Feed on

What is the World’s Most Profitable Company? If you guessed Exxon-Mobil, you would, of course, be correct. But what if I asked you who was the second most profitable company? Is it:

  1. General Electric
  2. Chevron
  3. JP Morgan Chase
  4. Microsoft
  5. Berkshire Hathaway
  6. Walmart
  7. Goldman Sachs
  8. Pfizer
  9. Proctor & Gamble
  10. Intel
  11. Coca Cola
  12. Verizon

Though Pfizer made $8 billion, it is not second; nor is Goldman Sachs ($11.6 billion); nor Microsoft ($14 billion); nor even General Electric ($22 billion).

Nope, the second most profitable company in the world is …

The Federal Reserve System of the United States. In 2007, the Combined Federal Reserve System had total revenues of $42.6 billion. For comparison, that is roughly how much revenue was generated by Pfizer, Lowes and Time Warner. However, the Fed is a profit making machine. While the average profit margin to the largest 100 companies in the Fortune 500 was only 5.7%, the profit margin in the Federal Reserve System is over 90%. In 2007, the Fed had an operating profit of $38.7 billion. The major reason is that most of the Fed’s assets (until recently) are comprised of Treasury Securities that have been accumulated through decades of open market operations. The Treasury pays interest on these securities (i.e. the taxpayers pay interest via the Treasury) to the tune of $40 billion in 2007. The major liability of the Federal Reserve System are its Federal Reserve Notes – the currency supply for the country (and some other countries). At $792 billion, these represent over 90% of the total outstanding liabilities of the Fed. The reason profit margins are so large is that the holders of these liabilities (60% are outside the US) receive no interest on them (i.e. our dollars are not interest bearing).

After paying expenses and making some small distributions, the Federal Reserve System pays back the remainder of its profits to the Treasury – and many argue that this is a justified payment because of the Constitutional provision for Congress to print money. At roughly $40 billion per year, this seignorage is enough to fully fund several major governmental departments.

One Response to “Whither an Excess Profits Tax”

  1. Speedmaster says:

    VERY interesting, I wasn’t aware of most of that. The entire Fed operation seems a little mystical at times, wrapped in a cloak of mystery. 😉

Leave a Reply