It’s been acknowledged for a few months now that the Fed, like all central banks, is experiencing an unusual problem: for the first time in its history, it is actually losing money instead of being able to remit interest earnings to the treasury. As this post on the Mises website notes, those losses have now grown to $44 billion.
But not to worry. Those central bank wizards have some accounting tricks that will make this all go away. Or at least they’ll apparently go away if we ignore basic math:
The Fed’s balance sheet claims its capital is $42 billion, but in violation of the most obvious accounting principle (from which it conveniently excepts itself), the Fed does not subtract its operating losses from its capital as negative retained earnings.
Instead, it accumulates the losses as an opaque negative liability, which balance is found in Section 6 of the report under the title “Earnings remittances due to the U.S. Treasury.” These are simply negative retained earnings: to get the right answer, you just subtract them from the stated capital.
