Elon Musk, the richest man in the world, and a key player in the new US government that will take office on January 20, has fully entered Donald Trump’s fight against the Federal Reserve. For the first time, the founder of Tesla and SpaceX has given his opinion on the US central bank, taking advantage of a campaign in which he is being very critical of federal agencies, due to the enormous expense they entail for the country. “The Federal Reserve is absurdly overcrowded,” Musk said on his social network.Despite his attack, Musk will not be able to use the argument of the Fed’s cost to the American citizen, since the organization is financed in ways that do not cost the public coffers a single cent. In fact, with exceptions, such as 2023, the Fed’s activity generates tens of billions of dollars that are transferred to the US Treasury every year.
The Fed is an organization that can be attacked on several fronts and, in fact, it is common to find criticism of the institution’s work. From the personal benefits that senior officials of the central bank have sometimes obtained by investing in the financial markets, something that for many is immoral, taking into account the power that the Fed has over these same markets, to the responsibility that it may have had in inflation spikes that have punished the American saver, the central bank has had to deal with criticism in the past. However, the latest one launched by Elon Musk, the Trump administration’s new head of government efficiency, does not seem to have a solid basis.
On social network Musk has pointed out that “the Fed is absurdly overcrowded,” a comment that comes at a time of strong criticism by the magnate of the excess spending incurred by different agencies. and federal agencies. Musk has come to the government to reduce fiscal spending by trying to improve the efficiency of public administration, and in recent days he is intensifying the launch of critical messages with some institutions.
Two of the latest messages published by Musk on the social network are a clear example. These are claims that Americans’ taxes are being wasted. “75% of federal office space is vacant, and only 6% of federal jobs work in offices on a regular basis. Taxes are paid to keep the lights on, but no one is home,” Musk posts, and He accompanies it with another message in which he assures that “the federal bureaucracy has become the fourth arm of the Government, and it is unconstitutional.”
The Fed finances the Treasury, not the other way around
Musk’s speech against the Fed does not fit with this reality that the magnate criticizes, for an obvious reason: The Federal Reserve is an organization that is not funded by Americans’ money.since, as the organization itself explains, it is an institution that “is not financed with appropriations from Congress. Its operations are financed mainly by the interests collected on the assets it owns, assets that have been acquired during the Fed’s open market operations,” says the central bank. In addition, it is also financed by “commissions received for services we provide to depository institutions, such as cash movement or fund transfers,” says the Fed.
The reality is that, if the Government wants to get its hands on the Fed in the coming months, it will have to further refine its argument. The reality, whether or not it is true that the Fed is “overloaded with staff,” is that not only does the central bank not cost citizens a cent, but it is quite the opposite, contributing normally, after accounting for all its operating and all kinds of expenses, large sums to the country’s Treasury every year. Between 2014 and 2021, it always generated between 54,900 million and 110,000 million annually to the coffers of the United Statesand it was only in 2023 when it was not able to contribute to the country, due to the losses that the central bank had to assume, of more than 100,000 million dollars that year.
These losses, derived from the depreciation of its asset balance, however, are covered with so-called “deferred assets”, a mechanism that is activated when the Fed has losses and that creates a kind of central bank liability that will have to be paid in the future. The way to do this, as explained by the St. Louis Fed, is that the Fed stops paying the Treasury the amounts that would correspond to it according to its results, until these “deferred assets” reach zero, and then monthly payments are resumed.
The latest Fed decision upsets the new administration
Why has Musk included, in passing, a criticism of the Fed among those he launches towards other organizations that are financed by Americans’ taxes? The Fed’s monetary policy meeting last week may provide some clues. At the December meeting, the Federal Reserve eliminated two interest rate cuts that it had in its forecast sheet for 2025, and now leaves the planned scenario at only two cuts next year, in the first year of the presidency of Trump.
That the Fed cools the prospects for rate cuts has already generated problems in the past with Donald Trump’s government, since the rulers normally prefer that the level of interest rates be as low as possible, and Powell, in 2019, cooled the rate cut before the elections. Low rates stimulate the economy and, in the face of elections, rulers can use this boost in activity to boast about how well their economic policies work, although in reality, this boost does not necessarily have to do with them, and is related to monetary policy.
Trump’s return to the White House has generated the noise of conflict between Powell and the new Administration and, although the Fed president has avoided making speeches that could create a conflict with the new government, Trump’s references to Powell in The last few years have not been friendly at all. In fact, this Sunday the president-elect of the United States announced that he will have Stephen Miran as director of the Council of Economic Advisers, and Miran is a figure who has openly criticized the monetary policy management that Jerome Powell has carried out in recent years.
We will have to wait and see if Trump and his team, with Musk as the most prominent figure in the new Government, end up trying to intervene in the monetary policy of the Fed, a historically independent body that has always managed to stay away from political interference. But, if the new government wants to do it, it will need to sharpen the arguments to convince.
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