One of the biggest scandals in America right now is the profits of the Federal Reserve. Last year alone the central bank turned over to the United States Treasury nearly $100 billion in profits, or a fifth of the federal budget deficit. Since 2008, the profits the Fed has paid over to the Treasury have totaled nigh half a trillion dollars — $468.8 billion according to the Wall Street Journal. “The central bank has become a huge money-maker for the Treasury,” the newspaper said in an important editorial issued on Monday under the headline “The Fed Cash Machine.”

Why is this a scandal? It is because the Fed has earned these profits by purchasing the debts of its creator and paying back its profits, as it’s required to do, to that same creator. The Fed, or the Treasury, are profiting by putting taxpayers on the hook for trillions. It gives the central bank, created to protect the soundness of the dollar, a financial incentive to look the other way as socialism eats away at America. “The danger is that politicians are getting used to the money,” is the way the Journal put it.

The Journal’s editorial is causing something of a sensation among the most hard-headed economists. It prompted Encima Global’s David Malpass to send out a narrowly circulated telex likening what the Fed has been doing to taking out an adjustable rate mortgage at taxpayers’ expense. It is, he wrote, helping such behemoths as Fannie Mae, that creates the mortgage backed securities the Fed owns and also enabling government spending. But “it hurts the private sector and underpays savers.”

Mr. Malpass pointed out that the Treasury “could have achieved the same ‘profits’ on its own” by issuing more short-term obligations known as T-Bills and fewer Treasury bonds, which have longer maturities. “But that,” writes this sober and established economist, “would have made the scam more obvious.” He reckons the scheme is “too short a duration for the govt debt.” He charges that “using the Fed as the intermediary is a cover up” for shortening the duration of the government’s debts “to help make the near-term deficit look good.”

Taxpayers be damned. If the government is to do all this borrowing at all, Mr. Malpass points out, it “should be lengthening its effective maturity, not shortening it, especially given the baby boom retirement bulge.” He points out that the Federal Reserve is now leveraged at 75 to one, borrowing short-term from banks at 25 basis points in order to lend long to the government and to Fannie MaeAT 2% or so. Clearly at some point this is going to lead to trouble. The word he uses for the strategy is “crazy.”

No doubt there are those who are betting that the current recovery is going to cover this problem. They keep, like, most famously, Paul Krugman, gloating about the relatively low consumer price index and the strength of the dollar in relation to European and Japanese scrip. We have preferred to talk about the value of the dollar — how many ounces of gold it will fetch. The dollar is still, with all that the recovery has produced, valued at less than a 1,250th of an ounce of gold.

Let it be marked that this is a plunge in value of more than 30% since President Obama acceded to the White House and more than 78% since President George W. Bush swore the presidential oath. We would not have been in this fix had those with the constitutional responsibility of regulating the value of money been doing their jobs. We would not be in this fix if, during the years before 2008, they had been paying attention to the plunging value of the dollar against gold.

Examined in those terms, of course, the Fed’s profits are a lot smaller than they appear to be, since the Fed states them not in constitutional money but in its own irredeemable legal tender electronic paper ticket money, to use the phrase for Federal Reserve Notes favored by the Foundation for the Advancement of Monetary Education. This is why it is so important for the Congress and the gathering field of Republican candidates (Democrats, too, for that matter) to open up the scandal of the Fed’s profits. Is that the business the Fed is supposed to be in and what is its real cost?