Mises Institute
Who owns Federal Reserve Losses and how will they impact monetary policy?Mises Institute
Who owns Federal Reserve Losses and how will they impact monetary policy?
From June 27, by Paul Kupiec and Alex Pollock, includes “… For only the second time in its history, the Federal Reserve system is facing the prospect of losses, only this time the losses are massive. The Fed already has huge market-value losses on its SOMA portfolio that it chooses not to recognize in its formal financial accounting statements. Any financial institution other than the Fed faced with market-value losses greater than 13 times its capital would have already lost public confidence and probably be in receivership. And soon the Federal Reserve will face large operating losses, losses which it must recognize on its financial statements. While the Federal Reserve Act explicitly requires that Federal Reserve member banks be assessed to cover operating losses, the Federal Reserve Board’s stated plan is to monetize these losses and still report a positive capital and surplus position through the use of ‘creative accounting’ entries not seen since the 1980s savings and loan crisis. Those that recall that historical period know that relying on “regulatory accounting standards” to create phantom capital cushions did not turn out well. In the Fed’s case, failure is not an issue because the Fed can literally print as much money as needed to pay its expenses and member bank dividends. Monetizing operating losses will however enrich the Fed member banks that are supposed to be bearing the loss, while the public at large will face higher interest rates, higher unemployment, reduced growth, and the inflationary consequences of the new money printed to cover Fed losses. The Fed seems to be hoping that nobody notices.”
Mises Institute, “Here we go again: The Fed is causing another recession
From July 2, by Jon Wolfenbarger, includes “… Normally, the Fed would be slashing interest rates and printing money to try to prevent a recession and stock bear market at this point, which they tried and failed to do in the early 2000s Tech Bust and 2008–09 Great Recession. But instead, the Fed is being forced to hike rates aggressively to try to bring inflation down. … If the Fed succeeds in tightening financial conditions enough to try to maintain their reputation as an ‘inflation fighter’ (i.e., trying to lower the inflation they created in the first place), this will likely be the biggest government-caused economic catastrophe since the Great Depression, as we predicted here last year.”
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Better Markets, “The Federal Reserve’s stress tests are too stress-less …”
From June 23, statement by Phillip Basil includes “… When all too-big-to-fail banks pass comfortably year-after-year, the tests clearly don’t actually stress or test the banks. While these results may cause some to think these tests show that the banks are sufficiently resilient and have enough capital, it is little more than false comfort misleading the American people into thinking there won’t be more taxpayer bailouts when future bank failures happen. …”
The Economist, “Why the Federal Reserve has made a historic mistake on inflation”
From April 23, includes “Central banks are supposed to inspire confidence in the economy by keeping inflation low and stable. America’s Federal Reserve has suffered a hair-raising loss of control. In March consumer prices were 8.5% higher than a year earlier, the fastest annual rise since 1981. In Washington inflation-watching is usually the preserve of wonks in shabby offices. Now nearly a fifth of Americans say inflation is the country’s most important problem; President Joe Biden has released oil from strategic reserves to try to curb petrol prices; and Democrats are searching for villains to blame, from greedy bosses to Vladimir Putin. …”
SchiffGold, “If the Federal Reserve is fighting inflation why is the balance sheet still expanding?”
From April 18, by Michael Maharrey, includes “If the Fed is fighting inflation and has ended quantitative easing, why is its balance sheet still going up? In the week ending April 13, the balance sheet grew by $27.9 billion, hitting a new record of $8.965 trillion. This is up about $3 billion from its previous high in March. As Peter Schiff put it in a tweet, “For all the talk of fighting inflation and shirking its balance sheet, the Fed continues creating more inflation and expanding its balance sheet!”Use this space to add more details about your site, a customer quote, or to talk about important news.
Ron Paul Institute, “End the Fed and get more Doritos”
From March 21, by Ron Paul, includes “… To put an end to the welfare-warfare state, Congress can drastically reduce the military budget, end all corporate welfare, and shut down all unconstitutional cabinet departments. The savings can be used to pay down debt and to support those truly dependent on government programs while responsibility for providing assistance returns to local institutions and private charities. … Ending the era of the welfare-warfare state and fiat currency can lead to a transition to a new era of liberty, peace, prosperity — and full bags of Doritos.”
Federal Reserve Board of Governors, “Federal Reserve System publishes annual financial statements”
Press release dated March 21, includes reference to Federal Reserve Banks’ Combined Financial Statements with auditor letter dated March 10, and a balance sheet for the 12 Reserve Banks with 2021 assets of $8.8 trillion, up from $7.4 trillion in 2020.
Federal Reserve Board of Governors, “Federal Reserve issues FOMC statement”
From March 16, includes “… With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate.”
The Wall Street Journal, “The Humbling of the Federal Reserve”
Editorial, from March 15, includes “The Federal Open Market Committee meets Tuesday and Wednesday, as it seeks to address the worst inflation in 40 years amid new risks to economic growth. Whatever the Fed decides on interest rates, it’s worth recalling how the central bank arrived at this unhappy moment. The first reality to confront is that this is a mess largely of the Fed’s own making. …”
From March 10, by Burgess Everett and Kate Davidson, includes “Pat Toomey will help advance all but one of President Joe Biden’s Federal Reserve nominees. At least one Democrat wants his party to take the deal. … The retiring Republican asked Raskin to supply more information about her role on the board of a state-chartered Colorado fintech company as a condition for advancing her alongside the other nominees. While Toomey hasn’t cited it as a reason for the delay, Brown and the Democrats are aware of the GOP’s biggest objection: Raskin’s past suggestions that financial regulators can play a role in steering the economy away from fossil fuels.”
Yahoo Finance, “Inflation sets fresh 40-year high”
From March 10, by Emily McCormick, includes “The Bureau of Labor Statistics' Consumer Price Index (CPI) rose 7.9% in February compared to last year, marking the fastest annual jump since 1982. This took out January's previous 40-year high rate of 7.5% … Even excluding volatile food and energy prices, the so-called core CPI also accelerated in February. … ‘Robust pay increases have been no match for the higher costs households are facing on rent, food, electricity, gasoline, and a pervasive list of both goods and services,’ Greg McBride, chief financial analyst at Bankrate, said in an email on Tuesday. ‘The buying power of Americans is being squeezed more and more each day, and you see this reality reflected in the dour consumer sentiment readings.’ …”
