Central Bank supplied $76.9 billion to Treasury in 2011

The central bank transferred $76.9 billion in earnings to the U.S. Treasury during 2011. The transfer is slightly less than the record $79.3 billion transferred in 2010.

The Federal Reserve said it earned $83.6 billion in interest income from its massive portfolio of securities, which includes Treasury debt and mortgage securities. The Fed has been buying assets as part of a quantitative-easing program, an unconventional monetary policy designed to lower long-term interest rates and boost economic growth.

The transfers in the past two years are about twice the pre-quantitative-easing levels. Under Fed policy, residual Fed earnings are distributed to Treasury after covering expenses.

Unemployment drops to 8.5 percent in December

The unemployment rate is at its lowest level in nearly three years thank to hiring boost in December. The Labor Department says employers added a net 200,000 jobs last month and the unemployment rate fell to 8.5 percent, the lowest since February 2009. The rate has dropped for four straight months. The drop in unemployment rate gave the economy a boost at the end of 2011.

For all of 2011, the economy added 1.6 million jobs, better than the 940,000 added in 2010. The unemployment rate averaged 8.9 percent last year, down from 9.6 percent the previous year.

U.S. Equity Market Ended the Year Unchanged

The U.S. stock market just ended the year almost unchanged. On the final trading day, Friday, Dec. 30, 2011, the Standard & Poor’s 500-stock index closed at 1,257.60 with a 0.4 percent loss for the day. The S&P 500, a benchmark index for the U.S. broad equity market, statistically unchanged for the year, from 1,257.64 on Dec. 31, 2010 to 1,257.60 on Dec. 30, 2011, which is just 4 ticks difference or  a decline of 0.003% for the year.

Meanwhile the Dow Jones industrial average fell 0.6 percent on the final day and was up 5.5 percent for the year, closing at 12,217.56.

U.S Economic Indicators 3Q 2011

The U.S. economy grew more slowly in the summer than previously thought because consumers spent less than the government had first estimated. The Commerce Department says the economy grew at an annual rate of 1.8 percent in the July-September quarter. That was the fastest growth this year, up from 1.3 percent in the April-June quarter. But it was down slightly from last month's estimate that the economy was expanding at a 2 percent rate in the summer.

But economists expect growth in the current October-December quarter to be stronger. They think the economy is growing at an annual rate of more than 3 percent in the final three months of this year. That would be the fastest pace since a 3.8 percent performance in the spring of 2010.

Credit is Easing: Loans Rose 10% in Q3

U.S. bank credit is growing at the fastest pace in three years, giving the Fed confidence in the economic expansion’s staying power.

Until the second quarter, the banks had been more interested in shoring up their balance sheets than lending since the start of the financial crisis. Banks raised their levels of equity capital after the U.S. Federal Reserve 2009 stress tests revealed weakness in their assets because of the housing slump and the deepest recession since the 1930s.

In the third quarter financial institutions increased commercial and industrial loans by an average annual pace of almost 10 percent, the highest since the comparable quarter in 2008, according to Fed data. The latest numbers show seasonally adjusted loan growth of 15 percent in October and 6.1 percent in November.

Fed decision hailed by investors, criticized by emerging markets

The U.S. stock markets surged to two-year high Thursday, Nov. 4, a day after the Federal Reserve’s decision to buy more government securities to stimulate the economy. the Dow was up 1.96 percent, at 11,437.84, while the Standard & Poor’s 500-stock index rose 1.93 percent, to 1,221.06.

Wednesday’s reaction to the Fed announcement was muted, although it was enough to send the Dow up 26.41 points on Wednesday to its highest close in two years. On Thursday, as investors absorbed the impact of the announcement, financial markets in Europe and Asia rose, and the dollar weakened.

Abrupt Drop in Dollar

The abrupt decline in the dollar, by about 10 percent since early June against major currencies, is upsetting the delicate balance of world economies still recovering from the shocks of the financial crisis.

Many other currencies, especially in Asia and in emerging markets like Brazil, are soaring as a result of the dollar’s fall. Those nations’ domestic economies are attracting floods of speculative capital seeking higher interest rates and are at risk of overheating.

The dollar’s decline is being driven by what everyone in global markets is now expecting: another round of so-called quantitative easing by the United States. In the next few weeks, the Federal Reserve is expected to inject vast sums of money into the economy in another attempt to spur growth.

While such policies may benefit the convalescent United States economy, they are also drawing criticism that Washington is deliberately devaluing the dollar at others’ expense.

Source: The New York Times

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