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Is The Federal Reserve Insolvent?
With Geoffrey Batt
The ongoing troubles at the GSEs are no secret: it is public knowledge that Fannie had a 5.38% delinquency rate at December, while Freddie just passed the 4% threshold in January; both continue to rise rapidly each month. The fact that the mortgage-bond spread has just hit a record tight is merely an ongoing artifact of the Fed's endless meddling in the mortgage market, with the sole purpose of keeping rates artificially low, and preventing banks from being forced to take massive writedowns on their entire loan book. This is all well known. What, however, seems to have escaped public attention is what the impact of these delinquencies is on the one largest holder of Mortgage Backed Securities, the Federal Reserve. What also seems to have escaped the public is that the Fed is now the world's largest bank, with total assets near $2.3 trillion. We provide a weekly update of the Fed's balance sheet and while we briefly note the liability side, our, and everyone else's, attention, is traditionally focused on the asset side. Yet a more detailed look at the liability side reveals something very troubling, specifically that the Fed's capital, i.e. equity buffer, which as of most recently was $53.3 billion (a comparable metric for plain vanilla banks is their equity buffer, or Tier 1 Capital, or however the FASB wants to define it on any given day when it is covering up massive capital shortfalls) is in fact negligible and could well be substantially negative, if the Fed were to account for the rapidly rising level of delinquencies in its one largest asset holdings: the $1.027 trillion in settled MBS. And while there is no possibility of a run on the Fed, the reality is that the Fed now likely runs with a negative real capital balance, meaning that the US Federal Reserve is now essentially insolvent.
First, we present the Fed's assets broken down by key segments. The chart below shows the most recently disclosed asset holdings as per the H.4.1 statement. Of the $2.3 trillion in assets, the vast majority, or $1 trillion is held in MBS. As pointed out previously, this is only the settled amount - in reality the Fed has already purchased $1.22 trillion in MBS, which will settle over time. In practice, this merely means that the potential for asset impairment at the Fed is even greater by about 20%.The chart also shows what happens to MBS holdings if haircuts of 5%, 10% and 15% are applied.
Like any balance sheet, where there are assets, there are liabilities, and some version of capital/equity. The Fed's liabilities are two principal components: currency in circulation, which has been at about $900 billion for an extended period of time, and the much more relevant recently line item called "Bank Deposits", which has been popularized as Reserves with Federal Reserve Banks (or excess reserves). The Reserve line has increased from essentially nothing to nearly $1.3 trillion in the span of a few months. Furthermore, as more and more MBS purchased are settled, the excess reserve line will soon reach at least $1.6 trillion, if not more, if indeed Q.E. 2 is launched at some point in the future. The persistent discussions of potential inflation center precisely on the interplay between the green and blue blocks in the chart below: as long as the Currency in Circulation is flat, and Bank Deposits keep rising, the probability of inflation is slim to none. In essence, excess reserves exist only due to the Taylor rule implied negative Fed Funds rate. Should there be a material shift from green to blue, or from excess reserves to currency in circulation, that is when the hyperinflationary threat becomes all too real, as suddenly far too much money will chase a fixed amount of assets. This is also where the discussion about all the various mechanisms that the Fed has at its disposal to moderate tightening comes into play, whether it involves selling of assets, increase of the rate on reserves, or some combination inbetween (we point readers to yesterday's paper from the Minneapolis Fed which discusses these options, and the caveats associated with each). While the asset reallocation debate is very interesting, it is not the topic of this discussion.
The one item on the balance sheet that is often ignored, is the Fed's "Equity", or as it is defined, "Capital." As previously pointed out, this line item is currently $53.3 billion. It is shown graphically in the leftmost column of the chart below, which depicts actual Fed liabilities. Where the interesting part comes in, is when one analyzes what happens to the Fed's capital when the abovementioned MBS haircuts are applied.
A 5% realized haircut on MBS alone would result in a complete elimination of the Fed's capital balance. Applying a 10% or even 15% haircut, results in a capital deficiency of $50 billion and $100 billion respectively. This deficiency will grow as more and more MBS are settled, and as the serious delinquency rate on MBS keeps increasing (no danger in this moderating any time soon).
Now in an environment, such as the one we live in today, when mark-to-myth is the new normal, and when banks are encouraged to come up with creative ways to indicate that their Residential and Commercial Loan portfolios are worth par (despite recent disclosures by the FDIC), to assume that the Fed would do something that lowly depositor banks are told not to do, would be folly. Yet, for those who prefer to live away from Never Never land, and brave this thing called reality, just what will happen if and when the Fed finally does disclose that it is, for all intents and purposes, insolvent?
The pragmatics among you will say: this is irrelevant, the Fed can just print more money and fill in any capital hole. Well, yes and no. As an increase in cash would have to be offset by a comparable increase in some asset, it is not that simple. For a refined analysis of what would happen in that moment of clarity when the world realizes the world's biggest bank is broke, we turn to a presentation by Chris Sims, given before Princeton University, titled "Fiscal/Monetary Coordination When The Anchor Cable Has Snapped." We encourage all readers to read this powerpoint cover to cover, as it discusses precisely the issues were are faced with today: namely a monetary policy that has run amok, seignorage, exploding excess reserves, the impact of these on "power money", and, in general, a Fed balance sheet that is increasingly reminiscent of a drunk, rapid and schizophrenic bull in a China store.
