In One Day, Federal Reserve Posts $8 Billion In Unrealized Capital Losses (And Possibly Double That)

Tyler Durden's picture

Today we get a brief glimpse of what will happen to the Fed's balance sheet when rates surge. In the span of one day, the Fed took an $8 billion unrealized loss on its $1.07 trillion in Bonds, TIPS and Agencies. It also likely experienced a comparable loss on its MBS portfolio. It's a good thing the Fed has $57 billion in capital accounts. Which means 4 days like today, and all of the Fed's equity buffer is wiped out. What happens next is up to congress.

The question that Zero Hedge has long been posing, namely why the Fed, which is now the world's biggest and most leveraged hedge fund (well second most, after the ECB) has no interest rate hedges on its books whatsoever, remains as valid today as ever. And with it being in print, Ben Bernanke will not have the fallback option of saying nobody had ever suggested the idea...

h/t John Lohman

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DoChenRollingBearing's picture

They´ll just print more, no problem.

FOC 1183's picture

they'll need to because the losses are up to 9 billion on the day since this was calculated

Rainman's picture least somebody knows how to lose more unrealizeds than Pimco.

FEDbuster's picture

Maybe we can do an mark to market analysis on their MBS, too.  That should be a big negative number, that they won't care about either.  How many angels can fit on the head of a pin?

TheGreatPonzi's picture

If they print, this will be outright monetization, i.e. counterfeiting. Doing POMO and QE is a thing, because it's indirect, but directly filling the holes of your bank account with printed money is another. In the current legislation, I don't think the US gov will allow the FED to do this.

Tyler is right, if the 10yr continues to be crushed, the FED will be in deep shit - and with absolutely no escape route.

bob_dabolina's picture

 I don't think the US gov will allow the FED to do this.


Oh really? Too bad the US government can't do a fuckin' thing about it.

TheGreatPonzi's picture

As I've said before, just because your elected politicians do not have the will to audit or end the FED does not mean the FED is superior to the US government.

Until proof of the contrary, the FED is bound by law, and the FED does not have a police or an army.

Panafrican Funktron Robot's picture

"the FED does not have a police or an army."

Actually it does, by proxy.

Waterfallsparkles's picture

The FED does have the power of the Police and the Courts thru the IRS.

Kaiser Sousa's picture

"elected polticians"..."the Fed is bound by law"...

u r seriously trippin or perhaps u've been n carbon freeze for a century or 2...

bob_dabolina's picture

The FED is bound by law?

What law are you referring to? Imaginary unicorn law?


TheGreatPonzi's picture

The Congress can audit or abolish the FED at any time, simply by passing laws to audit it, or by revoking the original law that authorized the FED to emit bank notes as the legal tender.

As I've said previously, your Congress can, but does you Congress will?

Stop blaming the FED for what is obviously a failure of your representatives.

Kaiser Sousa's picture

"Stop blaming the FED for what is obviously a failure of your representatives."...ok, now i know ur trippin...look, man the Fed and the bankers r the government....u think it coincidental that trillions have been ushered their way while the rest of the country is carenning towrds destitution....what's wrong with u...either u dont live here or u r completely delusional....knock off the nonsense...

bob_dabolina's picture

Congress can audit the Fed if the Fed allows it to do so.

Congress can abolish the Fed charter...but that will never happen.

Other than that there are no "laws" the Fed must follow.

TheGreatPonzi's picture

"Congress can audit the Fed if the Fed allows it to do so."

Yes. But if the FED refuses, then she knows what will happen.

"Congress can abolish the Fed charter."


"but that will never happen."

So that's what I said. The problem is your Congress, not the FED.

EvlTheCat's picture

"Congress can audit the Fed if the Fed allows it to do so."

Yes. But if the FED refuses, then she knows what will happen.

I am not being mean.  I just linked to Bernanke because I thought it was relevant.  Take his words how you want.  After the last few interviews though I think the man can't be trusted to utter the truth.  I would really like to know what you think Congress will do?

Alex Kintner's picture

There was an amendment to the Financial Reform Bill introduced last year that would allow congressional audit of the Fed. The amendment was defeated by Dems. I'm not sure why.  I'm not singling out Dems tho. I think both parties are puppets of Wall st.

DosZap's picture

Pls re-read your post, and ask yourself why the Dems defeated it?.

Who, which party wants to Audit them?.

There are degrees of bad,and evil. Pick your poisons.

Milton Waddams's picture

The message sent to congress in May was quite clear - if congress goes so far as to merely threaten a serious audit of the Fed, the Fed's shareholders will, in a matter of minutes, crash the market and take what's left of the economy with it.

unununium's picture

Let them crash the markets.  The powerz are the only ones left in, anyhow.

