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Fed To Remit A Record $78.4 Billion In Ponzi Cash To Treasury

Tyler Durden's picture





 

After the Fed bought over $1 trillion of US Treasury bonds in the past 2 years, it is now reverse payback time, in which the Fed gives the Treasury just a little more cash. The FRB announced that per "unaudited" 2010 results (obviously), the Fed is provisioning to pay the Treasury $78.4 billion, a 50%+ increase from the $47 billion paid to the Treasury in 2009. What is the basis of this payment? Why the Fed's charter of course: "Under the Board's policy, the residual earnings of each Federal
Reserve Bank, after providing for the costs of operations, payment of
dividends, and the amount necessary to equate surplus with capital
paid-in, are distributed to the U.S. Treasury." Which means that as the Fed buys up ever more Treasurys, and as rates continue their inexorable rise higher, the Fed will continue to receive interest payments from the US Treasury, which, at the end of every year, it will promptly remit back to whoever the current incarnation of Tim Geithner is, in essence nullifying the "checks and balances" impact of cash out interest expense on Treasury, and thus government, deficit decisions. In fact, the greater the amount of debt issued, and therefore monetized, the less the Treasury actually has to pay in interest. And in the meantime, the higher interest rates go, the greater the duration-adjusted loss on Fed holdings. But who cares about those: after all, results are all "unaudited" and the Fed will hold all securities to the earlier of "maturity" or default - as if anyone doubts which will happen first.

The chart below shows all annual distributions from the Fed to the Treasury.

And full release from the Fed:

The Federal Reserve Board on Monday announced preliminary
unaudited
results indicating that the Reserve Banks provided for
payments of approximately $78.4 billion of their estimated 2010 net
income of $80.9 billion to the U.S. Treasury. This represents a $31.0
billion increase in payments to the U.S. Treasury over 2009 ($47.4
billion of $53.4 billion of net income).  The increase was due primarily
to increased interest income earned on securities holdings during 2010.

Under the Board's policy, the residual earnings of each Federal
Reserve Bank, after providing for the costs of operations, payment of
dividends, and the amount necessary to equate surplus with capital
paid-in, are distributed to the U.S. Treasury.

The Federal Reserve Banks' 2010 net income was derived primarily
from $76.2 billion in income on securities acquired through open market
operations (federal agency and government-sponsored enterprise (GSE)
mortgage-backed securities, U.S. Treasury securities, and GSE debt
securities); $7.1 billion in net income from consolidated limited
liability companies (LLCs), which were created in response to the
financial crisis; $2.1 billion in interest income from credit extended
to American International Group, Inc.; $1.3 billion of dividends on
preferred interests in AIA Aurora LLC and ALICO Holdings LLC; and $0.8
billion in interest income on loans extended under the Term Asset-Backed
Securities Loan Facility (TALF) and loans to depository institutions.
 Additional earnings were derived primarily from revenue of $0.6 billion
from the provision of priced services to depository institutions. The
Reserve Banks had interest expense of $2.7 billion on depository
institutions' reserve balances and term deposits.

Operating expenses of the Reserve Banks, net of amounts
reimbursed by the U.S. Treasury and other entities for services the
Reserve Banks provided as fiscal agents, totaled $4.3 billion in 2010.
 The Reserve Banks' operating expenses included assessments of $1.0
billion for Board expenditures and the cost of new currency. In 2010,
statutory dividends totaled $1.6 billion and approximately $0.6 billion
of net income was used to equate surplus to paid-in capital.

The preliminary unaudited results include valuation adjustments
as of September 30 for TALF loans and consolidated LLCs.  The final
results, which will be presented in the Reserve Banks' annual audited
financial statements and the Board of Governors' Annual Report, will
reflect valuation adjustments as of December 31.

 


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Mon, 01/10/2011 - 14:48 | Link to Comment ewmayer
ewmayer's picture

You can be sure Bernanke and Geithner will spin this as "The Fed`s bond-purchasing programs have actually made money for the American taxpayer." Jut like the government raiding the SS and Medicare trust funds and replacing the cash with IOUs yielding some rock-bottom (but nonzero) percentage "makes money for the American taxpayer."

