasury Department $92 billion. That’s down from $97.7 billion it paid the Treasury in 2015.
SNIP
“Fed Pays Banks $12 Billion on “Excess Reserves,” Taken from Taxpayer Pockets”
Funny, isn’t it?
Hawaii Pension Fund Shortfall Hits $12 Billion
http://freerepublic.com/focus/f-news/3513652/posts
Obama smiles
And in other news - Peter robbed Paul, again.
There is no greater scam on earth than being a member bank of the Federal Reserve, and being one of their primary dealers.
The Federal Reserve, its massive debt, manipulated interest rates, and its control over our completely unbacked currency are the pillars and foundation of the progressive, left, globalist nanny state.
They are the support behind every political, economic and eventually social issue that conservatives oppose.
The explanation at the link is the best one I have read about this practice, which began in 2008 during the financial crisis:
Remember, old Alan Greenspan said we could just print as much money as we need to pay our debts.
A friend and I were wondering when we would be allowed to have our own personal printers.
I think they still call that “counterfeit”.
Federal reserve audit coming soon
There is substantial value to the citizens to incentivize banks to keep large Tier 1 reserves in this economic atmosphere.
And most certainly there is sufficient other capital to loan to worthy borrowers.
Too bad the Tier 1 capital is so flimsy and ephemeral. US Treasuries and Mortgage backed securities. If the Fed did not assign Tier 1 status to it much of it would be nearly worthless.
Mark it to Market and let the chips fall where they may.
Mandating 20% in gold and another 20% in cash would be much better.
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