Among other relevant things we note that as the author points-out that "Interest bearing deposits at the Fed do not (yet) count against the Federal debt ceiling" and "if substantial interest is paid on reserves, they could constitute a major leak in the US system for legislative control of debt creation or they are not backed by the full faith and credit of the US government, which has implications for inflation control" - the consequences here are material - with a $1 trillion plus in vacuum interest-collecting paper which in all other world would be counted toward the debt ceiling, the US debt subject to limit would increase from the $12.5 trillion currently to about $13.7 trillion. Add in $6 trillion from the GSEs and America is already at the dreaded $20 trillion threshold. And furthermore, what happens to the interest payments by the Fed should rates go up to 100 bps, 200 bps? On $1.6 trillion in excess reserves this is a material amount that would reinforce inflation in a circular loop, further justifying why the Fed is mortally worried about a rise in rates.
As for the topic at hand, we turn to pp 23-24 of the presentation:
- Central bank operations generate fluctuating levels of net earnings (seigniorage), most of which are turned over to the Treasury as revenue
- Central bank balance sheets sometimes go into the red. The Treasury may then recapitalize it by creating, and giving to the central bank, new government debt
- [The Fed's] Independence meant that the legislature and the Treasury did not complain [much] about seignorage fluctuations or about the effect of interest rate changes on the Treasury's interest expense
- Fed can always "print money" to pay its bills.
- There is no possibility of a run on the Fed, since its liabilities make no conversion promise.
- A commitment to a path for inflation or the price level makes the balance sheet matter.
- Without Treasury backing, the Fed must rely on seigniorage to raise revenues, and that can conflict with inflation-control goals.
So here is the crux of the issue: the only way to deal with a mark-to-market of the Fed currently is to embrace monetization. It is no longer a question of semantics, of who promised what: it is the only mechanical way by which the Fed can dig itself out of a capital deficiency. With GSE delinquencies exploding, and with the Fed (and Congress) singlehandedly facilitating imprudent lender policy by allowing ever more borrowers to become deliquent without consequences, the MBS delinquency rate will likely hit 10% over the next 6-12 months. At that moment, someone will ask the Fed: "what is the true basis of your capital account?" And when the Fed is forced to justify a valid response, is when monetizaton will begin.
Since the market deals in expectation absolutes, all it would take for rates to breach the inflection point black swan and commence going up, is the mere possibility of open monetization.
What we hope to show with this exercise is that no course of action, even the one currently employed by the Fed, can continue in perpetuity: you can't have infinitely low housing rates in an environment of exploding delinquencies, as even more MBS are onboarded on the taxpayer's balance sheet. The reality is that inflationary conerns will come to a fore, and have a material impact on rates, the second all these speculations are voiced in a more reputable arena. At that point the game will be up; the Fed's attempt to continue the status quo will be over, and the relentless rise up in rates will begin, culminating with the long-awaited Minsky moment.
As for the timing of this development? We will join the Bob Janjuah camp on this one. While few have the guts to take the money printer head on, doing so early is certainly suicidal. Yet with each passing day, all those who are fully aware that the Fed's course is one of self-destruction, grow bolder, until finally one day a new class of investors - the Fed vigilantes will emerge, looking for cheap opportunities to make a killing (think ABX) on the other side of the "Fed trade", which ultimately will lead to a systemic catharsis of unprecedented proportions.
At that point neither gold, nor lead will be in any way useful. Beta and gamma radiation will make sure of that.
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What ever....Rally on
Only a year ago, Chinese college students were laughing at Geithner.
Today all of ZH laughs at the American Empire's monetary "authorities". (Ok, excluding the few betting on deflation.)
Next year will the American people arrest those same "authorities"?
yeh we all laugh, but it really isn't that funny is it? what we are talking about here is the destruction of the american way of life if you think about it. the writing is on the wall. the question is not if, but when.
The tentacles of the vampire squid have been destroying the way of life for the American people at least back as far as the Clinton-era (thanks, Robbie Rubin).
The destruction of the Goldman Sachs' execs' way of life doesn't seem like much of a loss in comparison.
Not to put too fine a point on it, but hasn't the Fed *always* been insolvent?
By the very nature of our monetary system it seems so... If 90 years ago every peice of paper issued by the Fed had been callable, and called in, the liabilities would have always outweighed the assets. The essence of the Fed seems to be an institution that is always technically bankrupt, but never in default.
The issue now seems to be that because they can hold off balance sheet crap indefinetly, the whole system is revealed that 'money' is worth whatever the hell the bankers say it is.
The only problem with this is the rest of the world has to play along, and not start demanding payment in actual, tangible 'things', e.g. machines, raw materials, food, or... (Waiting for GG, Chumba, et. al. to rant here).
I'm thinking the rest of the world will catch on in about one to two years.
I rather suspect that the rest of the world has already caught on to the facts of life as they relate to the various aspects of dollar trapping. A most insidious version of MAD to be sure. Still, all will feel compelled to play along so long as the fed will gladly accept any and all trash from whatever source to keep the game going and by accepting this state of affairs the world remains along for the ride. After all, everyone else expects that the fed and by extension the citizens of the USofA will end up with all the trash. Until the fed has accumulated all of the trash that can be vacuumed up everyone else is going to play along and trade around the ebbs and flows until, as this article suggests an inflection point is broached. However, I am coming around to the idea that it will be difficult to garner enough opposing positions to the fed simply because those that make these markets (the member institutions of the various central banks) would simply refuse to play along and close the windows so to speak as the talking heads will revert back to the newly worn track of the root of all evil to those that do God's work is to be found in those that dare to speculate in financial markets. I have been saying for some months now that it will be the trade in tangibles and not their paper representations that will most likely prove to be the catalyst, along with the realization that everyone cannot devalue to zero while relying on exports at the same time.
elegant proof of their intention to collapse the dollar... an implosion, from within, not from external factors but the purposeful acqusition of over leveraged assets that will bring the collapse.
meanwhile, the dollar rallies and gold drops. smells like a rat...
