In the decade and a half since the global financial crisis, rich-world central banks have bought trillions of dollars’ worth of bonds in an attempt to stimulate their economies. They have since fallen sharply in value
and a half since the global financial crisis, rich-world central banks have bought trillions of dollars’ worth of bonds in an attempt to stimulate their economies. Now the bill is coming due. At the last count America’s Federal Reserve had a paper loss of $911bn on its $8.2trn securities portfolio. On July 25th the Bank of England said that, under reasonable assumptions, the Treasury will have to transfer about £275bn between 2023 and 2033 to cover the bank’s cash outflows.
Instead policymakers are doing their best to gloss over the issue. The European Central Bank announced on July 28th that it would stop paying interest on the minimum cash balances banks are required to hold for financial-stability reasons, in effect levying a hidden tax on the banking system. Unlike the Bank of England, the Fed will not receive infusions from the government. Instead, when the Fed starts making profits again, it will pocket them rather than sending them to the Treasury.
The first rule they should follow is not to hold back during a financial crisis. In late 2008 the Fed’s balance-sheet doubled in size as markets seized up and the central bank acted as a lender of last resort. It repeated the trick—almost—in the spring of 2020, as the onset of the pandemic caused investors to “dash for cash”. Hoovering up assets when markets panic is more likely to produce profits than losses, but even if such interventions lose money, they are worthwhile.
Belgique Dernières Nouvelles, Belgique Actualités
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