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Noble Realms → Conspiracy → Housing / Mortgage Crash
But the Fed does a P&L statement every year and reports its profit. It subtracts its operating expenses and remits the rest to the Treasury.
Does anyone know if the profit and loss statement is publicized? Does anyone know the operating expenses for a year?
Annual reports of one of the regional Fed banks (and the most important one because it alone executes Open Market Operations), the Federal Reserve Bank of New York, are available at
http://www.ny.frb.org/aboutthefed/annualreports.html
They also have tutorial articles about how the US central banking system works at
Thanks. That's very helpful.
It's true that "money" is created out of thin air. However your neighborhood bank doesn't get to spend that money. The money that's created is not "high powered money" aka "M0" aka "dollar bills". It has matching debit and credit entries. So the bank doesn't exactly get your car for free when you finance it. The money they gave you to pay for the car had to come from someone else.
I think you forgot fractional reserve. If bank A loans $100,000 for a mortgage they only have to have a small percentage in reserve. Then they sell the mortgage to bank B who puts it on their books as an asset; then they can loan out multiples of that asset. And again, and again. Of couse, if the original asset loses value the whole chain of loans is in danger, which is what is happening now with the housing crash. Am I right or did I miss something?
My understanding is that with fractional reserve banking, a bank in that system can create money through loaning money.
There are some limits on a given bank because it needs to keep a "fractional reserve" but money is being created during the loan process.
This money may initially a blip on a computer screen, but those blips can be converted to paper bills, if desired.
My understanding is that regional or local banks cannot print US dollars but they can create money. If people or businesses pay that money back with interest, then the bank has a larger asset base from which to make larger loans.
This ability for money to be created throughout the banking system can lead to a situation where there is more and more money in the system. If not checked, this can lead to instability.
I have heard the phrase "government currencies eventually become worthless." This may be related to the fact that it is tempting to create more and more money to meet current needs and then eventually the system crashes. People in political office often like to put problems off into the future, rather than deal with them in a given current term. I think that the US currency and economy may have been designed to crash. In volatile markets, is one understands what is happening, it is possible to make money in both upswings and downswings. More fundamentally, the conditions for "crash by system design" may have been implemented as an attempted societal control mechanism.
Money is created when a bank (other than the Fed itself) makes a loan, but it has to be accounted for. It has to be paid back by the recipient, at which time the money is extinguished. So even if the bank lent the money to itself, it couldn't take the money away free and clear. This type of money, by the way, is not "high-powered" M0 money but M1, M2, M3 etc. It is still money in that it's spendable and circulates in the economy, so it acts as money in affecting the supply/demand for money in causing inflation.
When the Fed directs the Treasury to print money on the other hand, it's not a loan. But it gets recorded as profits and is remitted back to the Treasury at the end of the year, as I understand it. At any rate, I've seen in an annual report from the NY Fed regional bank that it remits its profits to the Treasury. The NY Fed's profits probably come largely from its Open Market Operations.
The Fed as a whole is a different animal from its regional banks, and it's the Fed as a whole rather than regional banks that makes the Treasury print money (I think), so I don't remember seeing direct evidence that this particular profit is remitted back to the Treasury, but I have the impression that it is.
Noble Realms → Conspiracy → Housing / Mortgage Crash
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