Monday, January 10, 2011

OMG WTF Federal Reserve Fact of the Day

. Monday, January 10, 2011

Via Felix Salmon:

At the end of 2010, the Federal Reserve system had $2.423 trillion in assets and $2.367 trillion in liabilities, which means that the simplest measure of its total equity — assets minus liabilities — comes to $56.6 billion. The Fed also managed to earn net income of $80.9 billion in 2010. Which means that its return on assets was incredibly high at 3.3%, while its return on equity was an astonishing 143%.

I think it’s fair to say that no bank in the history of the world has ever had income of anywhere near $80 billion in one year: that’s over $700 per US household. Somehow, the Fed is making roughly $60 per household per month, and remitting that money straight to the Treasury.

Much of this is TARP, but also QE1 and QE2. On net I'll take it as a good thing that the Fed is giving billions to the Treasury, but the scale of interventions in asset markets is so large that it can't but make me nervous.

This is also another reminder that the U.S. Federal Reserve is the most powerful and important actor in the global economy, bar none. Its actions have far-reaching ramifications, and its capabilities are enormous. Sometimes that's good. Other times, probably not.

Or, it's better to say that when the Fed acts, it can help some groups quite a lot, and can devastate others.


nick gogerty said...

Variance from the norm is often treated assymetrically. The extreme profits indicate unusual behaviour and should be deeply questioned.

One may just as likely consider how people would respond with an $80billion loss.

OMG WTF Federal Reserve Fact of the Day
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