Warren Buffett termed the United States Federal Reserve the ‘Greatest hedge fund’ as it is capable of earning profit from bond purchases and has a balance sheet balance of more than $3 trillion. He said that the institution generates revenue of approximately $80 billion or $90 billion per year for the United States government, which was not the case few years back, according to Bloomberg.
“The Fed is the greatest hedge fund in history,” Buffett said yesterday at Georgetown University.
Central Banks balance sheet, a proof
The U.S. Federal reserve has been buying $85 billion of bonds per month to help the country revive from the greatest recession after the Great Depression. Recently, the asset purchase process was maintained at the same pace instead of curtailing it, as Chairman Ben S. Bernanke and other Fed policy makers felt that they were looking for stronger signs that the economy is in a safe position now.
According to Buffett, the Federal Reserve is not under any pressure so it can select its timing.
The United States Treasury Department received $88.4 billion from the Fed last year, and the payments are on surge, which shows in the balance sheet of the central bank over the past five years.
Probable successor for Bernanke
Bernanke was the force behind reviving the Fed from the 2008 crisis, and he will retire in January. President Barack Obama is yet to announce any successor to conclude the policies.
In the race of next Fed Chief, Janet Yellen, Fed Vice chairman is the leading contender. Lawrence Summers, former treasury Secretary, withdrew his name, according to those familiar with the matter. Next capable candidate is Fed Vice Chairman Donald Kohn.
Buffett is of the opinion that Bernanke or his successor, who he feels are wise, can handle the situation, and feels that it will be interesting to watch.
Buffett applauds Bernanke
Buffett applauded Bernanke for sailing through the 2008 crisis, and said that he did whatever was necessary to balance the market. Buffett said that his successor will follow his footsteps to economic stimulus. Investors were expecting that Bernanke would streamline his current stimulus, but he continued it with the same pace. Bernanke said he wants to see more revival in the economy, but Buffett feels that Bernanke was disappointed to see the current rate of growth, though only slightly.
“He’s not pre-judging exactly when it’s going to happen, he’s telling you the conditions under which he’ll change,” Buffet said.