(Mises)—Most Americans realize that our federal government has, in recent decades, spent so recklessly that it runs ever-increasing annual federal budget deficits (currently nearly $2 trillion) and now sits on over $36 trillion in outstanding federal debt. This spending—overseen by Congress and the Executive branch—has been profligate since the 1960s Great Society, wars in Vietnam and the Middle East, the 2008-09 financial crisis, the ongoing Obamacare entitlement, and the 2020-22 Covid pandemic. But many Americans may not realize that the Federal Reserve System (the Fed)—America’s independent central bank, owned by private commercial banks that are members of the system—has recently behaved similarly, spending amounts well beyond its earnings.
The Fed’s Revenues and Expenditures
Congress established the Fed in 1913 as an independent central bank, minimally accountable to Congress and the Executive branch. The intent behind granting Fed “independence” was to keep politics out of its management of the US money supply and interest rates. Unique among the world’s central banks, the 12-district Fed system is owned by its member banks, a group that includes all federally-chartered banks and those state-chartered banks who opt to join the Fed system. Each of these member banks is required to maintain non-marketable capital stock of its respective Fed district bank, on which banks receive 6 percent annual dividends.
Unlike other congressionally-created independent agencies, the Fed receives no funding in the federal budget. Rather, the Fed’s main source of income is the interest it earns on its $6.5 trillion portfolio of US Treasury bonds and mortgage-backed securities that it holds on its balance sheet in the course of executing its monetary policy. The Fed also receives some fee-based income for its regulatory and supervisory services to the banking industry.
The Fed’s expenditures include its own operating costs, such as salaries and overhead, interest paid on commercial banks’ reserves held at the Fed, dividends paid on its member banks’ ownership of capital stock in their respective Fed district banks, and as much financial support to the Consumer Financial Protection Bureau (CFPB) as its director requests to fund its operations. Thanks to the 2010 Dodd-Frank law that created the CFPB, the bureau is uniquely housed within the Fed, unlike any other federal agency.
By law, any Fed “profits” (excess earnings after covering its own expenses and those aforementioned obligations) are to be transferred to the US Treasury Department to support ongoing federal expenditures. These remittances to the Treasury benefit taxpayers; any missed payment imposes a cost on taxpayers.
The Fed’s Erstwhile Remittances to Treasury
Before 2022, the Fed remitted $5 billion to $10 billion per month to the US Treasury; between 2011 and 2021, the Fed’s remittances totaled over $920 billion. Since then, the Fed has run a monthly operating loss between $5 billion and $11 billion per month, and is thus unable to remit any funds to the Treasury. These accumulating Fed losses are classified as a “deferred asset,” a negative liability whose value is the cumulative amount of the earnings shortfall. Once the Fed returns to earning positive net income, it will pay down the value of the deferred asset until it reaches zero and the Fed can resume sending regular remittance to the Treasury.
The “deferred asset” concept is recognized by both the Financial Accounting Standard Board (FASB) and Generally Accepted Accounting Principles (GAAP), though not in the context of the Fed’s accounting methods. The Fed observes neither FASB nor GAAP guidelines because it is deemed free to design its own accounting standards.
Knowledgeable observers have questioned how the Fed can sustainably spend more than its earnings allow. Mises Senior Fellow Alex Pollock and his frequent co-investigator, American Enterprise Institute Senior Fellow Paul Kupiec, have addressed this major question, most recently here and here. Their sound analyses are correct to question the Fed’s creative accounting strategy to classify an accounting loss as a “deferred asset.”
The Fed’s Magic Carpet Trip
Obvious questions arise about the Fed’s recent financial wherewithal: are the Fed’s losses genuine? Who pays for its deficit spending?
Yes, the recurring losses are genuine in both an accounting and an economic sense. One cannot ignore the economic principle that no one can gain something at no cost to oneself or some other party, that nothing is “free” despite frequent claims to the contrary, and every action or choice taken always incurs an opportunity cost measured as the cost of foregone alternatives.
An alternative view of the Fed’s operating losses comes from Jason Furman—a professor at Harvard University’s John F. Kennedy School of Government and former chair of President Obama’s Council of Economic Advisors. He believes that Fed losses do not impede its ability to fulfill its dual mandate of ensuring maximum employment and price stability. He further explains that the Fed was never designed to turn a profit, that it has fulfilled its assigned macroeconomic goals with mixed results over time, and that insolvency is meaningless in the world of central banking. He does concede, however, that Fed losses do lead to higher federal budget deficits and outstanding debt, thus costing American taxpayers.
Notwithstanding Furman’s explanation, what can observers make of the Fed’s quasi-legal accounting strategies—the deferred-asset treatment of Fed remittances to the US Treasury, the continuing payment of interest and dividends to the banking industry, and the full support of CFPB’s operations?
Magic Carpet Support for CFPB
Recall that by law CFPB has no other revenue source aside from its dependence on Fed earnings, whereas the US Treasury and the banking industry do have other sources. The Congressional Research Service reports that CFPB’s 2025 budget and employees are, respectively, $810.6 million and 1,758.
With no earnings, how can the Fed provide financial support to CFPB? AEI economist, Paul Kupiec, surmises that the Fed borrows funds from the bank reserves that the banking industry holds on deposit at the twelve Fed district banks. Yet, as he points out, he is not aware that the Fed is legally authorized to borrow to fund another government agency such as CFPB.
Yet another disconcerting possibility arises, because of the Fed’s unique power to create bank credit out of “thin air,” a power shared with other central banks around the world. Such credit creation—sometimes euphemistically referred to as “printing money”—is accomplished by buying assets such as Treasury securities on the open market, which monetizes the debt.
The Fed also has the power to literally print money, that is, to issue US currency without limit, creating an automatic profit for itself. This profit is technically referred to as seigniorage, which represents the difference between the face value of currency and its inherent cost of production. For example, a $100 Federal Reserve Note (our US currency) costs only 12.6 cents to produce but has purchasing power of $100, giving the Fed an instant $99.874 profit that could be put to any use of its choice.
Both techniques of “printing money” can generate spendable funds that the Fed could use to support CFPB, or pay dividends and interest to banks—or possibly the missing profit remittances to Treasury. This strategy, however, would certainly result in rapid price inflation and US dollar depreciation by increasing the US money supply. In fact, the first method of printing money by buying Treasury securities is exactly what caused the 2022-24 run-up of price inflation as the US Treasury issued large amounts of covid-related debt and the Fed obliged by creating new bank credit in order to buy this debt in the open market.
Are We There Yet?
While on the Fed’s magic carpet trip, Americans may well raise many questions: how long will the magic carpet trip last, and how does it end? How much will the Fed’s deficit spending ultimately cost taxpayers? How long will it be until the Fed can repay those deferred assets accumulating every year that the Fed misses its profit remittances to Treasury? Do people in high places understand what the Fed is doing? And, if they understand, are they motivated to investigate further in order to take some corrective action?
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
