Comment: The Fed had $85bn of income

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The Fed had $85bn of income

from that they deducted around $4bn for "expenses" and $3.8bn for dividends to their shareholders.
The balance of $77bn "profit" was sent to the Treasury.

The Fed's balance sheet is now $2.8tn, so $85bn works out to be an average of 3% interest on the debt instruments they hold.

The Fed has been selling short dated Treasuries which are paying almost no interest (Five year note now around 0.7%) and buying long dated (30 year note around 2.8%) in what is known as Operation Twist.

The Fed will soon run out of short dated Treasuries to sell and will just buy long dated Treasuries at the rate of about $45bn per month.

The Feds balance sheet was $880bn in 2007 before the financial collapse.
QE1 & QE2 took their balance sheet up to $2.8tn.

QE3 (or QE to infinity as their is no limit or end date) is set to take the Feds balance sheet up to circa $4tn by the end of 2013.
QE3 = the Fed buying up MBS assets at the rate of $40bn per month.
MBS = Mortgage backed securities

The Fed will charge the Treasury if they book a loss on the assets on their balance sheet instead of a "profit".

If you do not believe rates of 1.7% for 10 year loans or 2.8% for 30 year government loans are sustainable, this is only a matter of time.

N.B. the historical average for 10 year US government loans are 5 or 6% (average over the last 200 years).

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