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The Fed Can Never Go Bankrupt - Unlimited Losses With No Effect On Capital

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http://www.cnbc.com/id/41198789

Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

The significant shift was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on Jan. 6.

But the new rules have slowly begun to catch the attention of market analysts. Many are at once surprised that the Fed can set its own guidelines, and also relieved that the remote but dangerous possibility that the world's most powerful central bank might need to ask the U.S. Treasury or its member banks for money is now more likely to be averted.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."

The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability.

This enhances transparency by providing clearer, more frequent, snapshots of the central bank's finances, analysts say. The bonus: the number can now turn negative without affecting the central bank's underlying financial condition.

"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

"The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly," Smedley and his colleague Priya Misra wrote in a research note.

Pure genius, I think it's fair to assume the Fed is sitting on some big losses so they've simply changed the rules.

Anyone agree that the Fed can now have unlimited losses that's how I'm reading this? Just imagine if you could run a business where losses had no affect on your ability to trade.

They are doing everything they can to keep this ponzi scheme going. Reality it seems no longer applies.

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Keynes said a nation state can never become bankrupt as it has the sovereign power to print more money. So long as its GDP matches its print run everything will be fine and dandy. If its GDP falls behind it will go Zimbabwe.

The US are good at turning things around.

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To cut a massively massively long story short, the US Government should forcibly buy take over the Fed. To describe it as an abomination is an understatement.

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Keynes said a nation state can never become bankrupt as it has the sovereign power to print more money. So long as its GDP matches its print run everything will be fine and dandy. If its GDP falls behind it will go Zimbabwe.

The US are good at turning things around.

Keynes was a socialist swine whose weapon of choice was the money printer. If he was alive today he would see Zimbabwe as the pinnacle of human achievement/

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Keynes was a socialist swine whose weapon of choice was the money printer. If he was alive today he would see Zimbabwe as the pinnacle of human achievement/

Have you ever read Keynes? Probably one of our most brilliant economic thinkers. Don't confuse the clusterf*ck "no more boom and bust" policies of Gordon Brown and co with "keynesianism."

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The fed can never go bankrupt because it can do an accounting entry debit cash, credit capital whenever it wants. The only thing that limits it somewhat is the political appetite for inflation. In 2010 for America, even inflation is hardly a limitation. The Fed has printed somethig like 2 trillion dollars, and inflation in the US is running well below target at 0.8%.. at a 30 year low.

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"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible."

If only someone would issue me with a negative liability credit card, the fun I could have :rolleyes:

They just keep rewriting the rules to suit the never ending clusterfook.

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http://www.cnbc.com/id/41198789

Pure genius, I think it's fair to assume the Fed is sitting on some big losses so they've simply changed the rules.

Anyone agree that the Fed can now have unlimited losses that's how I'm reading this? Just imagine if you could run a business where losses had no affect on your ability to trade.

They are doing everything they can to keep this ponzi scheme going. Reality it seems no longer applies.

Nothing really change here really. It is still down to Fed's ability to print money to make up those losses.

Say it purchases $100bn of RMBS from Bank 1, then it owes Bank 1 $100bn. If the RMBS goes bad, it still

owes bank 1 $100bn but now the $100bn is backed by nothing (i.e. no future repayment) and it is an extra $100bn

in the system. Do this too often and there will be a lot of Fed liabilities in the system (err. what normal people called US Dollar)

and the result is inflation (and perhaps lots of it).

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So what if there is a NWO, wiv a "new world currency"? :unsure:

Isn't it time for some kind of a "re-set" anyhow? :blink:

Why would this be so bad?

Onwards and upwards

Best foot forward .......... :D

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So what if there is a NWO, wiv a "new world currency"? :unsure:

Isn't it time for some kind of a "re-set" anyhow? :blink:

Why would this be so bad?

Onwards and upwards

Best foot forward .......... :D

depends how it is run, in that a NWO if run like say European countries may not be bad.... however controling the expectations and demands of 6.7bn people is not one of those things which can be easily done in lowest common denominator societies (democracies). Thus a NWO will probably resemble a worse version of East Germany so that the big wigs at the stop can maintain order.

Tianamen square type massacres will occur regularly but we won't hear about it on the news.

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Duh, wot abowt a NWO based on American principles of democracy ... :unsure:

AND the new world order basically an extension of the "American DREAM" :blink:

ALL WE NEED is a "New world currency"

Cos we all know the U.S dollar is TOAST ........ innit ! eheheehheh :o

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To cut a massively massively long story short, the US Government should forcibly buy take over the Fed. To describe it as an abomination is an understatement.

It sounds like their latest rule change could literally wipe out the US with the stroke of a pen - rather than the relatively creeping and slow destruction upto date.

Even more Enronian than before. It's likely in response to recent more credible and outspoken resistance to it in the US.

Edited by billybong

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  • 276 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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