Fears are growing that the Fed's continued bond buying is putting it in a situation where it will go bankrupt and need a bailout. As stimulus tab rises for Fed, worries grow it may require a bailout - latimes.com
The issue has not generally beeen raised when talking about interest rates, but the longer the Fed continues to buy bonds to keep rates low, the closer it gets to bankruptcy.
You see, the Fed is buying bonds at low rates. When rates rise, those bonds will be worth less. Every time interest rates rise, all existing bonds go down in value. The Fed has been on such a large buying spree and for so long, that when interest rates do go up, it could make their holdings worth enough less to bankrupt the Fed. It could only see them at a loss.
The Fed already has bought $3.8 trillion in bonds that it continues to hold. They will be worth a lot less as interest rates rise, making for a huge loss to the Fed.
I would think the flip side is that that makes for a conflict for the Fed in deciding about raising interest rates, as they will have to consider their own solvency as well as the benefits to the general economy. Of course, this also makes it all the more urgent for the Fed stop buying more bonds -- and makes what they already have done that much more questionable a tactic to use for so long and so much.