In most instances, a business bleeding red ink has a big problem and could ultimately go under. Not so for the Fed. In fact, losing money isn’t a problem for the central bank at all. But it is a big problem for the US government.

According to the Federal Reserve’s quarterly report for Q2, the central bank reported a loss of $57.3 billion through the first half of the year. The Fed is on pace to lose over $100 billion in 2023.

Rising interest rates are a big problem for the Fed, as they are for other banks. The central bank earns interest income on the bonds it holds on its balance sheet. But the Fed also pays out interest to other financial institutions that park money there. The bonds it bought during multiple rounds of quantitative easing (QE) and still holds on its balance sheet were relatively low-yielding. But with rates much higher today, it is paying out interest at a much higher rate.

According to the Fed report, as of June 30, the central bank held roughly $5.5 trillion in US Treasuries with an average yield of 1.96%. It also held $2.6 trillion of mortgage-backed securities with an average yield of 2.20%. Meanwhile, the average interest rate the Fed paid on money it held, along with repo agreements and other operations averaged around 5%.

It’s also important to note that the Federal Reserve has shed almost $1 trillion from its balance sheet in quantitative tightening.

The results were predictable. Through the first half of the year, the Federal Reserve reported $88.4 billion in interest income. But it paid out $141.8 billion in interest expense. That adds up to a lot of red ink.

It’s also interesting to note that like many commercial banks, the Fed has substantial unrealized losses. If you mark all of the bonds held by the Fed to market value, the loss on paper is over $1 trillion. That’s more around 23 times the value of the central bank’s stated capital.

Bond portfolio losses are exactly what kicked off the financial crisis last March. But none of this matters to the central bankers at the Fed.

Big Losses! So What?

The last time the Fed reported net operating losses was in 1915.

To put this net loss in perspective, the largest yearly gain over the last 10 years was in 2021 when the Fed reported a $104 billion net income. In other words, the central bank is on pace for a loss as large as the biggest gain in at least a decade.

Who suffers when the Federal Reserve loses money? In most cases, a business feels the pain when a business loses money. But when the Fed loses money, the US government feels the pain. And ultimately, you and I foot the bill.

Under the Fed’s charter, the Fed remits its profits to the US Treasury. This helps pay down the massive federal budget deficits. When the Fed loses money, the Treasury loses its payday. That means even bigger budget deficits.

Bigger deficits mean the government has to raise taxes or borrow even more money. Either way, we pay. You either get a bigger tax bill or you pay the inflation tax when the Fed prints money to monetize the debt.

But what about the Fed? Isn’t losing money a problem for the central bank? It certainly would be for a normal bank. But the Fed isn’t a normal bank.

As Mises Institute Senior editor Ryan McMaken put it, “The de facto reality of the Federal Reserve is that it is a government agency, run by government technocrats, that enjoys the benefits of being subject to very little oversight from Congress.”

If a normal business loses money, it must cut costs, sell assets, borrow money, or take other actions to stop the losses. If it loses enough money, it will eventually eat away at the company’s assets. If this goes on long enough, the company will become insolvent. Sustained losses ultimately mean bankruptcy.

The Fed doesn’t have to do any of these things. In fact, it can lose money year after year and go right on doing business as if there were no losses.

How? Because we live in a world where the Federal Reserve gets to make its own accounting rules. And according to its own accounting rules, any net loss magically turns into a “deferred asset.”

[I]n the unlikely scenario in which realized losses were sufficiently large enough to result in an overall net income loss for the Reserve Banks, the Federal Reserve would still meet its financial obligations to cover operating expenses. In that case, remittances to the Treasury would be suspended and a deferred asset would be recorded on the Federal Reserve’s balance sheet.”

Under this scheme, an operating loss does not reduce the Fed’s reported capital or surplus. The bank simply creates an “asset” on its balance sheet out of thin air equal to the loss and business continues as usual. (This is kind of like money printing.) As losses mount, the size of this “asset” will grow.

There is no limit to the size of this “deferred asset” and no time limit on its existence.

Once the Fed returns to profitability, it will retain profits in order to reduce the amount of this imaginary asset. In other words, the US government won’t get any money from the Fed until this “asset” is zeroed out. At that point, the Fed will resume sending money to the federal government.

This has no real impact on the Fed, but it does mean the US government will see a long-term reduction in revenue resulting in a budget deficit higher than it otherwise would have been as long as the Fed is losing money.

