Comment: Outstanding! A real stocking shocking!

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Outstanding! A real stocking shocking!

Opening paragraph:

What Happens when Uncle Sam’s Sugar Daddy Runs out of Canes?

The Wall Street Journal’s Real Time Economics Blog recently reported that, according to new CBO projections, the Federal Reserve will cease its annual “payments” to the US government by 2018.

    You’re probably wondering two things: 1. Why the heck would the Fed be funding the government—shouldn’t it be the other way ‘round? 2. How the heck could a fiat money central bank of issue ever run out of money?

Well, as I explained in some detail in this post, the Fed does indeed remit some of its earnings on its large portfolio — traditionally mostly comprising US treasuries, but now also including over $1 trillion in mortgage-backed securities and mortgage-linked agency debt—to the US Treasury. Prior to the financial crisis these sums were small and insignificant, as the Fed used the vast bulk of these earnings to fund its own operations. With the explosion in the Fed’s balance sheet starting in October 2008, however, the Fed has been remitting much larger and growing sums to the government—a record $89 billion last year. Yes, interest rates are at historic lows, but when you hold $2.7 trillion in government and mortgage-backed bonds, you can’t help but rake in some serious payments. The Fed only managed to spend about $4 billion of it on its own operating expenses, hence the huge remittance to the government. ....

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul