For the first time or at least I think the first time the FED since 2022 has been LOSING MONEY! As of 2023 the FED is projected to lose as much as 100 billion dollars. The worst thing is projections also show that next year most likely will be even worse blowing that 100 billion dollar lose out of the water and yes BILLIONS!
Let's dive into what this means, how it works and all that good stuff.
The Fed interest rate which is currently at nearly 5.3% is what is the major cause of it. Right now the FED is trying to combat high inflation of which that number has been sticky and looks to be on the upward trend yet again.
This increase in the Fed interest rate does two major things.
It becomes more expensive for everyday people like you and me to borrow money we are talking about loans, credit cards etc. Which have gone from crazy lows back up to some pretty high levels which are starting to slow down the housing sector in a major way.
The second factor this does is skyrockets that nation interest rate on debt meaning the US government is now paying more interest on its debt. That debt now sits at a whopping 33 trillion dollars and continues to climb.
There's a number of numbers you'll see on this famous little website called USDebtClock.org
The number you see at 26 Trillion dollars is what's known as debt held by the public. This terms confusing but what it means is the government owes that money to the public in the form of mutual funds, insurance funds, pensions and other countries.
The US government does this issuing bonds in which people and countries gobble up. It's a piece of paper that says I'm going to pay you this amount of money at this time or a interest on the paper up until a date in the future.
Now for the FED this is where it gets interesting in terms of the setup of it all.
The FED which controls the supply of money and interest rates lends money to the government through treasury bonds. The debt held by the FED is considered "Held By Public" and not "Intergovernmental debt". While yes the FED is part of the government it's also it's own entity and there's a number of so called places like this that live in this grey area.
You'll hear both quantitative easing and quantitative tightening often when it comes to the fed. What it means is the FED is buying bonds, mortgage backed loans etc and adding them to their "portfolio" Adding these assets is known as quantitative easing and normally helps the economy grow.
Quantitative tightening however is when the fed sells off these assets. This slows the economy down which is what we are seeing right now.
So how is the FED losing money?
Well it comes back to bite them in the butt with inflation and what many banks ended up going through recently going bankrupt or being bought out. That's because many of the FED assets are still held in this 2.2% treasury bond yields. However the current debt they have (fed rate) means the fed is losing around 3%
As the FED sells off these assets it's doing it at a far lower interest rate then what currently is going on and it's not replenishing it. This has caused the Fed to lose money while every other year it's been net positive.
Why this matters is because when the FED "makes money" from these it sends that money back to the US treasury. The US treasury then pays down the national debt. So you can start to see where this debt issue is becoming a major concern now in that the fed is expected over the next two years to lose money and contribute none of that back to the US treasury.
There's two sides of the story like with everything. Some people think the nation debt isn't an issue and that the economy should continue on including the constant borrowing of money to fuel projects and growth. In other words stop holding up congress with the debt ceiling BS like it has been doing.
The flip side of that is the debt is extremely bad and will eventually blow up in the next generations faces.
It's still very unclear as the details of it all simply don't add up. What are you thoughts on the FED losing money and the national debt?