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Question : is the fed insolvent?
Answer : false, black bears are best
Well, that's debatable. There are basically two schools of thought...
I agree with you and while chat with my friends talking about it.
yeah...I HOPE IT IS PULVERIZED LIKE THE 911 BUILDINGS. That's how much I care about this ridiculous system that has failed us for centuries.
Insolvent?Oh yes.
How can a printing press be insolvent?
it cant, this entire post is retarded
Of course a printing press can be insolvent! Look at Zimbabwe. They can't even buy the paper anymore to print their worthless dollars on. Just don't say that it can't happen here!
^^ This.
If you are asserting that hyperinflation shall come to pass, then what you are really saying is one of the following:
1. Collapse of civil society. SS retirees and unemployed can't afford $1500 loaves of bread. OR
2. Revolution - hang the bankers then the politicians. OR
3. WWIII.
Which outcome is most likely?
All
They're not necessarily mutually exclusive.
The banksters behind the Fed, and who own and run Washington, will push us deeper into war, giving them increased martial law powers. Howard Zinn well illustrated this tendency in his excellent history. Expect another 9/11 false flag type maneuver soon, because they will do anything and everything to keep their grip on power.
Revolutionaries will be called/branded as terrorists, and shot. There is little chance of a real revolution working, we are already too far down the slippery slope. The best we can do is keep aside, keep a low profile, and try to be a constructive part of what is left after WW3, because just like Hitler, absolute defeat is the only thing that will stop them.
There will be a currency crisis followed by 2-3 months of fairly intense chaos, then the 'reset' button will be pushed.
yes, but watch their smug smiles disappear as they realise the reset button isnt working
The hard part is the 25% interest rates that come with the new currency.
I think you are being too pessimistic. Many things can/will stop the banksters. Among them...
1) China says enough,
2) rising commodity prices (energy, food) cause American workers to say enough (can't afford to drive to work),
3) foolish wars cause American troops to say enough,
4) nobody in America has money to pay taxes (we know GS doesn't pay),
5) the thieves decide to get out of the country while they still can
I don't know which one it will be, but I'm guessing China.
3) foolish wars cause American troops to say enough,
Actually, the crisis within the ranks of the armed forces will come to pass when the issue of what constitutes a "lawful vs an unlawful order" under the UCMJ gets sorted out. I can say that a little appreciated state of affairs outside the ranks is the ongoing discussion within the ranks as to what actually constitutes lawful civil authority and the required actions under law when that authority has been deemed to be compromised rendering the orders from that authority unlawful. The wars of nonsense are simply sauce for this larger goose.
In Rome, it was the Praetorian Guard that underwrote political power. If an aspiring Emperor didn't have the Guard under his wing, he had nothing.
Nothing has changed in the modern era, other than the pagan rituals have become less visible (but no less active) and orgies have gone electronic.
Classic CD. I suspect that we are wondering who will pen this era's version of Marcus Annaeus Lucanus's classic on the civil war between Julius Caesar & Pompey. After all, in the post Vietnam era the whole of the American military has been imbued with the notion of being guardians of the constitutionally premised republic rather than the duty focus of the only force permitted in Rome, the Praetorian Guard. A rather different twist on this classic reference.
A more recent example can be drawn from our own national experience with the division of the Army in 1861 as officers, both commissioned and non commissioned along with the veterans were called upon to make a determination as to where their sense of duty was rooted. In this I would suggest that our civil war addressed some of the failures present in our nations founding, however it singularly failed to address this conflicted sense of duty within the ranks.
I would also suggest that the present era has taken the concept of conspicuous consumption, in all its forms to new levels of lewdness. After all, everything from bulimia, mass drug addiction and private/public debt to income levels far in excess of 100% are socially pervasive conditions and no longer simply limited to the upper governing and leading crusts of society.
or
6) States start to break away from the union as the only way to regain genuine austerity and order
Can't see the Pentagon allowing that.
And if we read our history, we know that Hitler was, in fact, defeated.
Just like these tweakers will be.
I am Chumbawamba.
You lost me at "9/11 false flag."
Not at all.
I love how you keep comparing the most powerful country in the world to a third world african "country". Go ahead, short the whole market and buy "gold bitches!" according to the economist 47 trillion dollars was destroyed during 2008 through deflation and loss of equity capital. We have not even come close to monetizing that amount yet.
Take two people with a predisposition to drug addiction. One is wealthy, the other is of moderate income. But one thing they share in common: they LOVE cocaine.
Give each an endless supply of cocaine. Let them snort as much as they want. Whenever they ask for some, give them some.
Which one fails first? Which one fails second?
Moral: the bigger they are, the harder they fall.
I am Chumbawamba.
from wiki: "The publication belongs to The Economist Group, half of which is owned by the Financial Times, a subsidiary of Pearson PLC. A group of independent shareholders, including many members of the staff and the Rothschild banking family of England,[8] owns the rest" I like the economist too, but you really should factor in who they are considering the family's past (and present) managing of the world.
Your 3rd world African country, used to be one of the bread-baskets of Africa...until corruption raped it...couldn't happen here in the usa...our corruption levels are so low,low,low...not here in america...
Exactly.
The Fed cannot be insolvent. All it has to do is PRINT MONEY.
What is it people don’t understand about printing money.
The FED might have a PR problem. But it is definitely NOT INSOLVENT.
The USA is insolvent. But that’s another matter.
