Typically, the Fed makes money every year because typically they take very little risk and earn interest on their short-term portfolio, which is funded by bank reserves.
The Fed has annually remitted its profits from its operations to the U.S. Treasury, which means that the taxpayer benefits.
Now, the Fed has a long-term portfolio and thus has taken on a significant risk. Should that risk work out badly, and I believe it will, the Fed will have no profits to remit, and will possibly be required to go to the U.S. Treasury for money to finance normal operations and to cover losses incurred by the operations required to reverse their present policy course.
Frankly, you don’t understand the situation very well. I don’t mean the policy implications. You really don’t understand the basic structure of the Federal Reserve and how they operate, and how those operations translate through to the rest of the government. You seem to think that they can lose as many billions as they want without any impact on the rest of the government. They can’t.
Furthermore, as a government entity, they have been shortening the effective treasury debt outstanding even faster than the treasury has been lengthening it. So, in a time when any logical entity would be financing as long term as possible, the Fed has contravened that policy by its actions. That, too, will come home to roost when rates move significantly higher someday.
“You really don’t understand the basic structure of the Federal Reserve and how they operate, and how those operations translate through to the rest of the government.”
Oh, I understand well how the Fed operates.
“You seem to think that they can lose as many billions as they want without any impact on the rest of the government. They can’t.”
Actually they can. They aren’t PIMCO. Their bond holdings aren’t investments. They are tools for adjusting high powered money in the banking system. The Fed isn’t relying on them for income. A capital loss on their bond holdings is irrelevant, they aren’t an investment house.
“Furthermore, as a government entity, they have been shortening the effective treasury debt outstanding even faster than the treasury has been lengthening it. “
That’s an interesting theory but the Treasury has the sole ability to determine what length of debt gets auctioned. I can’t imagine what mechanism you envision that would enable the Fed to adjust the length of outstanding Treasury debt.