Has the Fed Been Printing Profits?

On August 16, Yahoo! Finance ran an article titled "Ben Bernanke's Huge Gift to Taxpayers".  It was written by Rick Newman.  It was the headline article at one point during the day.  Later in the day, it was nowhere to be found, at least on the main Yahoo! Finance page.  Perhaps it was because of the hundreds of comments by the non-experts who embarrassed the writer and Yahoo! Finance for publishing such garbage.

The article starts out saying, "Critics of the Federal Reserve often accuse it of printing money.  What they may not realize is that the Fed has been printing profits, too."

About the only good thing I can say about this piece is that the author essentially admits that the Fed is creating money out of thin air.  You usually can't even get this basic admission from most of the establishment.  The author says "printing money", but it is really "creating digits".  But the point is still essentially the same.

The articles says, "The Federal Reserve earned nearly $90 billion in 2012, after accounting for all its expenses.  If the Fed were a corporation, its chairman, Ben Bernanke, would be the most celebrated CEO in the world, sitting atop annual profits more than twice what Apple and Exxon earn."

I like the author's use of the term "earned", as if Bernanke and the Fed actually produced anything to "earn" this money.

The author praises Bernanke saying he would be "the most celebrated CEO in the world".  I think any CEO who had the power to artificially create almost endless money out of thin air would be very "profitable".  All you have to do is enter some digits into the computer and, bang, there are your profits.  It is not as if Bernanke actually has to produce iPhones or gas refineries.

The article continues further down saying, "Even if the Fed ends QE in 2014, as many analysts expect, it will retain an enlarged asset portfolio for years, since it will sell assets slowly or perhaps even hold on to many of those bonds until they mature.  By 2025, the Fed's total profits under QE will amount to about $820 billion, the Fed researchers estimate, or $315 billion more than under the counterfactual scenario."  It goes on to say, "All the Fed's profits go to the Treasury, and that's real money that lowers the federal deficit and helps reduce the need for tax increases."

I really don't like to be rude to people, but this guy Rick Newman is either a complete moron or he thinks is audience is full of complete morons.  I have little tolerance for people like this.  It is not as if he is talking at the water cooler at work and spouting off some information that he knows little about.  He is a columnist for a major website and the things he is saying are simply moronic.

Yes, the Fed's "profits" go back to the Treasury.  Where does he think most of these so-called profits come from?  They come from the Treasury.  It is nothing but an accounting gimmick.

The Fed buys government bonds with money created out of thin air.  This allows the Treasury to spend more and run up deficits without depending on other investors as much.  The Treasury has to pay interest on the debt that it issues.  Therefore, the Treasury makes interest payments to the Fed for the government debt being held by the Fed.  Voila!  There is your "profits".

The Treasury makes these interest payments either with tax money collected or more debt issued.  So these magical "profits" that this guy is talking about is either coming in the form of taxpayer money or newly created money (which devalues the money held by everyone else, which is essentially like a hidden tax).

The only other "profits" being collected by the Fed are from mortgage-backed securities that it has obtained from bailing out the banks.

So here we have this guy who wants us to celebrate Ben Bernanke for massive monetary inflation and to believe that this is a "huge gift to taxpayers".  This guy is a complete joke.  My optimism lies in the fact that most of the comments below the article are from people who saw right through this guy and made it known that he is a fraud.