Dr. Acula's picture

Then our pathetic congress should call the Fed's bluff and shutdown the Fed for good, just like they ended the previous USA central bank:

"To fight back, Biddle decided to shrink the money supply and cause a recession in 1834 in order to force Jackson to accept a re-charter bill. The [Second] Bank [of the United States] demanded that old loans be repaid. It made no new loans.

There was a brief recession in the first half of 1834, but another bill to re-charter failed in the House on April 4. That was the last time the issue ever came before Congress. And so, the Bank was doomed. Its charter expired in April, 1836." -


Joe Sixpack's picture
Proclamation on the Federal Reserve System of the United States of America

March 2008

WHEREAS, Article I, Section 8 of the Constitution of the United States of America authorizes Congress "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures";

WHEREAS, on December 23rd, 1913 the US Congress enacted the Federal Reserve System;

WHEREAS, the Federal Reserve System is considered an independent agency within the federal government, with oversight of Congress and containing appointed public officials on its board of directors;

WHEREAS, the Federal Reserve System Controls the Federal Reserve Note, the official currency of the great nation of the United States of America;

WHEREAS, there may be controversies regarding the legality and constitutionality of the Federal Reserve System, it is recognized that the said system has operated continuously as the central banking system of the United States since the inception of the Federal Reserve Act of 1913;

WHEREAS, the Constitution of the United States of America granted Congress the authority to create the current Federal Reserve System, it also does grant Congress the authority to modify or revoke the Federal Reserve System;

WHEREAS, the actions of the Fedreral Reserve System represent the credit and currency of the United Stated of America to the citizens of this great nation and to the world;

WHEREAS, the Federal Reserve System, acting independently within the federal government allowed, supported, and even promoted parasitical and non-productive uses of the money and credit of the United States of America;

WHEREAS, the United States and likely the entire world's financial system is undergoing massive de-leveraging of the said parasitical and non-productive uses of the credit and money of the United States of America (as well as other nations' currencies);

WHEREAS, the US dollar, the "Federal Reserve Note" is declining in value due to these parasitical activites, as well as potentially other causes;

WHEREAS, it is recognized that the citizens of the United States and other nations did willingly participate at some level in the creation and propogation of said parasitical activities;

WHEREAS, it is also recognized that the United States of America, a sovereign nation, has the legal, moral, and God given authority to take actions to benefit its citizens and to protect its good name, credit and money in times of difficulty;

WHEREAS, it is recognized that the current time is such a time of great difficulty;

WHEREAS, it is recognized the parasitical financial institutions and their activities are at odds with citizens of the United States of America and the good credit and money thereof;

WHEREAS, the current indications are that the Federal Reserve System is acting to preserve the financial system currently flooded with the parasitical activities;

WHEREAS, the current indications are that the neither the Federal Reserve System, nor the Congress of the United States, nor the people of the United States have access to the books of the institutions being preserved by the Federal Reserve, and therefor the degree of inter-connectivity and risk associated with the institutions and other entities cannot be determined;

WHEREAS, the Federal Reserve System is accepting non-performing assets as collateral for credit with ultimate taxpayer responibility to entities not under its legislative mandate;

IT MUST BE CONCLUDED, that the Federal Reserve System is not acting to the benefit of the people of the United States of America, its credit, money, and good name;

WHEREAS, it is recognized that the political will and capability of the government of the United States of America may not be up to the task of prosecuting this proclamation ; It is also recognized that this may be the only hope for the continued survival of the United States of America as the great nation as it has historically existed.

NOW THEREFORE, it is PROCLAIMED by those supporting this Proclamation that the Congress of the United States of America FULLY NATIONALIZE the Federal Reserve System, and take full control of the credit and money of our great nation; The Congress must take whatever action necessary to seperate out, sequester, disown, or otherwise neutralize the effect of the parasitical financial activities which led to the current crisis; The Congress of the United States of America must reorganize, replace, or terminate the Federal Reserve System as appropriate; or otherwise devise a system for creation of the national currency.

IT IS FURTHER PROCLAIMED, that the Congress of the United States of America in cooperation with the Executive of the United States of America contact allied nations and any other nation willing to participate in the overhaul of the failing and parastical financial sytem currently in operation and create new treaties and alliances as necessary to create a sane and productive system of finance with the express goal of supporting a productive national, and by extension and through voluntary cooperation, world economy;

FURTHERMORE, it is PROCLAIMED that it should be the goal of such an international effort to maintain fair international trading practices allowing for protection in national interest of labor, resources, and productive capabilities;

WHEREAS, it is recognized that such a move on the part of the United States of America may result in the necessity of an isolationist policy IF the other developed nations do not follow our lead; If such occurs, so be it.


cosmictrainwreck's picture

LOVELY....just wonderful.... please update us on the actual status of said Proclamation, besides a draft. I see a date March 2008; what happened?

digitalhermit's picture

Yes, obviously it's a failure of our representatives. If we just personally provide support to candidates who run on a platform of abolishing the Fed we can fix this, right?

