The Federal Reserve is the central bank for the United States. The Federal Reserve is a private banking cartel that had to be set up in secret. It is not federal (i.e., part of the federal government) and it has no reserves. All you need to do to see that the Fed is not a part of the government is to do a search for the websites of the Federal Reserve Banks. They all end in ‘.org’, not ‘.gov’.
Cartels form in order to capture the monopoly level of profits. The Fed is capturing that level of profit right now:
How profitable is the Federal Reserve?
Victoria McGrane’s story at the Wall Street Journal tells us about the Fed’s incredibly lucrative 2013 (emphasis mine):
The Federal Reserve sent about $77.7 billion in profits to the Treasury Department in 2013.
The Fed in a statement released Friday said it made an estimated $79.5 billion in net interest income, a total largely driven by the $90.4 billion in interest income it made on its portfolio of Treasurys, mortgage bonds and other securities.
Okay, that’s a lot of money, topped only by the record $88 billion generated in 2012.
McGrane tells us that the annual cost of running the 12 Federal Reserve Banks and funding the operations of the new CFPB regulatory body is around $5.7 billion. So, while the Fed is not necessarily a private “business” per se, it is an obscenely high-margin quasi-corporation, with around $80 billion in after-cost profits.
The Federal Reserve, after operational costs, is earning double the profits of Exxon Mobil ($44 billion) and Apple ($41 billion), and those two companies are doing a combined $600 billion in global revenues! The Fed is in a much better business than finding oil or making phones – instead it merely sits atop a $4 trillion portfolio of mostly risk-free bond investments and is the de facto ultimate decider of what the interest payments are going to be. Not bad work if you can get it.
The Fed is making these profits off of government bonds, which is what the Fed was set up to purchase. The Fed also holds mortgage securities that that were transferred to the Fed under the Troubled Asset Relief Program. So when you pay your mortgage, part of that money may be going to our central bank. Unfortunately, many of these mortgage securities may be toxic:
The Fed’s liquidity injection was made by issuing credit to banks and simultaneously buying back troubled (i.e., subprime) banking sector assets. While the banking sector’s balance sheet ballooned with cash and cash equivalents, the Fed’s own balance sheet witnessed a sharp rise in the very troubled assets it was removing from the banking system. As Philipp Bagus recently noted, the Fed had become exactly the type of “bad bank” it had tried to rescue.
Over $1.1 trillion of mortgage-backed securities have been purchased since March 1, 2009. These assets, typically rated subprime, are of questionable quality (with total assets of almost $2.4 trillion as of July 1, 2010, nearly half of the Fed’s total assets are subprime). More troubling is that these mortgages cannot be properly valued until they are sold to a willing buyer — buyers who are increasingly in short supply.
The Federal Government pays interest on the government securities that the Fed holds. The amount of these securities being purchased and held by the Fed has been increasing since 2008. And where does FedGov get this money to pay the Fed? Why, the American taxpayer of course!
That’s right. You are being taxed to death in order to pay profits to the private banking cartel that is ruining the economy.