You wrote: Any real losses when held to maturity will be nothing.
So, what do you say about the “Unamortized Premiums on Securities Held Outright” on their balance sheet that is over 317 billion US dollars?
Spoiler alert: All of that amount will need to be amortized by the time maturity happens.
Whenever Janet Yellen (or others) say “liquidity problems” what they are really saying is that there are some insolvency problems. The solvent institutions are always going to be able to have plenty of liquidity because they can sell assets to satisfy any liability/obligation and have sufficient remaining assets to cover their liquid needs.
You wrote: If they really needed the value to go up, all they have to do is lower them again.
My answer: The Fed only directly controls short-term rates. Where these losses I’ve reported have occurred have all been with bonds that are not short-term and most of the losses have been for bonds that are 10+ years until maturity.
IF the Fed were to resume pumping the system with more money as they have done in the past 16 years where their balance sheet is now 10 times what it was back in 2006 then it would cause even more inflation and technically be called hyperinflation.
https://www.federalreserve.gov/boarddocs/rptcongress/annual06/sec6/c3.htm
https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1
It’s why they have no choice now but to try to KILL Inflation. They know if they fail on this then the USA Central Bank of 2022-2023 will be like the German Central Bank of 1922-1923.
Do you understand how bonds work? If you buy a bond with a 2% yield with a 5 year maturity and then the yields for similar bonds go to 5%, the value to buy in that market drops at that time. However, if you hold to maturity and it doesn’t default, you still get your 2% yield you bought. Bond funds don’t quite track this because they are constantly buying and selling bonds, which locks in the loss/gain. At any rate, $317B is nothing in an economy that will do $25T this year in GDP.