• News
• 2024-08-24

Fed Faces $860B Loss After Rate Hikes

The Federal Reserve has suffered losses. While everyone is lamenting the death of Charlie Munger, the American financial sector is facing a much larger crisis, which is that the Federal Reserve has lost money. And the Federal Reserve's losses are not just a few billion or even tens of billions, but 860 billion. As we know, the Federal Reserve, as the central bank of the world, has always been the one that only makes money, when has there been a time to lose money?

Moreover, the Federal Reserve has always been an institution that makes a profit no matter whether the United States raises interest rates or lowers interest rates. However, this time, before the dollar tide has completed the harvest, the Federal Reserve has suffered a huge loss of 860 billion. The Federal Reserve can no longer hold on, is the U.S. debt crisis going to come ahead of schedule? Is the Federal Reserve going to lower interest rates ahead of schedule?

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The Federal Reserve suffers a "huge loss" of 860 billion

It is normal for anyone to suffer losses, but it is rare for the Federal Reserve to suffer huge losses. After all, the decision to raise interest rates in the United States is a decision made after unanimous discussion by the Federal Reserve. It can be said that there has always been only the Federal Reserve making money, when have we seen the Federal Reserve suffer huge losses? However, the fact is that the Federal Reserve has suffered a huge loss of 860 billion.

Recently, the Federal Reserve released its own financial data, and in this data, the Federal Reserve created an accounting item, which is deferred assets, that is to say, this asset is nominally already a loss, but this item is deferred. In this accounting item, this asset has reached 860 billion.

That is to say, the current loss of the Federal Reserve is 860 billion. And according to Wall Street's analysis, this loss may continue to increase, and in the future, it may reach a scale of trillions.

It can be said that this is very surprising. After all, the cognition of the Federal Reserve that has always been given to us is the existence of the world's central bank. The Federal Reserve raises interest rates, and central banks around the world are forced to raise interest rates. The Federal Reserve lowers interest rates, and central banks around the world follow suit. It can be said that the Federal Reserve is the weathervane of the world's central banks.

However, this time the Federal Reserve has taken the lead in suffering losses, which can be said to be rare in the world. After all, in history, the Federal Reserve has basically not suffered losses. Even in the 1970s, when the United States encountered an oil crisis, the Federal Reserve did not suffer such a large-scale loss as it is now, it can be said that the Federal Reserve's loss this time is unusual.

Moreover, we all know that the U.S. banking policies are basically decided by the Federal Reserve, and this is also a reflection of the will of the major banks. And there has always been only the Federal Reserve making money, even if it is drinking soup, the Federal Reserve is also drinking the thickest bowl.Moreover, in both 2021 and 2022, the Federal Reserve paid nearly tens of billions of dollars to the United States, so why did it suddenly incur losses this year?

We all know that the essence of the United States raising and lowering interest rates is to complete the global asset harvest, and the driving force behind these asset harvests is the Federal Reserve. But now, it's ironic that the United States hasn't harvested much yet, and the Federal Reserve has already suffered losses first.

Where does the Federal Reserve's loss actually come from? It's quite simple: the Federal Reserve's loss comes from the United States' interest rate hikes. In other words, the Federal Reserve raised interest rates and ended up hiking itself into a loss.

The most significant factor here is U.S. Treasury bonds. In the past, we all knew that the United States has always implemented low-interest rates, so the Federal Reserve held a large amount of U.S. bonds. In the past two years, the Federal Reserve raised interest rates itself, leading to a huge difference between the past bond yields and the current bond yields.

This has led to a severe devaluation of the prices of U.S. Treasury bonds held in the past, and eventually, we see the massive losses of the Federal Reserve that we are witnessing now.

Moreover, the reason for the collapse of the First Republic Bank and Silicon Valley Bank in the United States was that they held U.S. Treasury bonds, which led to a situation of floating losses, coupled with a run on the banks, ultimately leading to a liquidity crisis and collapse.

Today, the principle behind the massive losses of the Federal Reserve is similar. Furthermore, if even the Federal Reserve has already suffered losses, other small and medium-sized banks in the United States have long been in the red. Moreover, there are media institutions predicting that if the Federal Reserve continues to raise interest rates or maintains them at high levels for a long time, nearly half of the small and medium-sized banks in the United States will go bankrupt in the future.

It can be said that the United States' interest rate hike this time is a self-harming move. But with this move already causing self-harm, can the United States still complete the global harvest? Is the United States' interest rate cut really coming?

Will the U.S. economy go into recession?As a financial empire, the United States rose to prominence due to finance and may also decline because of it. Even before the Federal Reserve has decided on a rate cut, some institutions have predicted that the U.S. economy will enter a recession.

We know that this year, the data from the United States appears to be quite good on the surface, and sometimes even suggests a period of great prosperity for the U.S. economy. However, based on U.S. consumer data as well as industrial and residential electricity usage, signs of economic decline have already emerged.

Nevertheless, both the non-farm and employment data in the United States continue to show a robust economy. In reality, this is all in service of the dollar's harvest. However, this harvest is not as simple as it seems, because the U.S. is currently carrying nearly $33.5 trillion in debt, with annual interest payments approaching a trillion dollars, which is the price to pay. The substantial losses of the Federal Reserve this time have well demonstrated this point, indicating that the U.S. is moving forward with a heavy burden.

It is not so easy for the U.S. to harvest. Moreover, we all know that the scale of U.S. debt is not unlimited, and there is a limit to the borrowing capacity. The losses of the Federal Reserve now represent that the U.S. seems to have reached this limit.

If the U.S. insists on aggressively raising interest rates, the history of Silicon Valley Bank may be repeated. After all, Wells Fargo has technically been unable to withdraw money several times, and if there is further negative news, the panic-induced run on banks may not be stopped even if the U.S. cuts off the internet.

Moreover, from the recent statements of the Federal Reserve, the expectation of interest rate hikes is gradually diminishing, and previous market transactions showed that the scale of rate cuts in the U.S. over the next year could even reach nearly 100 basis points.

This time, the German banking industry has stepped forward to state that the Federal Reserve will cut rates beyond expectations. On one hand, it may be due to the immense economic pressure on the U.S., and on the other hand, it may be because the U.S. economic data can no longer be embellished.

In the first half of this year, the Federal Reserve has already suffered losses of nearly $40 billion, and corresponding layoffs have also taken place. Now, the losses have exceeded $86 billion, which means that the Federal Reserve's losses are rapidly expanding. Therefore, the Federal Reserve has also reached its limit.

Moreover, the U.S. Treasury is approaching the day when it needs to raise the debt ceiling again. So, on one hand, the pressure on itself is increasing, and on the other hand, the expectation of a successful harvest in the U.S. is continuously decreasing. Therefore, how to choose between economic recession and harvest has become the final choice for the Federal Reserve.Nonetheless, based on the existing data from the United States, this round of interest rate hikes has essentially reached its peak, which implies that it is time for the United States to lower interest rates and reap the benefits. What we can do is to build high walls and weather the last winter, as the year ahead will be one of spring blossoms and warmth.