Mon, 01/10/2011 - 15:49 | Link to Comment Monkey Craig
Monkey Craig's picture

this country has gone from actually creating wealth to a system of vote buying and spinning news to the proles who don't give a shit except for fantasy football  

Mon, 01/10/2011 - 21:24 | Link to Comment Drachma
Drachma's picture

Letter to Congress from Geithner Jan. 6, 2011:

"Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States.”

Mon, 01/10/2011 - 21:25 | Link to Comment Drachma
Drachma's picture

Letter to Congress from Geithner Jan. 6, 2011:

"Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States.”

Mon, 01/10/2011 - 21:27 | Link to Comment Drachma
Drachma's picture

Letter to Congress from Geithner Jan. 6, 2011:

"Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States.”

Mon, 01/10/2011 - 16:27 | Link to Comment RockyRacoon
RockyRacoon's picture

"Unaudited."   How do we know they're not skimming?  Crooks.

Would you trust your broker's "unaudited" remittance... of $78B?

Especially if you knew your broker had a printing press.

Mon, 01/10/2011 - 17:09 | Link to Comment mick_richfield
mick_richfield's picture

Yes, I would.

And I would use it to buy argentum faster than you could say "Bunky Hunt". 

Then Tyler Durden would be workin for me, baby.

 

 

 

Oh, and ... Fed delenda est.

Mon, 01/10/2011 - 21:24 | Link to Comment 99er
Mon, 01/10/2011 - 21:26 | Link to Comment 99er
Mon, 01/10/2011 - 14:51 | Link to Comment 101 years and c...
101 years and counting's picture

PONZI...BITCHEZ (yes, caps are needed).

 

Mon, 01/10/2011 - 14:59 | Link to Comment Quinvarius
Quinvarius's picture

Credit cards and mortgages should work this way.

Why the Hell am I paying taxes for anything if the government gets paid to borow money?  Why don't they just borrow even more money so they can make a bigger profit?

What a kick in the ass for a guy who works for a living.  This is all so insulting, it is like Bernie Madoff telling you what he is really going to do with your money before you give it to him.

Mon, 01/10/2011 - 15:01 | Link to Comment NotApplicable
NotApplicable's picture

Why don't they just borrow even more money so they can make a bigger profit?

Oh, don't you worry, they will.

To infinity, and beyond!

Mon, 01/10/2011 - 14:51 | Link to Comment Rusty Shorts
Rusty Shorts's picture

O/T

 

Bangladesh suspended trading at its main stock exchange in the capital Dhaka on Monday, and security officials used batons to disperse thousands of angry investors upset over a market plunge...

http://www.youtube.com/watch?v=WohJ_YV4ZV0

Mon, 01/10/2011 - 14:59 | Link to Comment Cleanclog
Cleanclog's picture

Also in Bangladesh some food riots on higher prices.

Mon, 01/10/2011 - 14:55 | Link to Comment LMAO
LMAO's picture

The vastness of all these operations, the sums involved..... I have an increasingly hard time of getting my head around all these numbers.

This is beyond lunacy.

 

LMAO

Mon, 01/10/2011 - 14:56 | Link to Comment greased up deaf guy
greased up deaf guy's picture

translation: believe us when we tell you the ponzi is working.

Mon, 01/10/2011 - 15:00 | Link to Comment pile of poop
pile of poop's picture

we're rich, bitches!

Mon, 01/10/2011 - 15:11 | Link to Comment LMAO
LMAO's picture

We surely are dude (or dudess)

We are fooking less than $8 bill shy of the years 2002, 2003, 2004, 2005 combined!

And.... even better news, it looks like we are in an UP and beyond trend.

YiiiiHaaaaa !

LMAO

Mon, 01/10/2011 - 15:00 | Link to Comment Boilermaker
Boilermaker's picture

REITs started their upward march at 10:00 sharp and are now positive...

RMZ and IYR are green.  Same action as yesterday...plunge...massive shove up...plunge...grind up to parity, close slightly positive.