Ok, but what if the value of those money being printed drops faster than the Fed prints them? Print faster?
It can be technically insolvent without being practically insolvent.
Also, Anon's post above is retarded.
+1
Anonymous post above correct, an institute that creates capital out of nothing cannot go bankrupt. That is why they have absorbed all of the bad debt on their books. As the capital is destroyed due to default, they will create more just as fast. I know nobody wants to hear it, but these guys are in charge of the situation.
that's why there's a difference between being 'bankrupt' and 'insolvent'. money printed by the Fed represent growth on the 'liabilities' side of its balance sheet. now, any bank that would try to resolve its debt problem with adding more liabilities on its balance would go bankrupt - the Fed will not, but it will still be insolvent and the moment markets realize that, Fed's liabilities will significantly drop in value. now, look at a dollar banknote and read whose liabilities are those banknotes?
How can a printing press be insolvent?
In chess the king can't be taken, but it can be cornered and then trapped.
All games end.
I would also add that you assume that everyone will continue to believe that a dollar is worth something.... full faith, no?
How powerful is a printing press if no one wants those dollars? What happens when dollars aren't worth working for?
If printing presses were all powerful, methinks fiat currencies would have a better track record historically.
It's like this. When people have money you can counterfeit it and pretend that the savers are investing in something and earn the interest THEY would have gotten. When there's no savings then it become blatantly apparent that you are counterfeiting. You can use this tool to extract equity from the country at a nearly infinite rate. Once that equity is gone it's game over.
Exactly. You are the only one that makes sense. Ive been hearing the same song and dance about Japan. You know what? They are still around and still printing money. Wake me up when the credit bomb explodes. This is worse than watching a Masterpiece Theater marathon... ZZZZZZ ZZZZZZ ZZZZZZ. More boring than watching flies have fuck. Come on Uncle Ben, Im on your side. Line my wallet with some more Cabbage
"Insolvent" in this case means that they are unable to remove all the inflation they have created from the system. In order to prevent catastrophic inflation, a central bank must have assets on its books that can be sold to remove some of that printed money from the system. Since they paid face value for worthless paper that no-one wants, there is no longer any way to remove that excess liquidity.
At this point, the only thing that can possibly be done is for the FedGov to step in and start selling assets (national parks, whatever gold they have, etc) and destroy the proceeds under Fed supervision. This seems unlikely to happen, and even if it did, they probably couldn't raise enough to cover all of their liabilities.
Thank you. "unable to remove all the inflation they have created from the system" this is the problem at hand.
The Chinese are interested in Yosemite but they will settle for Kings Canyon as long as they can clear cut it.
I can't decide what I fear more - the truth never coming out or the truth coming out.
"I can't decide what I fear more - the truth never coming out or the truth coming out"
Amen +1000
Audit the FED? Be careful what you wish for.
Fuck yeah, audit it.
Rip the bandaid off, pulling slowly just extends the pain.
Is that someone going to be the Chinese, since they hold so many dollars as reserves? Seems like they would have the most to lose from a full-bore monetization.
Old news. Same discussion.
The Zimbabweization of the Fed was long ago complete.
Hmmm .. though that this was something intelligent. Obviously not, the Fed have more creative accountants than GS in handling balance sheet issues and off-balance sheet issues. The latter being the single most important issue. At the end of the day they can transfer the majority of 'risk' assets through to a separate Trust and you wouldn't know any different. Even if you did so what?
They are independent and unauditable ... even if any bill to audit the Fed is passed the president would veto it.
If the audit was so damned important and supported by all and sundry why is it not LAW???
What happens if the Fed siphons off all the toxin to a shell in Cayman Islands? Just ignores it in effect and carries it off the books forever? Since all of this are computer data, can extend and pretend go on into infinity?
Why is it not law!?
Can you really not work that one for yourself?
Interesting but irrelevant to any money making stategy
how about getting a job or going to work.
I think the word is "strategery", Einstein.
The more the plans fail, the more the planners plan.
http://www.reagan.utexas.edu/archives/reference/timechoosing.html
There is nothing more costly and useless as a Central Bank incapable of generating positive inflation. The Fed can't survive in deflation.
Odds are growing much longer, QUICKLY, that the FED will not survive this. They've got no money and not capital, political or otherwise. The US Government will be forced to foreswear the controversial institution that was never lawful in the first place. The treasury will resume its role as custodian of the national money, and long experiment in fractional reserve banking will come to its conclusion.
This is all highly deflationary. Especially for the value of the "Federal Reserve Note" - which is now a glaringly obvious I O U issued by a corrupt and illegal, and BANKRUPT institution with no money or political capital.
Its 4th and long for the Fed. Either they can double the money supply and jump-start another round of "growth" - or its lights-out. Escalating taxes to fund a police state to preside over a long-run deflationary contraction makes sense only in the mind of delusion.
The future is parabolic increases either hyper-inflation, or a long and drawn out escalation of bankruptcies, foreclosures, lawsuits, Congressional hearings, special prosecutors, and very long and harsh prison sentences for what can only be described as stealing, if not high treason.
"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs"
- Thomas Jefferson
Madcow,
"Escalating taxes to fund a police state to preside over a long-run deflationary contraction makes sense only in the mind of delusion."
Delusion is the normal operational status of beltway bureaucrats, by whom the country is mainly run on a current basis. They never have to interface with constituents. Their only potential critics/constituents are Congress; but I digress. In a fish, or a fishy situation, the rot starts from the head. New York politicians are a good example, but there are plenty more.
Meh.
Control will revert back to the states, where it always belonged.
Support your local sheriff.
