Federal Reserve

[iversonian]

[ QUOTE ]
[ QUOTE ]
Since Ron Paul's a hot topic nowadays and he talks about abolishing the Fed, let's see where we stand on conspiracy theories.

When the government sells bonds to the Fed for cash, what does the Fed do with the billions it earns in interest on those bonds?

[/ QUOTE ]

None of the above. The Fed doesnt buy bonds from the government, it buys them from primary dealers.

[/ QUOTE ]

Ok. Question is still otherwise still valid.

[Copernicus]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Since Ron Paul's a hot topic nowadays and he talks about abolishing the Fed, let's see where we stand on conspiracy theories.

When the government sells bonds to the Fed for cash, what does the Fed do with the billions it earns in interest on those bonds?

[/ QUOTE ]

None of the above. The Fed doesnt buy bonds from the government, it buys them from primary dealers.

[/ QUOTE ]

Ok. Question is still otherwise still valid.

[/ QUOTE ]

The answer to the correct question is that, like any other bank, it turns over its net profits to its owners...in this case the US Treasury.

[Copernicus]

[ QUOTE ]
My understanding of this isn't very clear.

How is the amount that the Fed returns to the treasury calculated? The Fed can sell the bonds it has obtained with newly created money to other parties (primary dealers or whatever, they're still other parties) - is that accounted for when the Fed returns money to the treasury?

[/ QUOTE ]

The Fed almost never sells bonds, since that would decrease the money supply. However, all of its net earnings are paid to the Treasury. It retains operating capital and sweeps the rest out.