Home Editorials How to Read the Fed’s Statement of Operations – Robert Aro

How to Read the Fed’s Statement of Operations – Robert Aro

It’s true what they say about following the money. With the release of the Federal Reserve’s 2022 Financial Statements, we can take a closer look at their income and expenses to find that the central bank functions like a federal embezzler as much as it does a federal counterfeiter.

It begins on page 7: Revenue of $170 billion.


Snapshot of Fed's Revenue

The interest earned on US Treasuries and Mortgage-Backed Securities accounts for nearly 100% of the Fed’s revenue. Keep this question in mind until the end: Who paid this interest?

The above should be considered a national scandal, but it gets better once the expenses are understood. It starts with $102 billion paid to banks which park and lend their money to the Fed.


Snapshot of Fed's interest expense

Almost two decades ago the Fed started paying interest on bank reserves. The Federal Reserve Bank of Richmond tells us Milton Friedman (not an Austrian) advocated for this over 40 years ago. It continues to be a costly endeavor.

From the above, we find that 60% of the Fed’s income has been absorbed by interest payments to foreign and domestic banks, central banks, and countless institutions whom we’ve never heard of.

There is another expense line item called: Other Items of Income (Loss), but this is only $220 million, therefore negligible. From an auditor’s perspective, a quarter of a billion dollars is likely below materiality when dealing with dollar-value magnitudes of this order.

Rounding out the expenses are the administrative costs of running a central bank. In 2021 there were over 23,000 people employed by the Federal Reserve System. Last year nearly $4 billion went to salaries and benefits and another $1 billion into the pension plan.


Snapshot of Fed's Operating Expenses

Every year we must also be reminded that the Board of Governors operating expenses and currency costs continue to be concealed and receive absolutely no note disclosure in the statements. The costs were $2 billion this year. The public therefore receives no details as to how the Board of Governors spent this $2 billion.

Elizabeth Warren’s Bureau of Consumer Financial Protection had another stellar year, bringing in $722 million from the Fed; impressive it gets its own line item!

Nonetheless, Total operating expenses amounted to $9 billion, meaning that administration consumed around 5% of the Fed’s revenue.

This brings us to the $59 billion in earnings for the year, give or take a few billion for rounding, but it’s more complicated than that.

As explained in the Note 3q:

The Reserve Banks remit excess earnings to the Treasury after providing for the cost of operations, payment of dividends, and reservation of an amount necessary to maintain surplus at the aggregate surplus limitation.

As instructed by legislation, after paying out 65% of its earnings for interest payments and administrative fees, it then paid out $1.209 billion as dividends to the banks who own capital stock at the Fed. Yes, these are the very same banks the Fed regulates and bails out on occasion.

However, near the end of the report on Note 12, it’s explained that after expenses and the dividend to banks (which was only $583 million last year), the Fed managed to remit $76 billion to the Treasury. Since the Fed does not recognize losses, the loss of $16 billion (earned $59 billion but remitted $76 billion) was capitalized as a deferred asset. See below:


Snapshot of Note 12

Going back to the initial remark of embezzlement of public funds. In 2022 the US government paid the Fed $116 billion, and mortgage holders paid $54 billion, meaning $170 billion total revenue came from the public. In return, the Fed paid $102 billion to banks, $9 billion for administration, $1 billion in dividends, and then gave back $76 billion to the Treasury, making up for the shortfall in a way that no one else could do.

It’s generally portrayed as a win for the people when the Fed remits billions to Treasury, but this is nothing more than the return of the public’s money, less over hundred billion dollars in expenses and a healthy dividend along the way… and if this is confusing, don’t be alarmed, it’s supposed to be.