Fed Remits Only $92 Billion To Treasury In 2016, Lowest Since 2013

Tyler Durden's picture

The world was reminded of the cozy relationship between The Fed and The Treasury again today as Janet sent Jack $92.0 billion of freshly ponzi'd net income for 2016 providing the federal government with an important source of funding. This, however, is down almost 6% from 2015 and despite a considerably larger balance sheet is the lowest remittance since 2013 due to doubling the handouts to the major banks to $12 billion last year.

As Reuters reports, part of the decline is due to a drop of about $2.6 billion in what the Fed earns on its holdings of U.S. Treasury bonds and mortgage-backed securities accumulated in fighting the 2007 to 2009 financial crisis.

But most of it is a result of the interest paid on excess reserves held by commercial banks at the 12 regional Federal Reserve institutions. Banks are required to hold some reserves, but are allowed to deposit more if they choose.

 

Between more cautious lending and weak economic growth, total reserves have been at historically high levels since the financial crisis -- roughly $2 trillion as of the end of the last year compared with a few billions of dollars in more typical times.

 

When the Fed increased its target interest rate in Dec. 2015 by a quarter of a percentage point, to a range of between 0.25 and 0.5, it increased the rate paid to banks as well - and pushed its overall reserve interest costs from $6.9 billion in 2015 to $12 billion last year.

 

The increase may draw attention from lawmakers who have been critical of the Fed paying money to large commercial institutions. The central bank argues that the payments are its most effective way to push rates higher: by offering interest on excess reserves, the Fed forces banks to raise the rate at which they are willing to lend to each other.

In the last 15 years, The Fed has handed over $880 billion to The Treasury...

Source: The Fed

As is clear in the chart above, a decade ago, back when the Fed was a smaller size, Fed remittances were fairly steady, in the neighborhood of $20 billion a year. This all changed after 2008 as the Fed’s Quantitative Easing programs increased the amount of interest-earning assets that would generate funds to transfer back to the Treasury.

Big Bucks for the US Treasury

For the US Treasury, Fed remittances are something of a free lunch. When someone buys a Treasury bond, the government must pay them interest. This applies to the Fed as well, but then at year-end the Fed remits the interest back to the Treasury.

As we noted previously, in more “normal” times (i.e., prior to 2008) around 7 percent of the Treasury’s interest payments were paid back to it by the Fed. This figure has grown to over three times that amount over the past few years...

Implications for Fed “Independence”

As much as economists talk about the independence that the Fed holds from Congress, these remittances represent a strong link. In fact, since they enable federal spending they create a form of quasi-fiscal policy for the Fed to use, in addition to its more common monetary policy options.

Consider that since Treasury debt is almost never repaid in net terms (old issues are retired but replaced with new debt issuances), the true cost of financing the US government’s borrowing is not the gross amount of debt outstanding but the annual interest expense it faces. Viewed this way, nearly half of the Treasury’s borrowing was financed by the Fed last year. Absent these Fed remittances, Congress would need to look at either an alternative funding source (though I am not sure how many takers there are for the Fed’s $2.5 trillion Treasury holdings) or make some serious cuts.

How serious? NASA’s operating budget was roughly $18 billion last year, so a lack of Fed remittances would cause the Treasury to cut around five NASA-sized programs. Alternatively, the governments Supplemental Nutrition Assistance Program (previously known as “food stamps”) cost $70 billion in 2014. Without the Fed’s remittances, Congress would have to stop paying out all food stamp recipients plus it would be forced to defund almost two NASAs.

More important in many Americans’ hearts is their monthly social security check. In 2014, $830 billion of social security checks were mailed out. Without Fed remittances, retirees might see their monthly check cut by about 12 percent.

For those concerned with the burgeoning size of the federal government, putting a stop to Fed remittances would put a serious dent in public finances and force some serious thought as to what programs need to be cut.

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lester1's picture

Cut off sanctuary cities immediately !!

cheka's picture

note how the skype don't crow about their 30 billion dollar HOLIDAY bonus pools anymore.  they put the hush on rubbing our noses in it

Uzda Farce's picture

Janet Yellen and Jacob Lew are members of the Rockefeller/CFR. It doesn't get much more "cozy" than that. See member lists at cfr dot org.

Every Fed chairman since WW2 has been a CFR member, and every member of the current Fed Board of Governors is a CFR member. Also most secretaries of Treasury, State, Defense and CIA including Tim Geithner (CFR director), Hank Paulson, Larry Summers, Robert Rubin (CFR chairman), Nicholas Brady and James Baker.

https://www.federalreserve.gov/aboutthefed/default.htm

Boris Badenov's picture

Downvoted for reporting facts? That's weird.

socalbeach's picture

The easiest way to understand this is that effectively QE retires government debt.  So about 1/5th of the debt of $20 trillion, or $4 trillion, has been neutralized.  That matches the approx $4 trillion of monetary base.  

