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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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."

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  

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.”

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.”

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.”

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.

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.

101 years and counting's picture

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

 

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.

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!

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

Cleanclog's picture

Also in Bangladesh some food riots on higher prices.

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

greased up deaf guy's picture

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

pile of poop's picture

we're rich, bitches!

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

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.

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.

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.

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.

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

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.

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!"

buzzsaw99's picture

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

Ragnarok's picture

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

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

buzzsaw99's picture

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

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.

TideFighter's picture

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

Any ideas?

 

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.

 

TideFighter's picture

The new Fed PD: "Snuffalufafed"

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.

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.  


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.

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)

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?

stewie's picture

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

 

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)

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?

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

 


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?

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.

 

 

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!

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


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.

FunkyMonkeyBoy's picture

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

Buttcathead's picture

those folks sure can count high...