Is it really a profit if you’re the only buyer in the market?
Much of the higher earnings came about because of the Fed’s aggressive program of buying bonds, aiming to push interest rates down across the economy and thus stimulate growth. By the end of 2009, the Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier. The interest income on those investments was a major source of Fed profits — though that income comes with risks, as the central bank could lose money if it later sells those securities to reduce the money supply.
Let’s just see how much the Fed gets for these when they actually try to sell them. Bernanke is fond of saying the Fed “always gets its money back.” So let’s see if they can actually book the profit on the spreads they tightened with their purchases.