To the Fed - Defer this!
January 26, 2013 - 12:53pm
The Federal Reserve makes a ton of money on its $3T horde of government bonds. In 2012 the Fed earned a tidy $90B by borrowing short and lending long. That income number is the difference between interest income and expense. The P/L does not reflect the fact that the Fed as huge unrealized gain on the portfolio (The Fed takes capital gains and losses only when securities are sold). According to a recent Fed report, the Fed is sitting on unrealized gains that are in the neighborhood of $200B. This chart shows how big the Fed's contributions to Treasury have been over the past few years. The Fed's net income has cut 10% off of the annual deficit. The question that hangs in the air is what happens if interest rates were allowed to "normalize". Fortunately, there is an answer to this question. The source of this information is interesting, it co...
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