A recent article by Alex Pollock published by the Mises Wire breaks it down using the Fed’s most recent balance sheet.

The CQFR reports a total capital of about $42 billion ($35.6 billion of paid-in capital from the member commercial banks and $6.8 billion of retained earnings, called “surplus”). But note: This total capital is much less than the $57 billion reported loss for the six months of 2023, to which must be added the loss for the later months of 2022 of $17 billion. This total $74 billion of accumulated losses by June 30 must be subtracted from the retained earnings and thus from total capital. But the Fed does not do this—it misleadingly books its losses as an asset (!), which it calls a “deferred asset”– a practice highly surprising to anyone who passed Accounting 101. Why does the Fed do this? Presumably it does not wish to show itself with negative capital. However, negative capital is the reality.

Here are the combined Fed’s correct capital accounts as of June 30, based on Generally Accepted Accounting Principles. They result in a capital of negative $32 billion:

Paid-in capital            $36 billion

Retained earnings   ($68 billion)

Total capital               ($32 billion)

I sure do wish I could use my own accounting system when doing my taxes. But alas, I’m not special.

Conclusion

This isn’t good news for a government already buried in debt and running massive budget deficits month after month. It means the US government will have to borrow even more money that the Fed will ultimately have to monetize.

This is yet another reason the Fed’s inflation fight is doomed to fail. Raising rates and shrinking its balance sheet to tame the inflation dragon means more federal government debt. That puts more pressure on the central bank to prop up the government’s borrow-and-spend policies. At some point, the Fed will be forced to cut rates and return to QE in order to manipulate the bond market so the government can keep borrowing. In other words, it will have to create more inflation.

One of the few times a federal entity came close to being scrutinized occurred when the Navy deleted a pride post on its Instagram account.

Even after that incident, the Navy continued to promote Pride Month with the publication of an official memorandum on Twitter announcing the Navy’s 2023 pride theme: “Peace, Love, Resolution.”

The nautical military branch was simply following its commander in chief’s directive. The White House has made several announcements promoting and encouraging others to celebrate Pride Month, including by publishing a press release, posting on Twitter, and changing the official White House’s Twitter header to a pride logo.

Other military branches and federal organizations such as the National Aeronautics and Space Administration, United States Postal Service, and Department of Veterans Affairs followed the White House’s example and are promoting Pride Month.

Through this list is not exhaustive, here are 21 federal and federally funded organizations that promote Pride Month with taxpayer dollars:

