The Fed is Silicon Valley Bank

The Fed’s income statement shows net interest margin losses of $8.5 billion per month, a cumulative loss of $48.3 billion, which exceeds the Fed’s paid-in capital. Its securities portfolio is depreciated, we estimate, by about $737 billion below the face value reported on its balance sheet. That’s enough to redeem excess reserves and reverse repos, but not coins and currency in circulation. These are the same realities that drove Silicon Valley Bank to failure. They are the result of the Fed’s own decision to undertake one of the biggest and fastest hiking regimes in history. The Fed’s so-called “gold stock” is illusory and cannot help now. Many banks are suffering from these same problems, and they look to the Fed as a backstop to retain depositor confidence, but the Fed’s credibility is impaired. A debt ceiling crisis could worsen the situation if it drives yields higher. The Fed must stop, for its own sake. The March hike was the last.