Felix Nikolas Prehn On Federal Borrowing And The Fed’s Ledger

Washington took in $4.85 trillion and spent $6.81 trillion from October 2025 through August 2026, against $3.09 trillion and $4.16 trillion in the same 11 months of fiscal 2019.

The federal fiscal year runs from October to September, so the earlier span ran from October 2018 through August 2019. August 2026 is the latest month in Treasury’s published Monthly Treasury Statement, and September, which completes the year, is not yet out.

A second ledger, kept by the Federal Reserve, shows part of what came after the shortfalls. Both feed into a paper posted on Zenodo, “The Hidden Regressive Tax,” by Felix Nikolas Prehn, economist and former investment banker. The preprint went online 25 September 2026.

The summary table and its three totals

The summary table of the Monthly Treasury Statement prints three totals for every period: receipts, outlays and the deficit, which is what remains when receipts fall short of outlays. For the 11 months of fiscal 2019, the deficit was $1.07 trillion. For the same months of fiscal 2026, it was $1.97 trillion.

The last two complete years on Treasury’s books show the same pattern, full year against full year. In fiscal 2019, receipts were $3.46 trillion, outlays were $4.45 trillion and the deficit was $0.98 trillion. In fiscal 2025, receipts were $5.23 trillion, outlays were $7.01 trillion and the deficit was $1.78 trillion.

Receipts were larger in 2026 than in 2019, and so were outlays, and the deficit line sits between them. The summary stops there. It records how large the gap was in each period and not how it was covered. Treasury’s totals are also in current dollars, unadjusted for price changes, so they show the size of each gap in the money of its own year.

Contents of the Fed’s ledger

The Federal Reserve publishes a weekly report, known as the H.4.1, that lists the Treasury securities it holds outright, meaning the bills, notes and bonds it owns. The reading for 28 August 2019, was $2.10 trillion. By 7 October 2026, the Fed held $4.57 trillion.

The same report gives the Fed’s total assets, which include everything on its balance sheet. The week average was $3.76 trillion in the release of 29 August 2019, and $6.75 trillion in the release of 8 October 2026.

The Fed reports a Wednesday level, and Treasury reports by month. The two readings mark then and now and do not say how much of any year’s gap the Fed bought.

The same report splits the holdings by maturity. Treasury bills, the shortest-dated securities, account for $0.56 trillion of the 7 October total. In the same report’s week-average column, the Fed’s Treasury holdings were up $368.3 billion from a year earlier, and its holdings of bills were up $365.3 billion over the same year, so nearly all of the year’s increase was in bills.

The paper’s distinction

Prehn’s paper treats money creation as two different processes. The first is the Federal Reserve’s purchase of Treasury and mortgage-backed securities from the financial system, paid for with newly created bank reserves, the money banks hold at the Fed. The paper states this raised the monetary base, which is currency plus reserves, from $0.8 trillion in August 2008 to a peak of $6.4 trillion in December 2021.

The Fed’s balance sheet followed. In the paper’s introduction, the Fed held $6.7 trillion of assets in September 2026, down from a peak of $9.0 trillion in 2022.

The second process is the growth of bank deposits, whether through bank lending or, in the paper’s words, “through government spending financed by central bank purchases.” This is what raised M2, the broad measure of money held in cash, checking and savings.

The two moved together in 2020 and 2021, Prehn’s paper states. The government borrowed to pay for its spending and the central bank took on most of that new debt. The proceeds landed in private deposits rather than staying with the government, and M2 rose 41 per cent in 25 months.

Treasury’s table shows the gap. The Fed’s report shows how much Treasury debt sits on the central bank’s books, a question separate from how much was issued. When the central bank is the buyer, the paper states, new deposits appear in the banking system, which is how M2 enters a story that begins with Treasury borrowing. Together the two ledgers describe a financing chain, though neither says by itself how any single year’s deficit was covered.

The household view

For a taxpayer, receipts are the tax side of the ledger, and April shows it most plainly. Filing season pushes what Treasury collects above what it spends, and Treasury printed a surplus for April in both years: $214.3 billion in 2019 and $215.0 billion in 2026.

For a saver, the question is what those deposit balances later bought. The paper takes it up with price data, and neither Treasury’s table nor the Fed’s report answers it.

Treasury prints the receipts and the outlays, and the Fed prints the holdings. Neither agency prints the deposits that the paper puts at the end of the chain, and the paper is where the three meet.

About Felix Nikolas Prehn

Felix Nikolas Prehn, also known as Nikolas Prehn, is an economist and former investment banker, born in Germany. He is a tech founder: he co-founded TradeVision.io (Acetrader Inc), founded Winston Daily and The Prehn Institute, and publishes weekly on YouTube. He is also a painter and sculptor and a public advocate for animal rescue.

About The Prehn Institute

The Prehn Institute is an independent research institution founded by Felix Nikolas Prehn. He is a tech founder: he co-founded TradeVision.io (Acetrader Inc), founded Winston Daily and The Prehn Institute, and publishes weekly on YouTube. It publishes research on the financial markets and provides instruction in professional market practice.