Madcow,
"Escalating taxes to fund a police state to preside over a long-run deflationary contraction makes sense only in the mind of delusion."
Delusion is the normal operational status of beltway bureaucrats, by whom the country is mainly run on a current basis. They never have to interface with constituents. Their only potential critics/constituents are Congress; but I digress. In a fish, or a fishy situation, the rot starts from the head. New York politicians are a good example, but there are plenty more.
We heard you the first time.
How much spin and PR will it take to employ the number of mindless idiots that would be required to police it all? They would surly have to shut down the internet and take much greater control of all other media than they already have.
The mere thought of success under those conditions is delusional.
Madcow, I generally would disagree with you, being a raving inflationist for years. But now, unless action is taken as the last of the QE impacts from Q4 09 are filtered into the system over the next 90 days, they might just pull the pin on deflation and blow their own balls off by putting the grenade in their front pocket.
I think they will make an insane move where they have to double or triple down or risk losing 3000 banks in very short order. The FDIC has gone to pilfering from state run pension funds in an attempt to find suckers, er, "investors" for their insolvent banks. The level of depravity at all levels is amazing but in the Fed with all the pinheads who call themselves "academics" you would think that they would have realized in December that the efforts put forth thus far were totally insufficient for the level of the decline. A Fed board which thinks that the economic conditions will be robust by Q4 illustrates a total lack of understanding as to how their own cooperative arrangements with the Legislative and Executive branches of government allowed the monies injected to be evaporated by waste and incompetence almost immediately.
I fear you are correct Cow, they will have to hyperinflate in the end and that will result in a nation with wages and personall assets trailing the rate of inflation and commodity prices by a factor of upwards of 100:1. We are either witnessing a deliberate attempt to kill the Fed for something bigger or the fundamental restructuring of our nation for other purposes, which a sizable majority will object to.
At the first sign of this turboflation, I'm buying the entire State of California (including Pebble Beach and Muir Woods). I'm sure WFC will loan me the dough. When my debt becomes as valuable as a used condom on a Half Moon Bay beach, I'll come out of retirement, go to work at Starbucks for an hour and twenty-two minutes at minimum wage, and pay off the WFC note in full. Maybe I'll sell off Bakersfield to Lennar for some butt-ugly tract housing.
Then I'll declare myself Emperor, send Ahnold back to Austria, and let Charles Manson out of jail just to improve the level of civility in wider society.
major hoot.
Hey, if you sell Bakersfield to lennar, I'LL MOVE!!!
Hell, I think I'll move even if you don't. I hate this town!!!
Oops I forgot to sign-out when I wrote this!!
A man with a plan, now get started on that loan paperwork.
Please note Jefferson never said that.
The word "deflation" was not a word about 1915. Nothing makes you sound like some guy just repeating stuff your read over the internet that you don't know, then repeating stuff you read over the internet that you don't know.
Here, I'll give you some things Jefferson actually did say that convey simular points for next time:
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. The issuing power should be taken from the banks and restored to the government and the people, to whom it belongs. Let the banks exist, but let them bank on treasury notes."
"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."
"The bank mania is one of the most threatening of these imitations. It is raising up a moneyed aristocracy in our country which has already set the government at defiance, and although forced at length to yield a little on this first essay of heir strength, their principles are unyielded and unyielding."
"The question will be asked and ought to be looked at, what is to be the resource if loans cannot be obtained? There is but one, “Carthago delenda est.” Bank paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs. It is the only fund on which they can rely for loans; it is the only resource which can never fail them, and it is an abundant one for every necessary purpose. Treasury bills, bottomed on taxes, bearing or not bearing interest, as may be found necessary, thrown into circulation will take the place of so much gold and silver, which last, when crowded, will find an efflux into other countries, and thus keep the quantum of medium at its salutary level. Let banks continue if they please, but let them discount for cash alone or for treasury notes."
oops
insolvent ,, not yet ,, still about 100 million more folks to squeeze the blood from .
Insolvent with a printing press in the basement? I think not. Morally bankrupt yes, but they'll never run out of virtual clownbux.
Why is this news??? It is well known that the Bernanke Fed has been buying garbage, for years now, like a drunken sailor on shore leave in exchange for formerly gold-plated Treasuries, and printing so-called "money" hand over fist as well, in exchange for what are likely now nearly worthless Treasuries. None of this increase in "money" has yet led in any real sense to an increase in credit, hence the current deflationary environment. Nevertheless, it would be a very good idea to audit the Fed, finally, and end it as well (which would be a likely scenario once the final reckoning is in).
What I find more interesting is that this post coincided with the one about gold, not Euros or other paper currencies, now being solicited for CDS trading, as well as the one about gold shortages in trading accounts. Looks as though the magic rabbit has finally headed for the hills...Happy trails to the ever-cheerful longs...
whats ABX, Barrick?
IS it any wonder they are doing everything in their POWER not to be audited???
Who owns the FED? JP Morgan, Goldman and the rest of the CROOKS! Oh Noooo, there are not any conflicts of interest here.
Has anyone seen Candidate Obama?? This is something that really would have pissed him off.
Don't mistake the man in the office for the candidate. The candidate is just for show. Think of him as the nice furniture under the plastic cover in the room for guests.
I has in essence never been solvent - It is a debt kiting scheme.
Audit of Fed on hold.
http://www.huffingtonpost.com/2010/03/08/fed-audit-bitterly-oppose_n_490...
Not going to happen until Geithner is gone.
Only cunts do shit like this:
"Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing's ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official."
saw that too and was sick about it....
so much for the Obama brand of transparency.
