This marks the first instance in history where the Fed is documenting weekly losses amounting to billions of dollars, all while continuing to allocate substantial interest income to the mega banks situated on Wall Street.

As of April 3 this year, the Federal Reserve (Fed) has incurred $161 billion in cumulative losses. These are not unrealized losses on its underwater debt securities, as it doesn't mark them to market. Rather, these are actual cash losses resulting from earning roughly 2 percent interest on the $6.97 trillion worth of debt securities it holds from its Quantitative Easing (QE) operations, while simultaneously paying out higher interest rates to mega banks on Wall Street and other Fed member banks (5.4 percent), on reverse repo operations (5.3 percent), and dividends to member shareholder banks (6 percent or the yield on the 10-year Treasury note, whichever is lesser). As of March 26, the Fed announced that its expenses for 2023 surpassed earnings by $114.3 billion.

Despite accumulating losses, on March 20, the Federal Reserve decided to maintain these high interest rates for its member banks, which has led many Americans to view it as a captured regulator. Weekly losses for the Fed have ranged from $3.3 billion to $1.86 billion.

These ongoing substantial losses are unprecedented in the Fed's history since its establishment in 1913. When the Fed operates at a profit, as it did for 106 years until 2022, it typically transfers excess earnings to the U.S. Treasury, reducing the government's need to borrow. From 2011 to 2021, these excess earnings totaled over $920 billion. However, with the loss of these remittances, the U.S. government will likely accumulate more debt, burdening taxpayers and raising the risk of credit rating downgrades.

The Fed's accounting for these losses is contentious. It adopted non-standard accounting practices in 2011, which classify operating losses as a 'negative liability' or a 'deferred asset', effectively concealing the erosion of its capital. Under this policy, operating losses do not directly reduce the Fed's reported total capital. Even if the Fed were to incur losses far exceeding its capital, it would still report positive capital under its current accounting method. This approach is reminiscent of regulatory accounting tactics from the 1980s used to support failing savings and loans institutions.

As of December 27, 2023, the Fed's accounting indicates $42.85 billion in capital, while under Generally Accepted Accounting Principles (GAAP), its capital is estimated to be negative $88.7 billion. Among the 12 regional Fed banks, the New York Fed exhibits the most significant negative capital under GAAP accounting, standing at nearly negative $70 billion.