Great Graphic: US Seniorage

This Great Graphic was part of Bruce Bartlett's post on the NY Times Economix blog.   It charts the Federal Reserve's annual payment to the Treasury.  

The sharp increase in recent years recent years reflects the increase in the Fed's balance sheet.   The Federal Reserve is obligated to return its earnings in excess of its operational costs to the Treasury Department.  

Drawing on government data, Bartlett discusses other elements of seniorage.  He reports that the Fed pays face value for coins, but not on paper money., where it pays between 5.2 cents for $1 bills and 12.7 cents for $100 bills.  Last year, the Fed paid the Treasury $747 mln for currency production by the Bureau of Engraving and Printing, which roughly covered the cost of minting and printing.  

Bartlett also points out that although the Federal Reserve is part of the Federal government, it is treated as a private sector institution when calculating GDP.  In 2011, for example, the Fed earned about $75.9 bln, which turns out to be nearly a fifth of the profits of the US financial sector and a little more than 1/20 of total profit in the US domestic industries.  

When one thinks of the interest the US government pays to service its debt, it needs to be offset with what the Fed returns.  This year, the debt servicing costs of the US will be nearly $230 bln.  The Fed will likely return around $90 bln, which is almost 40%.