Geithner is a phucking squirrel.
Squirrels collect nuts, not pawn them off DH... Geithner is a squid absent the backbone..
ha, Geithner cuts off the mfing nuts and then puts them in ur soup, absent a backbone???for who, maybe for you or me, but in his book we're expendable or in other words, stfu and eat this delcious soup i've made for you.
Only those who crave access, but have no true interest in reporting the truth, accept those conditions under the delusion of an ability to "report" anything of value.
We all know who said what, exactly, but we can't tell you or we get kicked out of the club.
It's all so maddening.
No doubt pup. Folks checking what remains of their balls to sit around a table with folks who have sold off their balls long ago. The question seems to be is if these officials are actually lawfully in power or not. Sooner or later more folks will begin to openly question the authority of those that rule via super constitutional means. BTW, good to see you...
They are cunts. And this signals something is in the works. Can't wait to hear the pregame spin.
fuck i'm singing with the choir, i'm buying some physical gold and platinum, right?
my other liquid asset is my wine.
Wine is fine.
Can I be your bike mechanic.
you know I was thinking... If the Fed goes bust, the entire US debt could be wiped out, and nobody would say a thing. Because the Fed is PRIVATE, just like Lehman, so all this charade of inflating balance sheet maybe for self-destruction and wiping out the entire debt, and bankrupting the whole world
I had wondered this in the past.
The US doesn't go bankrupt, the Fed does.
The Fed becomes the bad bank.
That is right.
Its like a booster rocket. Once it outlives its usefulness, it is jettisoned.
Maybe the folks from Jekyll Island gave us an escape route - knowing that, one day, it would all end in ruin. A circuit breaker. Sure, the Fed could blow up, but maybe it can be done safely ?
Team ZH kicks ass.
The Federal Reserve Board is an government agency (only the board, not the banks). The important decisions have been made by the board, i.e. the government, so if the Fed blows up it is unlikely that the US government could somehow escape unscathed from this.
The problem is your "money" is part of that private money system. Read the top text on the face of that dollar bill in your pocket:
"Federal Reserve Note"
So spend all your "money" on hard assets that retain value before The Fed goes down. Otherwise you go down with it.
Sounds like taking delivery of gold does'nt it?
Trash the Fed and start over along this approach:
http://www.swarmusa.com/vb4/content.php/184-Freedom-s-Vision-Monetary-Re...
Wonderful thought, but unlikely.
Ben Bernanke is an amalgamation of Nick Leeson, Yasuo Hamanaka, Brian Hunter and Jerome Kerviel. No, he is an abomination of all of the above, as Bernanke is the only one of the Unholy Five not (yet) prosecuted.
Dr. Ben Shalom Bernanke, the Biggest Rogue Trader of All-Time.
On our increasingly freshly printed dollar.
hell, max keiser claims obama is a day trader in regards to the health insurer's are up today the health insurer's are down today. well maybe even drop the health and just say the insurer's are up today cause of me.
He was en fuego today!
did the sun rise today ?
if no one sees a printing press felled in the wood ...
I'm sorry, at some point the environmentalists are going to get upset about the ink on the Treasuries and boycott the Fed.
Isn't the Fed's ultimate strategy, despite what it says about its Repo program and the rest of it, to use its secrecy and audit-free lifestyle simply to conceal any defaults in its MBS holdings? This can be done by holding any and all of them to maturity. Suppose 15% of them fail. How will we know? I surmise that the figure the Fed uses now on its balance sheet is the par value of its purchases, even though that must already be inaccurate (because of delinquencies). If a tree falls in the forest and no one is there...its eems to me that was the Fed's plan all along. It's the ultimate Bad Bank, and if half of the crap they have is worthless, how are we to know? Meanwhile, the cash traded for trash continues to look like real money on normal bank balance sheets. Since the Fed isn't really a bank, it can hold that toxic sludge more or less forever, maybe even long enough for all the loans on its books to be made good by a rising housing market.Is the Fed going to initiate foreclosures?
If that works so well why don't they make it standard procedure?
Treasury needs another trillion? Call Ben.
Fannie and Freddie (or the new one - Bwarny) need to offload a trillion of MBS? Call Ben.
Hell, The Fed can even start buying military aircraft and Girl Scout cookies.
It will be insolvent when the people finally repudiate the worthless dollar.
Winner winner chicken dinner. +100
Looks like I need to go into debt to buy more gold.
That's EXACTLY what you need - and should - do.
I have 11 oz in Gold Eagles. I suppose I could charge up the old credit cards and double that. I have enough silver now. I don't want to dip into savings just yet. This spring I'm going to put in new carpeting, hardwood floors in the kitchen, new living room furniture, a new split rail fence to replace the panel fence I have now, and possibly one of those new-fangled metal roofs. My thinking is that it will all become either too expensive in the future, or nigh near impossible. If it looks like inflation/hyperinflation, I'll run out and spend every penny of savings immediately on things that'll last. I've doubled my tool-set, but I'll triple/quadruple it. Axes? I'll have 4. Hammers? 8. Nails and screws in every size. From hose-clamps to come-alongs, I'll have something. I have a handpump for the well. Maybe I'll buy another one. I don't have a dog, but my neighbors do, so I've already bought dogfood. They'll need it, and be willing to trade for it, I'm thinking.
I'll never run out of toilet paper. Not possible.
Put in 100 lbs of seed potatoes Saturday. About killed me. I have a tiller, but the yard is too small (2 acres) to justify a tractor, so the rows had to be built by hoe.
