The Fed and ECB are now running huge operating losses PLUS enormous mark to market losses. To wit:
- There is a wide gap/mismatch between paying high short term rates (eg on the Fed's reverse repo) and low returns on their bond portfolios. This is a classic borrow short - lend long problem, exactly the same as the Savings and Loan Crisis of the late 1980s.
- Central banks are holding long term bonds on their balance sheets that are now priced much lower than what they bought them for. The unrealized mark to market losses are in the trillions of dollars/euros.
This article explains things pretty clearly. I wonder how much longer the monetary world will continue to operate as if the Emperor's clothes are real...