I don't like the free handout of $12 billion/year to the banks, but an alternative in raising interest rates is to unwind QE, which would also reduce remittances to the Treasury.  It wouldn't surprise me if that's what the Fed does in order to undermine Trump.

Nigger Rich's picture

The fed reserve holds those excess debt instruments because noone else would buy them correct?

socalbeach's picture

Without QE, interest rates would have gone up enough where a buyer would have been found for the Treasuries and MBS that the Fed purchased.

Large bondholders of the banks would have taken huge losses without the Fed bailout using QE.  So essentially the Fed saved the super wealthy, but in such a way that most people don't follow what happened.

Boris Badenov's picture

QE is not being "unwound" in any way shape or form. What is remitted to The Treasury is Interest received AFTER paying TBTF banks higher payments for reserves. ALL of the maturing bonds and principal payments rec'd from holdings are RE-INVESTED monthly. I estimate ~$40 Billion a month. This mini-QE has been supporting markets the whole time the fed has been grovelling about raising rates (ie, the rates they pay on bank reserves). It's a HOAX, Folks!

 

Simple Test: What is the textbook definition of a reduction in the supply of money/credit? Does The Fed like that word?

cheka's picture

imagine, if you can, a central bank owned by the people, as part of US treasury dept

run it for profit, not for nyc skype enrichment.  it would make hundreds of billions/yr for the treasury.  then eliminate income tax ON WAGES

Dwain Dibley's picture

The remittances to the Treasury by the Fed are seigniorage interest payments on the legal tender notes issued into circulation.

The "monetary base" for the U.S. banking system is $71-Billion U.S. cash held in bank vaults and another $175-Billion in reserves held at the Fed.

All the rest, the $11-Trillion in deposits, is the banking system's debt to their depositors, backed by that $71-Billion held in their vaults, which also backs all the billions in credit based commercial transactions that occur daily.

That, is the reality of fractional reserve banking.

MONEY

the Frog

// //
socalbeach's picture

https://fred.stlouisfed.org/series/BASE

The MB is $3.4 trillion.  It's dropped a lot since I last checked (probably because of the reverse repos the fed is conducting).

Dwain Dibley's picture

The "monetary base" as reported by the fed is a load of bullshit based primarily in debt instruments and bankster debt/credit, not money.

It runs on the assumption that the debt instruments held by the Fed can be used as collateral to get legal tender money from the Treasury if public demands for their money from banks should rise. 

*Once you know and understand what the actual legal tender money is, the official currency of the United States, and how it forms the basis of the entire Centralized Fractional Reserve Bankster Debt/Credit System, it becomes fairly easy to separate the Facts from the Fed fostered, mainstream monetary bullshit.

Seasmoke's picture

This sure looks like a conflict of interest wrapped up in a Ponzi.  

yogibear's picture

LOL, financial fiat ping-pong.

A illusion of something productive.

The Fed could print up $20 trillion and buy-up all the debt.

Nobody seems concerned about legit currency or books anymore in the US.

socalbeach's picture

... or financial three-card Monte. The public is the mark.

Dwain Dibley's picture

The Fed does not "print" money, they have no legal authority to create money, and neither do the banks.

All the Fed and the banks can do is generate asset-backed, debt-based private credit, denominated in dollars.

The Fed does not own the FRN, the U.S.G. does.

The majority of what people believe about the Fed and money are mostly myths and fictions.

TeethVillage88s's picture

But, But, BUT... my arrogant patriarch told me the Fed paid $200-$300 Billion back to the Taxpayer. He swore that this was an act of Altruism, not one of 'gaming', 'theft', 'fraud', 'political control', 'buying the federal government and the control of the currency and federal debt'.... !!!

Wow.

Big surprise... those indoctrinated in WW II did not keep their eye on the Federal Politics and Fraud... they are true believers, true patriots, true group think, true victims of propaganda experiment of immense proportions.

Wow.

true victims of propaganda experiment of immense proportions.

Justin Case's picture

Excess reserves held by commercial banks is about $2.6 trillion which is about $26 trillion available to inject into the economy. This is why Yellen moves like a sloth with raising rates. If the banks pour out the bucks too fast into the economy, to avoid paying interest to the FED, they will induce inflation a biga time. Opa.

Dwain Dibley's picture

Whoever told you that, were lying their ass off.

Personally, I think you're just making shit up because, there's nothing in reality that supports your claims.

ebworthen's picture

Banks/corporations/insurers need the taxpayer's money.

By the way - pay your bills you damn serfs!

http://www.usdebtclock.org

uhland62's picture

Playing Emperor on printed money, what's not to like? 

Why didn't Marc Rich pay his taxes and why did Bill Clinton pardon him? How much did Treasury miss out on through Bill Clinton's badly advised pardon. 

unklemunky's picture

Imagine what it would be like if all the fed bankers worked for a sperm bank. They would all be jerkin off all of the time..........waaaaait a minute.......that's what they do now....

Vin's picture

Confiscate their entire balance sheet.  END THE SCAM