There's no need to worry about the Fed's blank check that can be used to donate via proxy (financial services industry) to any and all candidates who run against the candidate we've just supported. That wouldn't have any impact on the election outcome, would it?

And if we were playing a game of monopoly and I just reached into the Bank and scooped up as much money as I want at any time, that would have no impact on who wins the game, right?


TheGreatPonzi's picture

"Yes, obviously it's a failure of our representatives."

YES. Your representatives allowed the FED bill to be voted in 1913. They allowed it.

I don't buy the "it was voted in an empty assembly".

When your representatives came the day after, they could have abolished immediately the bill after realizing what was going on. They did not. 

I don't buy the "they didn't realize" neither.

In the unlikely event they didn't realize a bill passed when they were not here, they would have realized what happened on their bank notes. Everyone in America knew what happened on this evening. It was on newspapers everywhere. And it was a week after written on all their bank notes.

They could have immediately reversed the process. They did not. They were consenting.

"There's no need to worry about the Fed's blank check that can be used to donate via proxy (financial services industry) to any and all candidates who run against the candidate we've just supported. That wouldn't have any impact on the election outcome, would it?"

Of course there is a need to worry. You are fucked. I admit it. But the original sin came from your politicians, not from the FED. Your politicians enacted the creation of the FED, and did not do anything to reverse the process. The FED is just a dishonest and dangerous organism that profited from the stupidity, ignorance or dishonesty of your politicians.

Double.Eagle.Gold's picture

I'm calling bull shit on you mister.

The FED is a Cartel that controls all the levers of Government. End of Story, RICO baby but I very much doubt SCOTUS would even listen.


Village Idiot's picture

"What law are you referring to? Imaginary unicorn law?"

The 12 Skittle Commandments.  Maybe it's 9.

sunny's picture

"Oh really? Too bad the US government can't do a fuckin' thing about it."

??  "can't"   or   chooses not to....  More than a subtle difference.

The Fed was created by an act of congress and could be uncreated tomorrow if they so chose to.


snakeboat's picture

Umm, no, the Fed was forced on Congress by the Banksters of the day and the Act was passed by Congress when most (all) who might have objected were not present or asleep.  Do not delude yourself that it was a creation of the Congress.  Simply did not happen that way.

TheGreatPonzi's picture

And miraculously, the Congress did not realize the fraud? And the current Congress cannot do anything about it?


Dr. Acula's picture

Central banks are criminal enterprises run by inept pseudoscientific meddlers. The Fed is the 3rd central bank in USA and should be shut down just like the previous two.

Sorry, the Matrix is going to be full of flaws no matter how many times the Artchitect re-makes it.


bob_dabolina's picture

Really? Congress is going to abolish the FED...hmmm thats interesting.

Bernanke said "Give me 700 billion" and congress did.

Who cuts the stacks of money again?

unununium's picture

Being sloppy does not add to your case.  It was Paulson as Secy Treas who asked for TARP.

The Fed is above having to ask anyone.  As if.  Pffffft!

XitSam's picture

Isn't counterfeiting making fraudulent copies of something valuable?

Dr. Acula's picture

Yes, that's why people who counterfeit money are innocent:

"there is a prior counterfeiter in action and that the money falsified by the private counterfeiter is not really legitimate money; instead, it is itself counterfeit... Taking someone’s rightfully owned property is theft, and therefore unjustified. But no such proscription holds for taking the wrongfully owned (stolen) property of the thief" - Walter Block, Defending the Undefendable


Waterfallsparkles's picture

There is a Law called Adverse Possession.  When the Government takes something of Value like Real Estate they have to compensate you for the value taken.

Why is there no compensation to the US Citizens for the Fed Devaluating our Dollars.  How are we compensated for the taking of the value of our Dollars?

Simon Endean's picture

Government taking is the 5th Amendment.  Adverse possession is someone openly claiming land (usually) as their own, even though it is owned by another.  If they pay the taxes, etc., and use the land for a period of years (varies by jurisdiction), they can then acquire legitmate title to it.  Compensation doesn't enter into it.

Don Birnam's picture

"Squatters' rights," for the non-cognoscenti !

cbaba's picture

Don't be funny.

