Fed Pays Record $78.4B to Treasury from Interest on Risky Assets
Yesterday the Federal Reserve announced it would be paying a record $78.4 billion to the U.S. Treasury for 2010. It accumulated this large sum from interest on its holdings of risky assets, like mortgage-backed securities, that it acquired during the financial crisis. The Fed's policy dictates that it turn over this money to the Treasury at the end of each year.
Data from previous years show this is by far the largest sum the Fed has accumulated. The Fed turned over $47.4 billion in 2009 and the 2010 sum is more than double any payment in the period from 2001-2008. By taking on a high amount of risk at the height of the financial crisis, the Fed was rewarded with large interest payments on those assets, which contributed to the enlarged total for 2010.
It is always good to see money flow into the Treasury rather than out, reducing our borrowing needs. However, $78.4 billion is by no means enough to solve our budget woes alone, and remittances of this size are temporary and cannot be counted on over the long-term as the Fed will begin to unwind the commitments on its balance sheet as the economy strengthens. Additionally, the large amount of risk the Fed took on could have backfired into losses of taxpayer dollars. But we will need all the help we can get to bring our national debt under control, so this payment comes as welcome news.