Summary: Many people don’t realize that the Federal Reserve’s $9 trillion bond portfolio generates a huge profit. In 2021, the Fed’s roughly $9 trillion portfolio generated $107.8 billion in net interest income (~1.2% average interest rate). What even fewer people understand is that most of this profit is returned to the US Treasury. In 2021, the Fed returned $107.4 billion of its profits (after paying itself $400 million to cover operating costs) to the US Treasury. Therefore, the federal government’s $515 billion interest expense paid out in 2021 is offset by the $107 billion received from the Fed payment. This rebate represents 21% of the federal government’s total interest expense. What if the Federal Reserve bought all of the federal government’s debt? The US treasury would be able to issue debt interest-free!
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