January 12, 2010 in Business, Nation/World

Fed paid record $46.1B to Treasury last year

Associated Press

November trade deficit increases to $36.4 billion

The U.S. trade deficit jumped to the highest level in 10 months as an improving U.S. economy pushed up demand for imports. However, exports rose as well, boosted by a weaker dollar, supporting the view that American manufacturers will be helped by a rebounding global economy.

The Commerce Department reported Tuesday that the trade deficit jumped 9.7 percent to $36.4 billion in November, a bigger imbalance than the $34.5 billion deficit economists had forecast.

Exports rose 0.9 percent, the seventh consecutive gain, as demand was up for American-made autos, farm products and industrial machinery. Imports, however, rose a much faster 2.6 percent, led by a 7.3 percent rise in petroleum imports.

WASHINGTON — The Federal Reserve paid a record $46.1 billion in earnings to the Treasury Department last year, reflecting gains as the central bank bulked up its portfolio of securities to revive the economy and fight the financial crisis.

The payment marks an increase of $14.4 billion from what the Treasury was provided in 2008 and is the largest since the Fed began operating in 1914, the central bank announced Tuesday.

The Fed’s net income of $52.1 billion in 2009 also was a record, according to preliminary figures. It was up from $35.5 billion in 2008.

Critics on Capitol Hill and elsewhere have expressed concern that the Fed’s extraordinary actions to fight the economic and financial crises could put taxpayers at risk by reducing the amount turned over to Treasury coffers.

The payment reported by the Fed came from $46.1 billion in earnings from the securities it held last year. Such income rose largely because the Fed’s holdings of securities mushroomed, though increases in the value of the securities also helped, Fed officials said.

The Washington Post reported estimates of the Fed’s payment earlier Tuesday.

The Fed launched several securities-buying programs last year to help lift the economy out of recession. Its goal is to drive down rates on mortgages and other consumer debt.

Under one program that ended last year, the Fed snapped up $300 billion in government debt. Under another program, the Fed is on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. It also will wrap up purchases of $175 billion in debt issued by the mortgage giants at that time. Those programs have boosted the value of securities held by the Fed.

The Fed faces a risk, however. It could lose money if it had to sell those securities after their prices had fallen. The Fed might need to sell the securities to sop up some of the money it pumped into the economy during the crisis.

The Fed’s efforts to end the crisis are separate from the $700 billion taxpayer-funded bailout program authorized by Congress in 2008 and overseen by the Treasury Department. Money from this program, originally set up to shore up banks, also has been doled out to rescue other types of companies, including General Motors, Chrysler and GMAC. President Barack Obama is weighing a levy aimed at recovering tax dollars from government-rescued financial institutions.

The Fed is funded from the interest earned on it vast portfolio of securities. It is not funded by Congress. After covering its expenses, the Fed gives what is left over to the Treasury Department.

Besides the income from its securities, the Fed said it earned $5.5 billion from holdings related to the takeover of investment firm Bear Stearns and insurance company American International Group. The Fed also earned $2.9 billion from loans extended to banks, investment houses and others.

The previous record payment turned over to Treasury — $34.6 billion — occurred in 2007.

The figures announced by the Fed on Tuesday are preliminary, unaudited results. They include valuations through Sept. 30. The final results, released later this year, will reflect valuations through Dec. 31.

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