So what does it mean? In the near-term, nothing: the Fed ignores losses because in a pickle it can just print money -- converting it into inflation.
Longer term, though, every last penny the Fed loses is going on the taxpayer tab.
Because all those losses cancel the money the Fed is supposed to pay treasury every year. These are called Fed remittances, and they're the profits from printing money and lending it out -- essentially a licensing fee for counterfeiting.
Those Fed remittances had been running about 80 billion a year. But now they'll be underwater for potentially decades.
It's worth noting this is fresh territory -- the Fed never before turned in a loss until 2022. Now it will be losing money until our kids are grown.
I never know how afraid I should be of these things. It seems natural that an overpowered financial artifice would create endless novelty. What does a financial super-institution do when it's hurt? It uses one of its other super powers to heal itself. The only way it seems like it could end is by destroying, or losing access to, the source of its power. Which is what? Our productivity?
190 sats \ 0 replies \ @jeff 5 Apr
losing access to, the source of its power. Which is what?
The trust of the people.
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So how much did the actually lose, that’s the real question
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I'm not sure if that's how it works, but I guess we'll see. It would be pretty astonishing if the Fed could just run an arbitrarily large loss and have the treasury cover it. I think remittances were intended to be a one-way street.
That still raises the questions "What are these losses?" and "Where are they ultimately coming from?"
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60 sats \ 2 replies \ @freetx 6 Apr
I would add, money destruction is the best way to reduce inflation. Therefore, perhaps this is a feature-by-design and not a bug.
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That was my first thought when someone posted about this earlier in the week. I'm not actually sure if this is money destruction though.
The Fed is running a negative capital balance, in order to continue lending to banks. It seems like there would be more deflationary pressure if they just didn't lend to the banks.
It sounded like the idea is that they will create new money to cover these losses later, when price inflation gets back down below the target.
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60 sats \ 0 replies \ @freetx 6 Apr
It seems like there would be more deflationary pressure if they just didn't lend to the banks....It sounded like the idea is that they will create new money to cover these losses later, when price inflation gets back down below the target.
Yes, its a weird one to wrap my head around. The lender of last resort is now borrowing from "whom"?
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60 sats \ 1 reply \ @k00b OP 6 Apr
I definitely have no idea how it works.
Maybe I haven't been looking at these things very long, but it feels like one after the other, a novelty problem with a novel solutions that creates a novel problem and so on. How does it end?
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it feels like one after the other, a novelty problem with a novel solutions that creates a novel problem and so on
I'm pretty sure that's what a managed complex system falling apart is like.
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The losses have to be bad loans?
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My understanding is that the losses are the Fed continuing to lend to member banks despite not having any assets on their books. They're using the term "negative capital" in their accounting.
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They are geniuses.
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Good thing we have Bitcoin. Truth always comes eventually.
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I hope I see the FED fall in my lifetime.
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But don't worry -- you'll be covering it.
Great, I mean a citizen not only pays for his essentials but now he has to cover for the Fed as well.
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If they admit to $114B it's safe to assume it is about triple that....
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