1. The Smithsonian Museums: The taxpayer-funded museums offer a lineup of LGBTQ events for the month of June, including sexuality talks and “drag story hours” featuring “drag queens” reading books to children.
2. CIA: The Central Intelligence Agency announced its support for Pride Month with a puzzling theme: “WELCO-ME.” The acronym stands for “Wellness Equity LGBTQ+ Community Openness ME,” according to the Twitter post.
3. FBI: The bureau announced its support of Pride Month on Twitter by thanking its LGBTQ employees for their service, dedication, and “perspectives.” While the bureau accepts LGBTQ perspectives, it has actively targeted Catholic perspectives.
4. Department of Labor: This Pride Month, the Department of Labor says that it will “joyfully celebrate” LGBTQ employees by offering “guidance to workforce development on gender identity, gender expression, and sex stereotyping.”
5. Department of State: On Twitter, the State Department encouraged individuals to view their “LGBTQI+ travel safety page.” It said in a press statement, “We strongly oppose the ‘otherization’ of LGBTQI+ persons to justify authoritarian power grabs and attacks on institutions of democracy globally.”
6. Department of Education: Rather than focus on increasing the overall math, science, or literary scores of American children, the DOE decided it was more important to create this pride post on Twitter: “Our message to LGBTQI+ students, teachers, and staff as we begin #PrideMonth: ED has got your back.”
7. Department of Agriculture: The Department of Agriculture connected pride to farming in a Twitter post that showed a poster with the words “2023 Pride Month: Changing the Landscape.”
8. U.S. Agency for International Development: This federally funded world development organization claims that its “efforts are both from and for the American people.” It released its “first-ever LGBTQI+ Inclusive Development Policy” and is giving money through the organization’s “Rainbow Fund” to missions that “integrate LGBTQI+ considerations into their programming.”
9. NASA: Johnson Space Center celebrates Pride Month by participating in Houston’s parade and events and by permitting employees to wear LGBTQ attire on Wednesdays during June. It also has various employee LGBTQ-themed socials planned.
10. USPS: The Postal Service continues to promote Pride Month through LGBTQ-themed stamps. The USPS announced these Pride stamps via a post on Twitter: “We’re proud to continue honoring influential groundbreakers like Harvey Milk, Sally Ride, Isadora Duncan, Ellsworth Kelly, and Emilio Sanchez on our stamps and your envelopes.” The Postal Service also posted on June 8 that it offers special scholarships for LGBTQ individuals.
11. Veterans Affairs: Under the theme “We All Have a Seat at the Table,” the United States Department of Veterans Affairs is holding its third annual “virtual Pride Month.” This month-long event features online seminars on topics that include “A Legal Guide to LGBTQ Couples,” “Healthcare and Fertility Preservation for Transgender Patients,” and “A Clinical Guide to Gender-Affirming Prosthetics,” to name a few.
12. Army: Instead of producing its own Twitter post, the Army retweeted Secretary of Defense Lloyd Austin’s press release honoring “LGBTQ Service Members.”
13. Marines: Out of all the military branches, the Marines came the closest to not endorsing Pride Month. The only public support we found was a retweet of the Navy’s Twitter post on participating in the Department of Defense’s 12th annual Pride Month celebration and a public announcement on its website recognizing the service of LGBTQ service members.
14. Navy: The military branch promoted Pride Month with the publication of an official memorandum on Twitter announcing the Navy’s 2023 pride theme: “Peace, Love, Resolution.” The Navy also participated in the Department of Defense’s 12th annual Pride Month celebration.
15. Air Force: The Air Force saluted Pride Month in its Twitter pride post. So far, it has hosted two pride events on air bases, one of which included a presentation by LGBTQ officer Lt. Col. Bree Fram during a Pride Month luncheon at Altus Air Force Base.
16. Space Force: Like most of the other military branches, the Space Force recognized its LGBTQ service members through a pride post on its Twitter account.
17. Department of Justice: In a news release from “Attorney General Merrick B. Garland in Honor of Pride Month,” the DOJ posted a fact sheet on its work to defend LGBTQ individuals.
18. Department of Transportation: On Twitter, the DOT published a poster that contained a pride-themed, Black Lives Matter fist logo with the word “pride” on the poster.
19. Department of Energy: How energy relates to Pride Month is still unknown; nonetheless, the department felt a need to endorse the LGBTQ community by creating a pride-themed logo and posting, “When everyone has a seat at the table, America is at its strongest.”
20. Homeland Security: Like other organizations, Homeland Security announced its endorsement of Pride Month by posting a video of the department raising the LGBTQ flag at its headquarters.
21. Library of Congress: The nation’s library sponsored Pride Month by encouraging readers to check out its LGBTQ books. The library is set to host a number of pride events this June; however, The Daily Signal was unable to view them as the webpage was down.

Article cross-posted from Daily Signal.

According to CNBC:

The U.S. Department of Education has agreed to cancel the student loans of around 200,000 people who brought a class-action lawsuit against the government, claiming they were stuck with federal debts from schools that were found to have misled them.

Under the terms of the Sweet v. Cardona settlement, the Education Department will immediately approve around $6 billion in debt forgiveness. The 200,000 borrowers eligible for the relief will get full cancellation of their debt, refunds of amounts paid and repair to their credit.

The plaintiffs brought their lawsuit against the Trump administration in 2019, representing around 264,000 class members who said their applications for loan cancellation were being ignored by the Education Department. The suit name was later changed from Sweet v. DeVos to Sweet v. Cardona after current U.S. Secretary of Education Miguel Cardona replaced former Trump appointee Betsy DeVos.

“This momentous proposed settlement will deliver answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government,” said Eileen Connor, director of the Project on Predatory Student Lending at Harvard Law School.

It would be easy for patriots to dismiss this as a one-off situation involving perceived misconduct by schools, but here’s the thing. Normalizing a status always starts with an excuse. In this case, normalizing student loan debt forgiveness is “justified” because the students believe they were misled.

What’s next? It’s not a stretch for the regime to somehow make the case that ALL students were misled by ALL schools. They won’t position it like that, but if they can paint this as a widespread concern, they will declare that the only fair way to handle it is if they treat all student debt equally, which means making taxpayers foot the bill.

As our economy nosedives and the education system becomes more woke on a daily basis, this bodes ill for taxpayers who wouldn’t willingly pay a penny to have kids and young adults indoctrinated.