You are a free subscriber to Me and the Money Printer. To upgrade to paid and receive the daily Capital Wave Report - which features our Red-Green market signals, subscribe here. Money Printer Went BRRR... And Other Things You MissedI read the Federal Reserve's consolidated financial statements so you don't have to...
Dear Fellow Traveler, We start the year with the undefeated Baltimore Orioles beating Minnesota in the quietest baseball game, I hope all year. I returned home last night to do what any rational person would. I watched the Purdue game while reading the Federal Reserve’s combined financial statements. Yes… The combined report and the New York Fed report. I’m clearly going through something. The Fed doesn’t seem to think anyone will ever open these documents. The prose is dense, the footnotes are recursive, and the accounting framework is one they invented for themselves (seriously… it’s not GAAP). Maybe some central bankers’ parents hang the annual report on the fridge, but I doubt it. The Fed is remarkably honest in these pages. It’s all here… the “financial” losses, the unrealized holes, the trillion-dollar purchase volumes during supposed “tightening.” It’s all here… so let’s talk about the five things everyone should know about our boo, Jerome, and the Federal Reserve’s performance in 2025. In Plain Sight No. 1: $1 Trillion in Bonds While “Tightening”The definition of “Quantitative tightening” is that the Fed would shrink its balance sheet by letting bonds mature without replacing them. They would “stop buying.” As in they drain the pandemic liquidity. That was largely the narrative since mid-2022. Even though I knew better (that monetary policy was expanding), I have been lectured on this topic by some academics and Federal Reserve “experts” for years… Well… the numbers are here for 2025. The Fed conducted over $1 trillion in Treasury purchases (largely reinvestments and rollovers), even as the balance sheet declined on net. They were supposed to be shrinking the balance sheet. Maturities reduced the net number, so the portfolio did shrink on paper. But the gross volume tells you the Fed is constantly rolling, constantly buying, constantly active in the market. This matters. From the market’s perspective, ongoing reinvestment and purchases still represent an active Fed presence. The bond market still sees purchasing… it still sees maintenance. It still sees centralized planning and the whatever-it-takes posture that has defined policy in recent years. By late 2025, policy shifted toward slowing runoff, effectively signaling a move away from QT. In Plain Sight No. 2: The Operating Losses Weren’t SmallNow, for most of its history, the Fed turned a profit. It earned interest on its bond portfolio, covered expenses, and remitted the excess to the Treasury… typically $50 to $100 billion a year. That acted as a dividend from the money printer to the taxpayer. But that machine has broken. The combined Reserve Banks posted operating losses of $77.6 billion in 2024 and $18.7 billion in 2025. Roughly $96 billion in two years. The reason is simple. During the pandemic, the Fed bought trillions in bonds at 1% and 2%. Then it raised short-term rates to fight inflation. Now it pays banks more on their reserves than it earns on its own bonds. Income flows in at pandemic yields. Expenses flow out at current rates. The math doesn’t work at current rate levels... In Plain Sight No. 3: The $243 Billion IOU the Fed Wrote to ItselfWhen the Fed loses money, it does not go to Congress for a bailout. It doesn’t need to sell assets to cover losses and typically holds securities to maturity. It just creates a line item called a “deferred asset,” and it just… well… keeps going. That deferred asset sat at $243.5 billion as of December 31, 2025. It represents the cumulative shortfall since the Fed stopped remitting money to the Treasury. Before it can send another dollar, it needs to earn back that entire amount. There is no fixed repayment schedule. Future earnings must offset it before remittances resume. This figure just sits there. If a commercial bank posted a $243 billion “deferred asset” representing years of accumulated losses with no repayment plan, the stock would collapse... But the Fed is the institution that defines what money is. And when you define what money is, the rules are… different. That must be awesome… In Plain Sight No. 4: Always Check the FootnotesThe Federal Reserve does not use Generally Accepted Accounting Principles. It uses its own rulebook called the Financial Accounting Manual, written by the Board of Governors. KPMG audits the statements and notes they are prepared under “a comprehensive basis of accounting other than U.S. generally accepted accounting principles.” Ha. If KPMG okayed this sort of accounting elsewhere, though, they’d face serious scrutiny. The Fed carries all SOMA securities at amortized cost, not fair value. It’s not mark-to-market, and there are no unrealized losses on the income statement. You have to dig into Note 5 to find the real number. Fair value of the domestic SOMA portfolio: $5.626 trillion. Amortized cost: $6.470 trillion. Yeah… that’s real. Based on fair value disclosures in the footnotes, that’s about $844 billion in unrealized losses. You just have to know where to look… Unrealized losses on Treasuries alone account for $535 billion. The MBS portfolio is another $309 billion underwater. When Silicon Valley Bank collapsed, its unrealized bond losses were about $17 billion. The Fed is sitting on 50 times that. The Fed never has to sell, cannot have a bank run, and creates the currency in which its liabilities are denominated. So the comparison is not apples-to-apples. It’s apples to “an apple martini on the moon.” The number is real, and it’s rarely discussed outside specialist circles. But who seriously gives a shit?
It’s a beautiful day outside… In Plain Sight No. 5: The Fed Paid Banks $148 BillionCongratulations to JPMorgan on its “Freedom Dividend…” This is the only thing that actually makes me a little upset, because it reminds me of why so many of my friends went into investment banking, and I do this for a living… Under the current framework, interest payments flow primarily to the banking system. In 2025, the Fed paid $147.7 billion in interest to depository institutions through the Interest on Reserve Balances program. That’s the tool it uses to keep the federal funds rate in its target range. In the same year, net earnings remitted to the Treasury were negative $21.2 billion… meaning the deferred asset grew instead. In the current rate environment, interest payments to banks have exceeded the Fed’s net income, eliminating remittances to the Treasury. The Fed earns interest on its portfolio, pays most of it to the banking system, and covers its expenses. Instead of remitting earnings to the Treasury, losses increased the deferred asset. No “freedom dividend” for you, America. This is just the consequence of how the Fed chose to implement policy during and after the pandemic. The distributional effect is real, large, and worth understanding. But who am I kidding… most Americans are more interested in TikTok dances than how the money printer works… What This All Means I’ll remind you that every figure came from audited financial statements on the Fed’s own website. They’re not doing anything conspiratorial. When you learn forensic accounting by accident, you can pretty much find anything… because it’s always buried in the footnotes. KPMG signed the opinion this month… The documents are free to download. As I always say, there’s a big difference between something being public and something being understood. The money printer went BRRR. Everyone knows that part. What fewer people understand is what happened next… they just decided to make it look as boring as possible when the dust settled... Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.
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