It's a central tenet of the Mises community that the Federal Reserve is the fuel of the federal governments fire.
Well, how much inflated money does the federal government recieve from the Federal Reserve system?
There are two answers to this question.
1) The Federal Reserve purchases U.S. government bonds and holds them. The total holdings currently are over $700 billion, so over the entire almost century of the Fed's existence, it has advanced $700 billion to the U.S. government. There is a complication at the moment in that the Fed is lending some of these bonds to Wall Street on the security of subprime mortgages, but that doesn't affect the amount of money the Fed has lent to the government.
2) The Federal Reserve consists of twelve privately owned regional institutions. The stock cannot be purchased by the public, only by member commercial banks, which are required to invest 1% of their own capital in the regional Fed. This stock pays 6% dividends. The Federal Reserve is highly profitable, since it pays no interest on the funds that it uses to buy the bonds. However, current tax law levies a 100% income tax on the profits of the regional Fed banks, allowing deduction for the costs of operating the banks and the 6% dividends. Consequently, the Fed pays income taxes of over $30 billion annually, which is most of the interest it receives on the bonds.
So, how much has the Federal Reserve contributed to the federal government over say, the last 5 years?
You've go the $30 billion or so annually, plus some % of of the lifetime $700 billion? That doesn't seem like such a big bad leviathon feeder if I'm understanding you right.
According to the Fed Flow of Funds report, the Fed has absorbed about $40 billion per year of Treasury borrowings over the last five years. The $30 billion interest is actually a net loss to the Treasury, since they paid out about $35 billion in interest to the Fed (the difference is the cost of operating the Fed system). So the net impact is $40 billion lent, plus $30 billion in tax payments, less $35 billion interest paid, for a net contribution of about $35 billion per year.
The people who are actually underwriting the US government debt spree are the foreign central banks, particularly the east Asian countries such as China and Japan. The first quarter of this year they were buying Treasury bonds at an annual rate of around $800 billion. They are not doing this because they like us or think we're an especially good credit risk, but rather they are keeping their currencies undervalued to support their export driven economic strategies. The only way they can do this is to buy dollars, and once they buy the dollars they have to invest them in something.
Going back to your original question, many critics of the Fed phrase their criticisms in terms of the Fed buying bonds, but what they are really criticizing is the Fed's interest rate targets, which they believe are too low, both in the past few years and today. They really want the Fed to reduce its bond holdings which would have the effect of increasing interest rates.
Personally I am ambivalent about that view. The real problem is that the government is taking on too much debt, both directly and indirectly; the Fed is really a bit player in that whole game; higher interest rates would probably hurt the economy, which would lead to even higher government deficits.
PhCrawford:Personally I am ambivalent about that view. The real problem is that the government is taking on too much debt, both directly and indirectly; the Fed is really a bit player in that whole game; higher interest rates would probably hurt the economy, which would lead to even higher government deficits.
I suppose if you believe that cancerous growth is as good as productive growth in a growth for growth's sake worldview that makes sense...
Why stop there? High gas prices are hurting the economy so why doesn't the government 'manage' those too?
Price fixing is price fixing no matter how much lipstick you put on that pig.