Former U.S. Congressman Ron Paul, in his decades-long call to audit the Federal Reserve, argued that the Fed is a Ponzi scheme that is accountable to no one. Even as Murray Rothbard, a prominent scholar of the Austrian school of economics, pointed out many years ago, the Fed is less supervised than any other institution in the United States, including the CIA.
It is worth noting that even though the Fed rated its own work, it nevertheless admitted the largest operating loss in history of $114 billion in 2023. In this regard, the latest analysis of economist Peter St. Unger said that the Fed may have more losses in the future. There is even the possibility that the Fed will stage the largest bankruptcy in the history of the United States.
So how did the Fed lose so much money? Some of that comes from the need for them to pay huge sums of money to Wall Street, and the Fed does this to hide inflation. But most of the Fed's losses are because they printed trillions of dollars during the pandemic and used those trillions to buy U.S. Treasuries, and then, when they panicked raising interest rates in an attempt to curb inflation, Treasury prices plummeted.
This means that the Fed's previously high balance sheet of $9 trillion is starting to lose a lot of money. In fact, current estimates of unrealized losses (i.e., money that the Fed has lost but has not yet acknowledged) could be well over $1 trillion. And these unrealized losses will only become apparent after the Fed sells the bonds.
They do it either because the bond is maturing, like a 90-day or 5-year fixed term of the bond, etc... Or because the Fed pawned them, trying to absorb inflationary dollars, which is known as QT quantitative tightening. Last year's $114 billion loss was a combination of both, and there will be trillions of dollars to come. So what does this mean?
Analysts believe that sooner or later, the Federal Reserve will have to open the floodgates of self-printing money on a large scale, and then concoct hyperinflation in the United States with its own hands. In the long run, though, every penny the Fed loses will fall on the books of every American taxpayer. Because all these losses offset the amount of money that the Fed is due to the US Treasury every year. These are called Fed remittances, and they are money printed and lent profits, essentially counterfeit license fees.
According to the data, the Fed sends about $80 billion a year. But now they could be stagnant underwater for decades. This is a new phenomenon to be aware of, as the Fed has never lost money before. It is expected that the Fed will face losses before the current children in the United States grow up, and it should be said that the largest loss in history of $114 billion is just the prelude. Until interest rates fall sharply, which also means that the US federal debt will increase by trillions of dollars.
In other words, as a consortium of banks, the Fed will pass on its losses to the federal and multiple states and taxpayers. Because the Fed is not the Fed of the US economy and debt, the pursuit of profit maximization is the ultimate goal of the Jewish bankers and financial oligarchs. Obviously, the Fed's huge losses are bad news for the debt-dependent US debt economic model.
To add insult to injury, the Fed's latest balance sheet, released in April, showed that the Fed reduced its holdings of US Treasuries by another $57 billion in March, a cumulative drop of $1.2 trillion from its peak in June 2022 to $4.58 trillion, the lowest level since November 2020. In other words, the Fed has accumulated a net sale of up to $1.2 trillion in US Treasuries and reduced 37% of the $3.27 trillion added during the pandemic quantitative easing in the process of raising interest rates and reducing its balance sheet, and the Fed is also emerging as the largest short seller of US Treasuries.
For the U.S. debt-based economic model, losing the Fed's support would have lost its domestic liquidity. In this regard, Fed Chairman Jerome Powell warned in the first quarter that "the debt of the United States is growing faster than the economy is growing." The U.S. federal government is on an unsustainable fiscal path. "At the same time, with the Fed's high interest rate cycle, the total interest on US Treasuries reached a record $1.1 trillion by the end of March this year, and is increasing by $100 billion every four months. Economist Hartnett predicted three days ago that the interest cost of the U.S. national debt will reach $1.6 trillion by the end of this year, making it the largest federal expense in the United States.
This means that the U.S. federal government needs to issue a steady stream of U.S. Treasury bonds in order to achieve a circular debt economic model. From this point of view, the United States, as by far the largest debtor country in human history, will become more and more addicted to debt. As of April 21, the total federal debt has reached $34.7 trillion, or 122% of US GDP. The average American is saddled with $103,000 in debt, and $267,000 per U.S. taxpayer.
And that's not even counting the fact that the average U.S. household already has $275,000 in debt, and the rate of debt growing by nearly $30,000 per household per year.
Therefore, it is foreseeable that in the future, as the United States will continue to increase trillions of dollars in federal debt, its ability to repay will decrease, and the risk of default will increase or inevitable. In response, Wharton professor João Gomez warned on April 7 that if the United States does not adjust its fiscal path, it is likely to have a crisis next year. After the collapse of US Treasuries in November 2023, pushing average yields to 5%, US debt has tasted overcapacity.
According to Bank of America estimates last month, the U.S. adds $1 trillion to its debt every 100 days. Gomez further said that in a high interest rate cycle, this exacerbates the very real risk that the United States will fall into a default crisis within this century. Wharton's forecasting models a few weeks ago suggested that the United States could be in 20 years with a catastrophic debt catastrophe. Unless the federal government can cut spending in a real sense, the analysis suggests that the fate of the federal debt will largely depend on the aftermath of November. So far, however, there has been no indication of a specific plan for the US economy to solve its debt problem.
In fact, Gomez is not the only one pointing out the risks of U.S. debt. Wall Street giants such as JPMorgan Chase CEO Jamie Dimon and hedge fund tycoon Ken Griffin have also repeatedly warned of the impending US debt crisis. In the latest development, Griffin, who is worth as much as $35 billion, issued another dire warning about the US public debt on April 7, asking rhetorically, is there light on the horizon of US debt?
