Breaking: Fed Goes Broke

The people who control the money are broke!

Fair warning: This is a heavy sarcasm day here on Heisenberg Report. You’ll need to make allowances.

The Fed has effectively hiked itself into an operating loss, a scenario that’s largely (ok, totally) meaningless outside of the web traffic such a conjuncture is capable of generating.

The figure (below) shows remittances due to Treasury or, more aptly, what the Fed would, in better times, hand its Ponzi partners across the street.

Don’t panic. As it turns out, the US Treasury, like the Fed, is in the US dollar business. They can always print 30,000 new pictures of Ben Franklin and stack them up on pallets somewhere, or have the US mint produce 12 billion quarters. Or they could sell bonds to a reserve-conjuring central bank through an intermediary in an absurd circular funding scheme with the potential to put said central bank in the red.

I shudder to think what’s being said about this on finance-focused social media, where tens of thousands of self-described “former Bridgewater”s and/or “ex-Goldman”s are enjoying second careers as “current morons.”

Tracy Alloway, ex-FT, current Bloomberg, acting Pozsar whisperer, wrote about this on Monday, citing Joseph Wang, ex-Fed guy and current… well, “Fed Guy.” (If you click the links, you’ll get the joke.)

If you need to know anything at all about this (which you don’t), it’s that the operating “loss” (a total misnomer) will probably get larger, given the Fed’s policy bent and current market realities. But, as Wang reiterated, “the Fed cannot go broke.”

What the Fed can do, though, is look bad. “The optics of a money-losing Fed aren’t good,” as Wang put it.

On a more pensive day, I’d pen some lengthly lament for the loss of institutional credibility in the US, while pretending that everyday people might read a headline or two about a “broke” Fed and adjust their inflation expectations accordingly. But I already wrote that article, and we all know everyday Americans don’t read.

Besides, bad optics aren’t anything knew for this Fed. This is a bunch that’s looked so bad, so consistently, for so long, that looking good might suggest something’s amiss.