Comical...pathetic...both.

Mon, 01/10/2011 - 15:23 | Link to Comment unwashedmass
unwashedmass's picture

 

oh please, they have nothing on the gang pushing the peasants money into BAC. i just watched someone unload a few million shares -- and the price went up.

these people in Bangla Desh need to come over here and learn a few lessons on how to run a corrupt market.

Mon, 01/10/2011 - 16:43 | Link to Comment Boilermaker
Boilermaker's picture

The financials and the REITs are forever connected.  If the REITs are allowed to go tits-up then the banks are indisputably insolvent.

Thus, never price discovery actually occur. 

Today is really getting absurd and laughable.  This ridiculous ride has to end sometime.  I just wonder how many more quarters they have in their pocket to keep it going.

If you follow the REITs, it's just beyond awful how blatant it's become.  It's nothing more than a puppet act at this point.

Mon, 01/10/2011 - 16:51 | Link to Comment Amish Hacker
Amish Hacker's picture

Maybe we should send some Americans over to Bangladesh to learn a few lessons on how to riot in the streets when markets get to the final stages of corruption.

Mon, 01/10/2011 - 15:03 | Link to Comment tmosley
tmosley's picture

Of course, we should remember that they refund what they have left AFTER EXPENSES.  Think about why Federal Reserve buildings are always so gigantic and beautiful.

Next year, we'll likely have one of these in the likeness of Bernanke: http://www.youtube.com/watch?v=omLpwpRH6PA

Mon, 01/10/2011 - 15:04 | Link to Comment boricuadigm-shift
boricuadigm-shift's picture

"after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed to the U.S. Treasury"

 

Payments of dividends to whom?  Is it $1/share?, $10/share?  It is crazy not knowing what the heck these guys are doing with our precious fiat.

I wonder how much GS, JPM and the Rothchilds got.

Mon, 01/10/2011 - 15:07 | Link to Comment knukles
knukles's picture

Be-Jesus....
Issue a bost load of digital dinero at no cost (seigniorage) and buy any interest bearing instrument that pays, presto chango, makes a lotta moolah.

Be-Jesus Deux....

Watch the spin about how profitable and rosie-dosie everything is.  "It's raining money, Ben!  It's raining money!  What deficit?  See the more we QE, the better we'll all be!  You're a God-damned Genius, Ben!"

Mon, 01/10/2011 - 15:07 | Link to Comment buzzsaw99
buzzsaw99's picture

This looks like a crazy ponzi kickback scheme, but it can't be.

Mon, 01/10/2011 - 15:07 | Link to Comment Ragnarok
Ragnarok's picture

Hey, this should buy the debt ceiling vote a month or so.

Mon, 01/10/2011 - 15:08 | Link to Comment primefool
primefool's picture

A. Treasury sells US Treasuries - Fed buys them. Treasury pays interest to the Fed. Fed returns the interest received back to Treasury. And we call that progress.

B. Treasury should just print money for itself. Free of interest and cut out the middle-man.

 

A==B

Mon, 01/10/2011 - 15:11 | Link to Comment buzzsaw99
buzzsaw99's picture

That's just crazy talk. We need the fed to help us destroy, er, ourselves.

Mon, 01/10/2011 - 15:12 | Link to Comment TideFighter
TideFighter's picture

Ho hum. The Treasury used to keep an offset account at the Fed with about 5-10 Billion in a Treasury Tax and Loan Account. Now, the Treasury just gives the Fed a bill to deposit in an unamed offset account. The balances then shot to 500 Billion. The Treasury's cash held at banks fell 98%. The Fed can just deposit a Treasury Bill back into this account. True Grit.

Mon, 01/10/2011 - 15:14 | Link to Comment TideFighter
TideFighter's picture

The Fed as a PD. We need a bidding name for them.

Any ideas?

 

Mon, 01/10/2011 - 15:15 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

What are yee guys bitching about..... the commercial banks cannot gain any income from such purchases - at least directly.

This is net positive for the US but negative for the rest of the world as commodities rise but with no interest dividend sweetener for mercantile countries.