When I take down the panel fence I'm keeping the lumber to finish a chicken coop and to have something to burn in the fireplace. Really, I've just about planned it out as much as I can. Bought an AR15 and a 12-guage shotgun, to augment my .22, .357, and .38 Special. Let come what may, I'll have an extra pair of reading glasses 30 years from now. I'm really sick and tired of greed in the human equation of government. Time for more fear.
Fuck yes!!!
Max out your Citi, Chase and BofA cards buying physical gold.
When the statement comes asking for a minimum payment of $388.00 write "fuck yourself" you across it with a sharpie and mail it back to the scumbags.
This is deja vu all over again circa the Fall of 1720, just insert many more John Blunt wannabees, light speed computers, blah, blah and blah and the lighting speed of this collapse will be simply astonishing...I sense a shifting wind coming out of the North...
Chumly, you are way to old. lol
I'm beyond old....I'm ancient!
I hate rhetorical questions in titles....
The fed is funding their 4.5% MBS agency portfolio at <.25%. All the fed has to do is stop forwarding their interest payments to the treasury and they can fill in that capital hole pretty quickly. This is old old news.
So are you saying that alchemy doesn't work? There goes my Pb calls.
LOL!! That's one of the wittiest comments I've read in a long time...
+!!
Thanks TD and Geoffrey for this piece....obvious that a lot of work and brains went into it. Your efforts are appreciated and important!
As of today both Fannie and Freddie are prepaying (bondholders) and aquiring bad loans out of the MBS pools. I think there is very little collateral in the Fed's hands that is more than 120 days late. This is going to continue I think. Fan and Fred will continue to cleanse out the crap from the stuff that is now public/in Fed inventory.
So this means the losses revert back to the agencies and Treasury has to to foot the bill once a quarter to make up and realized shorfall in equity.
So the taxpayers get fucked. Not the Fed. But the Fed does help. The deficit that is created by the losses at the Agencies is financed/monitized by the Fed. This was the $300b purchase of Treasuries that the Fed bought as part of QE.
Think of it like this. The Fed bought a CDS contract from Treasury to cover the default risk(s) of the collateral in the MBS. The Fed paid $300b for the insurance policy. Treasury misprised the CDS and is now looking at a loss of at least $600 billlion (minus the 300 makes net cash loss of only 300b).
This way the $600b only cost us $300b today and the other $300b will be funded by the Fed for a very long time. Sweet deal for all.
And you think Greece fucks with the books?
thanks for that insight Bruce.
"And you think Greece fucks with the books?"
Zactly.
Okay I follow you here . But isn't there only 30 billion left on the table to keep doing this? Is the point coming where the US treasury(taxpayers) will be 100% responsible for any and all future losses above(dollar for dollar) and beyond this and who is going to buy the bonds from treasury if not the Fed ? or is QE2 going to occur ? And if it does will the FED be the only buyer left of US treasuries as QE2 commences ? - How much more MBS crap is out there did these Fed fannie purchases even put a dent in what is outstanding ?
Bingo.
People forget that ALL losses to the Fed pass through to the Treasury.
This is why I kept sayin that the FY09 deficit was far larger than they said, because nobody knew what losses were embedded on the Fed's sheet.
Any loss the Fed takes will be made up by the Treasury; even the USTs that the Fed bought with QE are owed interest. It's a giant circle-jerk. However, they are desperate to keep the credit creation game going by any means.
Thanks Bruce. Well illustrated.
"So the taxpayers get fucked" Exactly what will and has happened over and over again. Not even news anymore.
http://www.youtube.com/watch?v=NZR64EF3OpA
according to Calculated Risk
"Some Praise for the Fed" (seriously)
"I think the Fed deserves praise for the successful completion of the short-term liquidity facilities. As NY Fed Executive VP Brian Sack noted today: ..."
http://www.calculatedriskblog.com/2010/03/some-praise-for-fed.html
(CR seems to quite like this Sack Dude)
http://www.businessinsider.com/stiglitz-the-fed-is-corrupt-and-dominated...
Stiglitz: The Fed Is Corrupt And Dominated By Big Banks
"#
# Central bank balance sheets sometimes go into the red. The Treasury may then recapitalize it by creating, and giving to the central bank, new government debt"
this is total rubbish
Now I visualize it, DOW 36000 is totally possible thanks to QE v5.0... The ethernal rally...
BUY BUY BUY!!
of course it's insolvent.. the whole system is running on obfuscation because the alternative is apocolypse
Does this mean instead of "Federal Reserve Notes" we're going to have to rename them to "Bankruptcy Notes"?
Actually, instead of "Federal Reserve Notes" we get a nice shiny holographic "FED Card" linked to the IRS. The amount on the card is what ever the FED says it is. And the IRS taxes you based on what you spend.
Is The Federal Reserve Insolvent?
If you have to ask
You'll never know (chorus)
Funky motherfuckers
Will not be told to go
I feel so good
Can't be understood
Booty of a hoodlum
Rockin' my red hood
"If You Have To Ask"
Red Hot Chili Peppers
No. The Fed is not insolvent. Their liabilities are dollars. So long as their are Legal Tender Laws, meaning you must accept Federal Reserve Notes as payment for all debts, the Fed cannot be insolvent.
Just wait till the other shoe from the mortgage crisis drops- the adjustible and teaser rate loans which will hit in late 2010 and through 2011.
Find financial advisors: http://www.claroconnect.com
I think by the time these problems are resolved, Bernanke is going to wish he was never reconfirmed to be FED chairman. Three governor seats are vacant; anyone that aspires to fill them is going to their ruin in the premier "third rail" institution of the banking cartel. Kiss your career & reputation goodbye.