FED is the US Government,they control everybody, the congress is full of puppets .

cosmictrainwreck's picture

puppets...bought & paid for; Fed exercises full ownership rights

LeBalance's picture

Fractional Reserve Banking is, by definition, counterfeiting.  They have nothing, risk nothing, steal everything, counterfeit everything, have you fight for their everything.

"No escape route" does not describe the Fed.  It describes you if you live in one of their countries.

This is basic stuff.

How does "new money" get "made" "out of thin air?"  That's counterfeiting.

TheGreatPonzi's picture

Fractional Reserve Banking is indeed counterfeiting of assets and produces inflation, but as it is credit supposed to be repaid, it produces less inflation than monetization of cash reserves which no real value will ever 'repay'.

tmosley's picture

It is not fractional reserve banking that is the problem.  It is the central bank, with their ability to truly counterfeit that is the problem.

Think of fractional reserve banking under a real gold standard (ie you can trade paper for bullion at any bank).  This was a functioning system, because you can't print gold.  One person deposits $20 in bullion.  This is understood by the depositor to be a loan to whomever the bank approves for a loan.  The person who gets the loan takes their gold and deposits it in another bank until they are ready to spend it, also with the understanding that deposits are loans.  That gold goes somewhere else until it finds someone who will spend it immediately.  Say that we create $100 in deposits in this manner.  You could say the money supply has expanded, but it hasn't.  There is still only $20 of gold.  They can't all spend it at once, they all know that.  Understand that this works because there are lots and lots of people who have deposits with these banks, and they don't all need to use their money at once.  The small amount of gold kept on hand in the bank is enough.  

All that is happening here is that the money is being used to the maximum extent possible.  Everyone understands, or should understand, that their deposits are not cash, but are loans.  There is no point where these voluntary transactions become fraudulent, nor do any of them use any type of force.  You might not like the results (some inflation), but hey, you might not like your neighbor building a high fence around his property either, but that is his right.  You certainly have a right to not take checks, and take specie only for your goods, and many can and do (well, they only take dollars rather than checks today, but there was a time where many demanded payment in hard currency only).

Confusing these facts is bad because it distracts people from the real evil, and excuses real evil, which is the central bank, and the force of arms of the government.

Shameful's picture

Fractional reserve is a problem because it is FRAUD on it's face.  I can't sell 1 BMW to 10 people and hope only 1 person shows up to pick it up.  Fractional reserve will lead to bank runs and crashes over and over again.  This is common in history.  It is thee crashes that created the excuse for the central bank.  It is an increase in the money supply, because it is treated as real money.  Paper is good as other paper, whether it's fun bux or paper gold.  It's not like the paper says "This is not good, I will not honor this if you try to cash it for specie".  And when it crashes like it always does it's massively dictionary as the banks break and all that phantom money is sucked out of the system in a moment.  Hello boom bust cycle!

I'm all for killing the central bank because it means that fractional reserve lending is reduced to the unbacked ponzi it is.  People will get fleeced over and over again till their either demand that banking not be allowed to commit fraud or bank with institutions that are not fractionally lending.

If fractional reserve lending is ok, then why not fractional reserve car sales?  It's all good till the dealer has to deliver to the customers what is theirs.

tmosley's picture

Actually, you could do that with cars, so long as everyone knew that everyone couldn't use them at the same time.  It would be like having a free pass at a car rental agency.  So long as everyone knows what is going on when they sign up, THERE CAN BE NO FRAUD.

Bank runs were caused by federal regulations forbidding banks from exercising the right to refuse withdrawals for a certain amount of time.  If you ever read about Scottish Free Banking, you would see that this was a central feature that emerged from banks trying to cause runs on each other.  During that period, there were practically no bank runs.

If you are going to point out and decry fraud, you probably ought to learn the definition.  Your heart is in the right place, but you are attempting to demand the use of aggressive force to put an end to free association, a road that leads straight to Hell.

Shameful's picture

Ok if the bank representative says "I will lend out more then I can possibly make good on. If you try to withdrawal your money I may not have it so then you can't get you money out if I don't want to or can't give it to you" that's fine. But since when did any fractional system spell that out? I'm sure the gold brokers of old never did. I'm sure they are not pointing out that the money is gone the moment it's handed over. After all where would the safety be then?

But who in their right mind would give money to such an institution? Who would buy a BMW is they arr told they may pay and never get one if they aren't first on the draw?

The market will keep destroying such institution and they will always turn to the power of the state to protect them. As will the masses, they will want protection as well. The masses after all can't be bothered to do their own research.

unununium's picture

I agree with this.

Also it points out why, if you have gold for safety, you want physical.

tmosley's picture

If you simply want a place to store your gold, you can simply place it with a vault service.