 

Mon, 01/10/2011 - 15:17 | Link to Comment TideFighter
TideFighter's picture

The new Fed PD: "Snuffalufafed"

Mon, 01/10/2011 - 15:38 | Link to Comment Orly
Orly's picture

Excellent!

When real people notice and point it out, the Fed's books are nowhere to be seen.

The Fed as the invisible elephant.  Loves it!

I'm pretty sure Big Bird was one o'them tin-foil hatters anyways.

Mon, 01/10/2011 - 15:30 | Link to Comment stewie
stewie's picture

Would somebody be kind enough to explain two points I don't get from this article:

1- "...and the amount necessary to equate surplus with capital paid-in".  What does this mean?

2- "the higher interest rates go, the greater the duration-adjusted loss on Fed holdings".  Is this because bond prices and interests move inverse?

Thanks 

 

So with monetized debt, the gvmt pays interests to itself on that debt, minus what the FED keeps. So it seems that whoever is getting dividends from the FED dividends are the ones getting the sweet deal in all this.  


Mon, 01/10/2011 - 15:59 | Link to Comment boricuadigm-shift
boricuadigm-shift's picture

BINGO!  This is THE QUESTION!  WHO THE F@#$ is getting these dividends?  I bet the Equity on the FED is relatively minuscule.

Mon, 01/10/2011 - 16:20 | Link to Comment unununium
unununium's picture

You are making it too complicated.  T pays interest to all holders, including the Fed.  At year end, Fed remits all profits to T.  That is what this $70B is.

If you are looking for the scam, look elsewhere.  For example,

 - Inflation "tax"

 - PD's take a cut of all transactions

 - Fed's expenses accountable to nobody

...and the biggie

 - Fed transactions unaudited and accountable to nobody (for example, your basic Fedwire transfers that alter account balances)

Mon, 01/10/2011 - 15:21 | Link to Comment Winterland
Winterland's picture

I've posed this question before:

 

Why would the UST even bother holding open auctions if they can borrow money for free from the Fed?

Mon, 01/10/2011 - 15:27 | Link to Comment stewie
stewie's picture

From what I understand:  Because the commercial banks wouldn't profit from such an arrangement.

 

Mon, 01/10/2011 - 15:32 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Its just to keep the illusion that when creating money or more accuretly currency it needs to be debt - this may be inflationary but it sure won't increase the debt much.

 

You could create a monetory system where all internal currency is created debt free by the goverment - using only Gold and silver to pay for outside goods and services (oil)

Mon, 01/10/2011 - 15:27 | Link to Comment FunkyMonkeyBoy
FunkyMonkeyBoy's picture

"payment of dividends"

Who do the dividends go to of this private, secretive, parasitic organisation that plunders U.S. citizens labor earned wealth?

Mon, 01/10/2011 - 15:31 | Link to Comment stewie
stewie's picture

To the shareholders of each of the 12 Federal Reserve Banks.

and...

the top eight stockholders of the New York Fed were, in order from largest to smallest as of 1983, Citibank, Chase Manhatten, Morgan Guaranty Trust, Chemical Bank, Manufacturers Hanover Trust, Bankers Trust Company, National Bank of North America, and the Bank of New York (Mullins, p. 179). Together, these banks owned about 63 percent of the New York Fed's outstanding stock. Mullins then showed that many of these banks are owned by about a dozen European banking organizations, mostly British, and most notably the Rothschild banking dynasty.

 

From: http://www.usagold.com/federalreserve.html

 


Mon, 01/10/2011 - 15:35 | Link to Comment FunkyMonkeyBoy
FunkyMonkeyBoy's picture

And who are these shareholders of these 12 banks/trusts? Would they be a small collective of individuals from wealthy families per chance?

Mon, 01/10/2011 - 15:44 | Link to Comment stewie
stewie's picture

Thousands of American banks.  To participate in the Federal Reserve System, national and state banks need to purchase shares of their regional fed bank.  

 

It seems that no individuals or organizations own any shares.

