The Federal Reserve Is Running Losses. Does This Cost Anyone Anything?

Published in Zero Hedge.

The debate has raged in the banking and finance communities. Two investigators, Paul Kupiec at the American Enterprise Institute and Alex Pollock at the Mises Institute, have analyzed Fed financial statements and presented their findings about these Fed losses in publications such as the Wall Street Journal and on the websites of the American Enterprise Institute, the Mises Institute, the Federalist Society, and Law and Liberty. The Wall Street Journal has produced a nontechnical video explaining how the Fed makes (and loses) money.

…

Kupiec and Pollock responded with a letter to the editor of the Wall Street Journal to reiterate their earlier conclusions that American taxpayers will ultimately bear the cost of the Fed’s losses. When asked by email how he can justify his claim that no one, including taxpayers, actually bears the cost of the Fed’s losses, Professor Furman responded as follows:

The Fed’s losses do lead to higher debt. And its gains to lower debt. On net it has reduced the debt. But it is a public entity and we didn’t assign it the job of maximizing profits—and for good reason—we should leave that to the private sector. Instead we assigned it macroeconomic goals which it has done well at times and done badly at other times—like in not responding fast enough to inflation in 2021.