Okay, I've had enough.
All this bullshit is just that, bullshit.
Even a simpleton like me knows the Fed is insolvent.
Wait. I didn't say that right.
Insolvent is meaningless.
Printing press is meaningless.
The system is meaningless. Anything that touches us and we touch them is meaningless. All of it is based on nothing. But we puff up with hubris and lies and posture and pretend it is all okay. Let me whisper this one in your ear (it ain't). Don't tell Ben, he is stark raving crazy, a mad printer...
We have all taken the red pill (gotta give ZHers that), but blue pill land keeps beckoning us back into the matrix (also spelled matricks). Everytime we discuss a "financial instrument" a chart, a graph, a stat, we fall back into the shit again. Reggie posted some interesting stuff that begs the question "How underwater can underwater get?" Isn't there a point it does not matter anymore? Isn't there a point where it is all fairytales?
ALL OF US PEONS ARE HOPING TO HOLD ON TO SOME TINY BIT OF VALUE WE THINK WE SAVED, EARNED OR OTHERWISE CONNED (traded) OUR WAY INTO. (I need your ear again, I must whisper this even more softly, god forbid they know we figured it out. The real word is security, we are trying to hold on to some security we thought we had [holy fuck, we don't]).
That will all depend on who we can get to believe what we have has value, and what we believe is valuable. It is a narrative that has power because we give it power, even gold.
The system is broken and they are pretending. Ben is the maddest of printing hatters. He is buck naked but we don't tell him and we get to live, eat, breathe and shit another day. But that is all that is left, to go through the gestures and pretend. Bail out Greece. Whatever, "Give the debt to me, I'll take it, I'll pay it off. Go out and play now, I've got it covered." That makes as much sense as any asshole poster here.
We are beyond had. We are beyond fucked. We are beyond martial law (they will try, I know). You ready for it?
We are on our own. There is no system.
"Ma-Tricks". I like that one!
How 'bout "make-tricks". LOL.
I'm done with the academic rationalization of my imminent demise. I'm secured, as much as I can be. I'll go down with the house when "they" arrive to confiscate my chickens. They won't take my chickens without a fight to the death. How simple is that?
they wont confiscate my chickens either. i love my chickens.
Damn right we are trying to hold on to a bit we saved! That's the whole reason I'm in PMs and getting stockpiles if/when the system breaks. Modern society has taught us to be the grasshopper and not the ant. We, the ants, are trying to figure out how to keep our stores out of the hands of the hoard of grasshoppers. Which is why paper assets are suspect. Think of how easy it would be to seize brokerage accounts, and various retirement assets. All done without firing a shot or entering a home. Cash in your mattress, Zimbabwe Ben can take it from you without entering your home. We have entered a world where we can be robbed by people sitting at a computer who never have to physically take anything from us.
That's why we must have gold, silver, and a garden. Maybe a few chickens. I can see myself selling eggs in 5 years. If you can, invest in a couple big dogs. You have to have a sidearm.
Gold is for optimists. Holding FRNs is for fools.
I will stick "investing" in the basics water, food, medicine, weapons and knowledge.
Rant on, MsC!
So what's on the other side of beyond? We all dropped the ball. We barked and growled and drooled like rabid dogs (or Paul Kanjorski), but we didn't bite. We let these fucktards get away with it, and in doing so we hastened our own destruction. We should have summoned up the cajones and stormed the Bastille. How long have we pretended that blogging and FOIA requests and "exercising our democratic right to vote" can actually achieve anything?
When the first phase of this calamity was unfolding, how many of us knew that subprime/Alt-A/housing bubble would end badly? We wrote letters then, too. And what did it do? Not a damn thing. So we did the only thing left to us, which was to profit from the decline. All well and good, but we paid tax on those gains that went to the architects of the collapse. Ironically, they came out ahead more than us.
Two years have passed and all that has changed is more of our wealth has been transfered to the clowns that caused this debacle, whether it's the bankers (predominantly) or our fellow citizens who behaved badly. Failure, greed and incompetence have been rewarded in spades, and prudence has been gang raped by a gaggle of pus dripping phalluses.
You say there is no system. Probably true. What is definitely true is that there is no solution within the system. We either sit and wait for the asteroid to hit, or we salvage what we can and rid ourselves of the vermin who are eating us away from the inside.
Sadly, I know what we will choose. Fifty years of "good living" has robbed us of the testosterone we would need to do what aggrieved people have done since the dawn of time. Would that we had the courage of the Macabees, or the people of Eastern Europe two short decades ago. There are people who need to be Ceaucescu'd, but we are all cowards. We deserve what we will get because we refuse to stand and fight for what we know is fair and just. We think we are Gandhi standing up to the Brits who knew their empire was collapsing, while in point of fact we are being herded and abused by pure scum who are completely and totally self-serving. We refuse to save our own society, or ourselves. So we go back to barking and growling and drooling, blogging and writing letters, filing FOIA requests, but all the while stocking up on KY Jelly and zithromycin.
Historians will look back on us and say we deserved to be selected out by Darwinian Socialism because we were unfit. We were, and we are, weak. The meek only inherit the Earth in fairy tales and superstitions.
Let the games begin.
Instead of Bastille = 85 Broad
List of foks to be "Ceaucescu'ed" -
Lord Blankfiend
"Diamond Jim" Dimon
Robert Rubin
Henry Paulson
Tim Geithner
Helicopter Boy
Bawney Fwank
The list goes on and on....
No firing squads - tumbrils, guillotines, trees and boiled rope only,
please....
KrvtKpt. Laughing Swordfish
aka Robespierre