 

 

Mon, 01/10/2011 - 15:56 | Link to Comment FunkyMonkeyBoy
FunkyMonkeyBoy's picture

"national and state banks need to purchase shares of their regional fed bank"

Are these the same national and state banks that the FED bails out? So, the FED is bailing out it's own shareholders? How novel!

Mon, 01/10/2011 - 15:38 | Link to Comment A_MacLaren
A_MacLaren's picture

by Dr. Edward Flaherty, University of Charleston
Last updated July 18, 1997

References:

82nd Annual Report, 1995. Board of Governors of the Federal Reserve System. U.S. Government Printing Office.

Galbraith, John K. 1990. A Short History of Financial Euphoria. New York: Whittle Direct Books.

Kah, Gary. 1991. En Route to Global Occupation. Lafayette, La.: Huntington House.

Mullins, Eustace. 1983. Secrets of the Federal Reserve. Staunton, Va.: Bankers Research Institute.

Shauf, Thomas. 1992. The Federal Reserve. Streamwood, IL: FED-UP, Inc.

Woodward, G. Thomas. 1996. "Money and the Federal Reserve System: Myth and Reality." Congressional Research ServiceUnited States Code Annotated. 1994. U.S. Government Printing Office.

 

Last updated July 18, 1997


Mon, 01/10/2011 - 15:32 | Link to Comment A_MacLaren
A_MacLaren's picture

Its owners, of course. 

Who is that? 

That's on a need to know basis; and you don't need to know.

Mon, 01/10/2011 - 15:36 | Link to Comment FunkyMonkeyBoy
FunkyMonkeyBoy's picture

I do know, that's why i buy gold/silver (like they do) exchanging their confetti paper for real wealth.

Mon, 01/10/2011 - 15:30 | Link to Comment Buttcathead
Buttcathead's picture

those folks sure can count high...

Mon, 01/10/2011 - 15:35 | Link to Comment Milton Waddams
Milton Waddams's picture

So Treasury auctions debt off to primary dealers, PDs sell the debt to the Fed, the Fed, after expenses, remits the interest on the debt back to the Treasury and everything else is supposed to "trickle down" from the fake economy into the real economy?

Can someone please synthesize this process using cartoon bears?

Mon, 01/10/2011 - 15:51 | Link to Comment nohweh
nohweh's picture

Please Help- a bit off topic, but I am in need of asssistance.  Just heard that in the UK, a bill is to be introduced that will have the effect of offering bank depositors the option of either 100pc reserve banking, or the usual fractional reserve fraud. This is to be within current institutions in the UK, not a fully separated Glass-Steagle arrangement. As I understand it, this forces banks to treat your money as just that, and not their property to ponzi around as they like. I am not very good at maths, but here in Australia, on a regular bank housing loan, with a 10% reserve, banks usually lend to 90% valuation, demand 10% deposit from the borrower, then advance 90% "thin air" book money at approx 8%pa variable, and of course taking title of the property. Can anyone who knows please tell me if there is there any error in this statement, which enables the bank to make 30 years of compounded interest, plus the payment fron the central bank on the 10% deposit, without any consideration, whilst holding the title to the property?

Mon, 01/10/2011 - 15:55 | Link to Comment max2205
max2205's picture

If true, nice of the Fed to make money but duh, no jobs or lower intrest rates (two fail).

 

Is the Fed a SPV of the Treas or Treas a SPV for the Fed...I am confused (and astonished)

Mon, 01/10/2011 - 15:59 | Link to Comment Beatscape
Beatscape's picture

Tyler, thanks for connecting the final dots that absolutely confirms that The Bernank is lying through through his bearded clam teeth when he says the Fed is not monetizing US debt.  In the meantime, can you please send this to Ron Paul, the new chairman of the House subcommittee that oversees the Fed?  How much longer can The Bernank continue this trillion dollar charade?  I can't wait for Ron Paul to grill him on exactly this issue...

Mon, 01/10/2011 - 16:06 | Link to Comment MarketTruth
MarketTruth's picture

The Federal reserve pays Dividends, nice!!!

