Fed Makes More And More Money By Making Money

According to preliminary numbers, the U.S. federal deficit fell for the first time in years in November compared to the same month the previous year. However, that certainly doesn't reflect an improving economy, much less fiscal austerity measures. Tax revenues were down 17%, while regular spending was up more than 10% (with spending for unemployment benefits rising as much as 139%).

Instead, the improvement reflected in part calendar effects, in part a sharp drop in outlays for TARP and in part increased profits at the Federal Reserve. The massive asset purchase program has meant that the Fed holds large amounts of relatively high yielding securities, meaning their interest revenues have increased. Meanwhile, its formal liabilities in the form of currency in circulation and bank reserves costs the Fed nothing (for currency) or very little (for bank reserves which costs the Fed just 0.25%) in interest. Being in the money printing business has always been profitable, but it is now more profitable than ever.