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Hey guys, do you believe it? The money printing machine can also lose money, and it's a bloodbath of hundreds of billions. According to data released by the Federal Reserve, in 2024, the Federal Reserve's revenue took a hit, with losses reaching as high as $77.6 billion, equivalent to 560 billion yuan, and this is already the second consecutive year of severe losses for the Federal Reserve. The Federal Reserve is the big brother holding the world's money printing machine, and logically, even if the whole world is losing money, it should still be sitting pretty. How exactly did this $1 trillion hole come about? Can the Federal Reserve solve the problem by printing more money?

How did the Federal Reserve go from making money easily in the past to suddenly facing losses? In fact, the Federal Reserve's income mainly comes from two sources. First, the Federal Reserve prints money to buy government-issued treasury bonds, and the government pays interest to the Federal Reserve every year, with a coupon rate of 1.8%. Second, the Federal Reserve acts as the bank for banks, lending to commercial banks and financial institutions to earn more interest. However, the problem arose during the pandemic in 2020 and 2021 when the Federal Reserve started printing money excessively to rescue the economy and purchased a large amount of long-term treasury bonds and mortgage-backed securities. The interest rates on these assets were locked in at 1.8%, meaning they would collect interest at this rate for decades to come. By 2022, with inflation in the U.S. skyrocketing, the Federal Reserve began raising interest rates aggressively to control it. The problem is that on the asset side, the coupon rate of U.S. treasury bonds is fixed at 1.8%, while on the liability side, the interest paid by the Federal Reserve on excess reserves held by commercial banks is variable. Now, with market interest rates at 5%, it means that for every dollar of interest earned, the Federal Reserve has to pay out $2.78, resulting in a daily loss of $700 million to commercial banks in interest, making it the biggest loser globally.

Is there any way for the Federal Reserve to avoid losing money? There are two very simple methods: one is to simply stop the losses and directly sell off a portion of the government bonds to reduce interest expenses. However, the Federal Reserve's government bonds are one of the core assets of the global financial market. If they suddenly sell off a large amount of government bonds, it may be interpreted by the market as a pessimistic signal regarding the economic outlook, which will inevitably trigger market panic. The second method is to significantly lower interest rates, which is also the scenario that Trump would most like to see. However, the current interests of the dollar are in conflict with those of the White House. In Trump's view, lower dollar interest rates are beneficial for the expansion of manufacturing, and only the expansion of manufacturing can create a large number of jobs for the United States. Therefore, he would even be willing to see the dollar interest rates driven down to zero again. On the other hand, the Federal Reserve represents the interests of Wall Street, and once the dollar interest rates hit zero, the Federal Reserve won't earn a single cent, and the entire interests of Wall Street will suffer a severe blow.

As long as Trump and the Federal Reserve's interests are not aligned, the Federal Reserve's losses will not change. This is the consequence of EU countries flooding the market and then suddenly hitting the brakes.