<s> Where can normal Americans buy Federal Reserve stock as they do other companies? On the Dow? <s>

Mon, 01/10/2011 - 16:07 | Link to Comment Convolved Man
Convolved Man's picture

Hopefully, Timmy demanded the $78.4 billion remittance be paid in gold instead of Federal Reserve notes.

Mon, 01/10/2011 - 16:22 | Link to Comment Alex Ljungberg
Alex Ljungberg's picture

Common sense would tell you that the losses already embedded in the Fed's balance sheet from the toxic assets it's acquired exceed the cumulative "profits" it has returned to the Treasury since its inception in 1913.

Common sense would also tell you that when (not if) interest rates revert to their historical mean, those embedded losses are only going to grow exponentially.

Surely, Chairman Bernanke and Treasury Secretary Geithner know this.  And you don't need an audit to see it.  There can be no plausible deniability on anyone’s part.

Mon, 01/10/2011 - 16:30 | Link to Comment Hephasteus
Hephasteus's picture

It's ok. They've got inplausible deniability.

http://www.youtube.com/watch?v=D58LpHBnvsI&feature=related

Mon, 01/10/2011 - 16:33 | Link to Comment ThirdCoastSurfer
ThirdCoastSurfer's picture

"Operating expenses...totaled $4.3 billion in 2010 (including) $1.0 billion for Board expenditures and the cost of new currency."

Mon, 01/10/2011 - 16:25 | Link to Comment gwar5
gwar5's picture

Remit, or Re-mint?

Mon, 01/10/2011 - 16:45 | Link to Comment Cdad
Cdad's picture

As the Blow Horn [CNBC] carries the water on the Fed making $78 billion, quant shops ramp the QQQQs [by purchasing shares of the world's most effective zombie maker] in yet another sad attempt to simply run over bids to create the appearance of the Wealth Affect. 

In the meantime, the US picks up speed on the way to becoming a full blown Banana Republic Tree, as Europe stands on the ledge with no hope and few options, and China has no f'n clue what to do as it watches the economies of the buyers of it cheap crap steadily draw nearer to collapse.

The world's largest petroshrimpmaker [would someone please just pound a stake through the heart of this sad company?]  finds another way to screw things up by spilling 10 barrels of oil and overreacting, shutting down an entire state.  L. Blankfein and his band of merry men USE THE STORY to short the dollar and try to lift oil futures...to very little effect, interestingly.

This as US leftists heavily into Marxism blame murder on political speech and prepare to end that fudamental right.

And this is only the half of it.  Were it not for the fact that my children will be inheriting this sad place, it would be one of those entirely laughable days here in the country formerly known as America.

Attention Criminal Wall Street Bankers:  Average Joe will be returning to the US equity market exactly...when your industry has collapsed and you are all but gone.  So step up and get your bracelets fitted...there is no other way for us to recover.  Capital cannot form in your banks BECAUSE OF YOU!

 

Additional:

And as if on cue, a moron, criminal syndicate banker appears on the Blow Horn talking about what a value the world's largest petroshrimp maker is.  Well, I'm sure there is property in Iraq that is a value, too, when measured in Wall Street terms.  Bankers should immediately don hockey helmets.  This is a "helmet on" sort of day.

And here comes Karabell with his "buy stocks" even if nuclear bombs are going off in major metropolitan areas all over the world. 

And all of these folk think of themselves as Smart Money?

Mon, 01/10/2011 - 17:02 | Link to Comment BennyBoy
BennyBoy's picture

No one will ever find out who gets the "...payment of dividends..."

 

So don't worry, Llyod, your secret is safe.

Mon, 01/10/2011 - 22:00 | Link to Comment bluedobie
bluedobie's picture

disregard

Mon, 01/10/2011 - 22:12 | Link to Comment toros
toros's picture

Is there a cartoon verson of this?

Mon, 01/10/2011 - 22:36 | Link to Comment rapier
rapier's picture

Well what do you think they were going to do with it?  Retain it to make up for the losses on all it's poopy paper left over from the crisis and MBS.

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