A Thought to Ponder

Is it possible for the Fed to lose money when it can print all it wants?

Arnold,

I second fundamentalist's question. We often hear about the possibility that the Fed might take losses on the assets it holds on its balance sheet. I understand why this is a concern for a regular bank, but as I understand it the Fed can act as an infinite-capacity source or sink for money, so I can't understand why it would care whether it takes a loss (or makes a profit) on its assets. Can you shed any light on the subject?

Farmland? It's been a longtime, standard investment for large investors. Seems a little worrisome these days--an awful lot of government risk with 1/3 of corn crop going to feed cars, not people.

I do like stocks, especially ones with scalable products, like networking and specialized chips, such as those in wireless.

Seems to me that if the Fed "loses" money on asset purchases that only means that when the Fed tries to soak up excess cash by selling those assets it will have to sell more to reduce cash than it had to buy to increase cash. But the Fed bought so much that I don't think it will run out of assets to sell when the time comes.

The way I look at it, if the Fed buys $2 trillion in bonds and the value of those bonds declines to $1 trillion, then the Fed has lost $1 trillion. The fact that the Fed can print $1 trillion to cover those losses does not erase them.