Imagine you are drinking coffee leisurely, and suddenly a news pops up: The Federal Reserve has lost $200 billion! This number is enough to make you spit out your coffee. This is not a small amount, it is equivalent to two-thirds of Greece's GDP! With such a large loss, ordinary banks would have gone bankrupt long ago. But the Federal Reserve is not an ordinary bank, it is the "brain" of the global financial system, and its every move will shake the global financial market.
Think about the 2008 financial crisis. When Lehman Brothers collapsed, the global economy fell into recession. Now, the Fed's losses are even more serious than those of Lehman Brothers. History always repeats itself. Are we going to experience another financial tsunami?
Fed Chairman Powell urgently spoke out to calm the market. He said the Fed could bear the loss, but everyone could hear the anxiety in his words. Just imagine, an institution once known as the "world's lender of last resort" is now mired in losses. This is simply a heavy blow to the credibility of the US financial system.
The reason for the loss is pretty baffling. In response to the coronavirus pandemic, the Fed bought a large amount of Treasury bonds and mortgage-backed securities, expanding its balance sheet to nearly $9 trillion. At the time, it was seen as a stroke of genius to save the economy. But as inflation soared, the Fed had to raise interest rates sharply. As a result, the value of its fixed-income assets plummeted, leading to this financial disaster.
This is like a gambler who keeps increasing the stakes in order to win the jackpot. In the end, although he wins temporarily, he ends up losing everything. Isn't the Fed's operation a reflection of this gambling mentality?
What is even more worrying is that this loss may be just the tip of the iceberg. As interest rates continue to rise, the Fed's losses may further expand. This is like a bottomless pit, and it is unknown how much more hard-earned money of American taxpayers will be swallowed up.
Some people say that the Federal Reserve, as a central bank, can print money to make up for losses. But this is not a long-term solution. Large-scale money printing will inevitably lead to inflation, which is undoubtedly worse for the United States, which has just experienced high inflation.
Worse still, the Fed's losses could affect the independence of its monetary policy. Think about it, how can a heavily indebted central bank decisively adopt a tightening policy? It's like a heavily indebted gambler who always hopes to make up for his losses with one more gamble. This mentality will undoubtedly affect the Fed's decision-making and endanger the stability of the entire US economy.
Moreover, the Fed's predicament may also trigger a global chain reaction. As the central bank of the world's largest economy, the Fed's every move will have a huge impact on the global financial market. If the Fed is forced to change its monetary policy due to losses, then from Europe to Asia, from emerging markets to developing countries, they will inevitably be impacted.
Imagine if the dollar depreciates as a result, global dollar asset holders will suffer huge losses. This may trigger a new round of capital flight, leading to currency depreciation in emerging markets and aggravating the debt crisis. A global financial storm seems to be looming on the horizon.
However, crises also contain opportunities. The Fed's predicament may promote the reform of the global financial system. The international monetary system that is overly dependent on the US dollar has long been criticized. Perhaps this is an opportunity for countries to rethink the international monetary system.
At the same time, this incident has also sounded the alarm for central banks around the world. While pursuing economic stimulus, they must also fully consider possible risks. An overly loose monetary policy is like a shot in the arm. It can revive the economy in the short term, but in the long run, it may bring greater side effects.
Faced with such a severe situation, Powell's performance seems to be at his wit's end. He stressed that the Federal Reserve has the ability to bear such losses, while at the same time calling on Congress for more support. This dilemma reminds people of the band on the Titanic. When the ship was about to sink, they were still playing on the deck, trying to calm the emotions of the passengers.
However, the market obviously does not buy it. The US stock market fluctuated sharply, the US dollar index continued to weaken, and the price of gold continued to rise. Investors voted with their feet and clearly expressed their distrust. This market reaction will undoubtedly further aggravate the Fed's predicament.
In this case, the attitude of the US government is particularly important. But so far, the White House seems to have no clear response plan. This policy vacuum will undoubtedly exacerbate the panic in the market. People can't help but ask: Is the US government ready to sit back and watch the Federal Reserve get into trouble?
At the same time, the reaction of the international community is also worth paying attention to. International financial institutions such as the IMF and the World Bank have begun to assess the possible global impact of the Fed's predicament. Some countries have even begun to consider taking preventive measures to deal with possible financial turmoil.
In this storm, ordinary people are undoubtedly the biggest victims. High inflation has already stretched many families to their limits, and if a financial crisis were to occur again, the consequences would be disastrous. Therefore, how to find a balance between stabilizing the financial market and protecting people's livelihood will be the biggest challenge facing policymakers.
The huge loss of the Federal Reserve is like a heavy hammer, waking up the sleeping global financial market. This may be a warning, reminding us to re-examine the current financial system. In this financial war without gunpowder, only by staying sober and rational can we stand firm in the storm.