You may have seen the news the other day that the Federal Reserve turned a profit of $52.1 billion last year. How does the Fed end up making so much money? And where does that money go?
The money came not from the Fed investing in banks through the TARP program, but primarily via other securities it bought to help prop up the economy. The Fed bought up $300 billion in government debt, which returns a nice bit of cash, as well as big chunks of Fannie Mae and Freddie Mac. All told, the Fed holds more than $2 trillion on its balance sheet, so $50 billion isn't really all that much to make from its investments. It also made $2.6 billion on currency swap arrangements with central banks in other countries and $700 million from fees for services it provided to banks.
Where are all those profits going? Right back into the U.S. Treasury. With the deficit running at $1.4 trillion, every little bit helps.
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