He said the surge in U.S. public debt is a growing concern that cannot be ignored. We must stop borrowing at the expense of future generations. The Western world is in dire need of a substantial increase in productivity, as the burden of increased government debt and welfare spending is putting pressure on almost every major Western economy. Among them, the ongoing debt disaster in the United States is the result of a mismatch between federal spending and revenue.
The Congressional Budget Office predicts that the federal budget deficit will increase significantly relative to GDP over the next 30 years if current tax and spending laws remain unchanged overall. Among other effects, a large debt burden slows U.S. economic growth, increases U.S. interest payments to multiple creditor countries, increases the risk of a debt crisis, increases the likelihood of other adverse outcomes, and worsens U.S. fiscal positions.
In this regard, Griffin further said that in the United States, the Federal Reserve is battling inflation, while investors are hovering around volatile data, which sometimes indicates higher inflation, sometimes a potential soft landing, or a recession in the United States. And a series of uncertainties in the US market are overeating the market position of the US dollar and US Treasuries.
As shown in the chart below, the dollar's share of global reserves has fallen by 26% from a peak of 85% in the 70s to a low of 59%. At the same time, among the world's three major rating agencies, Standard & Poor's and Fitch have downgraded the sovereign credit rating of the United States, and Moody's has repeatedly warned that if the United States Treasury bonds continue to be issued without restraint, the potential default risk will also increase, and eventually the United States may lose its AAA bond issuance rating and qualification.
Once Moody's finally downgrades the United States, it means that the United States, as the world's largest economy, relied on the US dollar in the past, especially after the United States unilaterally announced the abolition of the Bretton Woods gold standard in 1971 and decoupled the US dollar from gold, the era when it could easily obtain valuable global material wealth with the US dollar and US Treasury bonds will come to an end. Especially against the backdrop of the Fed no longer buying large amounts of US Treasuries, this expectation seems increasingly clear.
This is one of the reasons why central banks around the world have increased and hoarded gold reserves at record levels over the past two years. At the same time, the Fed seems to be increasing its coveting of gold reserves deposited in the vaults of the Federal Reserve Bank of New York by many central banks since the mid-forties.
According to the analysis of the Gold Antitrust Association, in the past few years, the Federal Reserve has blocked several requests from China, India, Japan, Germany, Venezuela and other countries to repatriate gold previously deposited in New York vaults. Even after Fed Chairman Jerome Powell refused to answer a question from the US media about how much foreign gold is currently held in the New York vaults in March, after Fed Chairman Jerome Powell refused to answer a question from US Congressman Alex Mooney about how much foreign gold the Fed currently holds in its vaults in New York. That said, twice this year alone, the Fed has publicly refused to provide data on the management of global gold.
Although the Fed has been defending its role as an independent player in the US economy, its blocking and refusal to ship gold back to many countries is also reducing the credit score of the United States. In addition, in the context of increasing global geopolitical risks, such as the escalation of the crisis in the Middle East, the process of decentralizing the US dollar and US debt and hoarding gold reserves as a constant currency in many countries around the world will also accelerate again.
According to the World Gold Council's latest report, "What Makes Gold a Strategic Asset?", gold plays a key role as a strategic long-term investment and a primary allocation to a diversified portfolio. Over time, people have been able to recognise much of gold's value by maintaining long-term allocations and taking advantage of its safe-haven position in times of economic uncertainty.
Another new report released by the association in April showed that global central banks added 19t to gold reserves in February, marking the ninth consecutive month of growth. In the first two months of this year alone, global central banks added a total of 64t to their gold reserves, a fourfold increase from 2022, albeit 43% less than the same period in 2023.
It is worth mentioning that just as the international gold price broke through a record high of US$2,300, the latest data released on April 7 showed that China's gold reserves rose to 2,262 tons by the end of March. Since November 2022, China has added around 314t of gold reserves for 17 consecutive months. Breaking the silence that had kept gold reserves unchanged at 1,948 tonnes for months since July 2019, it continued to signal gold and became the world's largest gold buyer.
Meanwhile, the World Gold Council's latest report, released on 15 April, showed that China had imported a net 239 tonnes of gold in the first two months of the year. In 2022 and 2023, China imported 2,763 tonnes of gold. Coupled with the 314 tonnes of gold reserves added as of March this year, it is equivalent to the fact that since 2022, up to 3,316 tonnes of gold have been shipped to China in batches from overseas markets such as the United States and Europe.
What is more noteworthy is that compared with the peak of about $1.32 trillion in total US debt held in 2013, China has cumulatively reduced its holdings of US Treasury bonds by about $545 billion in the past 10 years, with a cumulative net selling ratio of more than 41%. Although it is still the second largest holder of U.S. Treasuries, it has become the largest international net seller of U.S. Treasuries.
China's current holdings of U.S. debt have fallen to $700 billion to $775 billion, a rare addition to the 2008 U.S. financial crisis, which expanded its borrowing to global buyers, including China. Economist Daniel Lakar said that China and other countries are reducing their holdings of US Treasuries at the fastest pace in years.
As can be seen from the chart below, with the vicissitudes of the world economy and trade pattern, the global reserve currency has never been monopolized by the same currency. Judging by the accelerated hoarding of gold and the reduction of US debt holdings in many countries mentioned earlier, it seems that today's dollar is gradually becoming yesterday's pound.
This, in turn, could exacerbate the end of the Fed's dominance of global currencies. (ENDS)