The Federal Reserve’s trillion-dollar loss raises concerns about its transparency, trust, and potential impact on the economy, potentially leading to increased scrutiny and a debate on its independence and decision-making abilities.
Financial Losses and Implications
The Fed is paying out more to its creditors than it is receiving in income from its assets, indicating significant financial losses.
The projected impact on the Fed’s interest income over the next 10 years is estimated to be a negative $979 billion, potentially reaching a trillion dollars.
The Federal Reserve is projected to lose $979 billion over the next 10 years, which will be carried as a negative liability on their balance sheet.
The Federal Reserve’s losses are a result of borrowing short-term and lending long-term, leading to significant losses in the future.
The Fed’s approach of selling assets and buying them back at a higher price is effectively a form of borrowing money.
The continuous operation of this system benefits the banks, as they receive hundreds of billions of dollars, which explains why the Fed doesn’t want to stop it.
The Fed’s massive losses indicate that the broader financial sector is also facing similar challenges with long-dated assets and higher interest rates on shorter-term liabilities.
Public Perception and Skepticism of the Fed
“It might seem extraordinary that a US Government institution could conduct any program that is likely to incur a cost of nearly 1 trillion to taxpayers without Congressional approval or even any forewarning about the magnitude of the risks.”
The Fed continues to pay interest on bank reserves to prevent banks from lending them out, as this could lead to inflationary pressures in the economy.
The Federal Reserve has been tightening by raising the rate it pays on reserves to keep banks from lending them out to customers at a higher rate, potentially causing existing monetary and credit creation to spill out into the broader monetary system even more.
“Who authorized the FED to take in enormous interest rate bet risking taxpayer money nobody. But the FED itself does quote Independence give the fed the right to spend hundreds of billions of taxpayer dollars without Congressional approval that question needs to be debated.”
The bailouts and financial crisis in 2008 made people realize that there was a scam going on with the Fed, sparking interest and skepticism.
Federal Reserve’s Accounting Practices and Oversight
The Federal Reserve’s decision to not have their loss wipe out their capital raises questions about their accounting practices and the true financial health of the institution.
The accounting rule change provides a hint about the full implications of the Fed’s losses, and how people will interpret and question the Fed’s actions.
Some argue that the Fed has painted itself into a corner with its current operations, potentially limiting its options and flexibility in the future.
The Federal Reserve’s actions in managing its assets and liabilities have been risky and they may not have fully appreciated the extent of the risk they were taking on.
