Recent data shows that the Fed is facing huge losses, amounting to $120.4 billion. However, the Fed** claims that they do not threaten bankruptcy. However, does this claim hold water?In fact, the Fed's losses are reflected in fictitious accounts called "deferred assets" that will be deducted from future profits. This practice has raised questions in the market, and it is absurd for a listed company to use future profits to offset current losses. Some analysts said it could take four years for the Fed to make up for the loss. However, this future profit does not exist, which is reminiscent of the new clothes of the emperor in fairy tales. In the face of the siege of **, the situation of the Federal Reserve is worrying.
The Fed's huge losses have attracted a lot of attention. On the one hand, fictitious account "deferred assets" allow the Fed to push losses back into the future to cover it, a practice that has raised questions in the market. After all, profits must be real, not virtual. On the other hand, experts believe that the Fed will need to invest a lot of time and effort to cover this loss, which will inevitably have an impact on its future operations. This loss is a serious blow to the Fed and reveals some truths in the US economy.
The Fed has made a series of deadly moves over the past few years that have put it in the predicament it is today. The first is the 11 rate hikes since March 2022, which has caused huge distress to the world. The Fed may not have realized that it would burn itself if it set it on fire. Second, in order to reduce losses, the Fed has sharply reduced its balance sheet, which has had a huge impact on the $8 trillion in bonds it is responsible for. Against the backdrop of rising interest rates in the US dollar, these bonds have become worthless. The Fed was forced to sell it for cash at a low price. However, this practice has also exacerbated the deterioration of its financial situation. The double whammy of the Fed's interest rate hikes and balance sheet reduction has put it under serious threat of bankruptcy.
The Fed has provoked turmoil in financial markets with its actions. First, they have resorted to successive interest rate hikes in response to inflationary pressures. However, this policy of raising interest rates has left global markets, especially emerging markets, in a difficult position. Many countries' currencies and economies have been severely affected, which has cast doubt on the Fed's policy. Second, in order to reduce the scale of risk, the Fed has massively reduced its balance sheet, which has put pressure on its bond holdings. The value of these bonds plummeted due to the impact of the dollar's interest rate hikes, and the Fed had to sell at a loss in order to reduce its losses. This behavior not only worsens the Fed's financial position, but also further weakens market confidence in it.
Faced with huge losses and the threat of bankruptcy, the Fed had to find a way to survive. There are three key ways to help the Fed weather the storm. First, they can stick to their balance sheet reduction policy and minimize their losses as much as possible. This means that they need to continue to sell their assets at a low price and exchange them for cash. Second, they can borrow money from the U.S. Treasury to cover their losses. Although the Treasury itself is facing huge debt pressure, it is still possible to provide some financial support to the Fed under certain conditions. Finally, the Fed could seek shareholder capital increases and borrow money from more than 3,000 banks to meet short-term funding needs. However, the implementation of this plan is very difficult because it requires the consent of shareholders. However, there are not many shareholders who can provide financial support to the Fed, which also makes the Fed face challenges in terms of cash flow and cost control. Faced with this triple crisis, the Fed has had to lay off staff and cut back on spending to ease financial stress and keep it running. However, it's worth noting that the Fed still needs to find a way to resolve the bankruptcy crisis and keep it running with the money it needs**. This question concerns the future direction of the U.S. economy and the sustainability of the Federal Reserve as the most authoritative monetary regulator in the United States.
To sum up, while the Fed is not facing bankruptcy directly, its large losses, bankruptcy pressures, and crises in cash flow and cost control have raised questions about the Fed's future. It has also raised concerns about the U.S. economy, revealing some of the problems hidden behind the U.S. economy.