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

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

Submitted by Tyler Durden on 01/10/2011 13:43 -0500

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 following sums it up perfectly.

by Quinvarius
on Mon, 01/10/2011 - 13:59
#864371

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.

WP