The Fed transfers

 

From this chart the Fed tax is about 3 percent of its assets and a half point of the economy.  But that half point is going up, up to a full point.   The Fed retains no earnings, all of it goes to government. 

Those number seem about right, the Fed market risk is about a quarter to half point, and pricing risk about 3%. 

The Fed needs to pay interest when it has too many gains, and earn interest visa versa. Generally the Fed is dealing with left skew or right skew.  So it is essentially balancing fits own loan to deposits across the maximum liquidity balance point.  

Think of the inflation tax that first appears in the a treasury deposit.  No corresponding loan, and the aggregate loan/deposit decreases and traders respond with new borrowings.   But not completely, and the Fed, a pit boss, will intervene and take on more market risk.  The Fed will increase its L/S, paying out money, a small  loss.  

Treasury, being an exogenous money printer, gets  small hedging gain due to innovations. small hedging gain.  But the inflation tax is expected and shared by all parties.  Over time the Fed S/L is still price neutral, government is not. So this scheme require government to deal with its own rising prices.  

That means a significant reform, mainly remove all the inflation adjustment clauses. But in return for the reform, government gets a permanent new tax.  And it is a variable tax to some extent, depending on the contract.   But if real growth is over 2% government should be fine. The inflation tax comes to 400 billion a year. The CBO says we need 900 billion extra per year to cover or existing debt. This simple trick gets us half way there.