The article discusses the recent financial challenges faced by the Federal Reserve (the Fed), particularly its inability to generate earnings while continuing to support government operations. It outlines the implications of this situation for taxpayers and the overall economy.
1. Government Financial Issues: The U. S. government has been operating with significant annual budget deficits, now nearing $2 trillion, and carries over $36 trillion in federal debt. This trend has persisted since the 1960s due to various policies and crises.
2. Fed's Spending Beyond Earnings: Similar to the government, the Fed has recently spent more than it earns. Established in 1913 to manage the U. S. money supply independently from politics, the Fed is owned by member banks and primarily earns from interest on its $6. 5 trillion portfolio of securities.
3. Expenditures and Losses: The Fed covers its operational costs and pays interest on reserves held at its banks, which requires it to remit profits to the U. S. Treasury. However, operating losses since 2022 have prevented it from making these remittances, with monthly losses ranging from $5 billion to $11 billion.
4. Deferred Assets: The Fed's operating losses have accumulated as "deferred assets," meaning they cannot transfer funds to the Treasury until they generate surplus income again. This raises concerns about their accounting practices and the long-term viability of their financial strategy.
5. Impact on Taxpayers: Although some experts argue that the Fed’s losses do not affect its ability to fulfill its economic roles, they ultimately contribute to higher federal budget deficits, costing taxpayers.
6. Support for CFPB: The Fed is legally bound to support the Consumer Financial Protection Bureau (CFPB), which relies on the Fed's earnings. With no profits to draw from, funding this bureau raises questions about the legality and sustainability of such financial practices.
The Fed's current situation poses significant questions for its future and for American taxpayers. Concerns about the sustainability of its spending and accounting methods persist, leading to broader implications for economic stability. Observers are left wondering how long these financial practices can continue and what actions may be taken to address the growing issues surrounding the Fed's operations.
https://mises.org/mises-wire/fed-no-earnings-taking-us-magic-carpet-trip
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