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In One Day, Federal Reserve Posts $8 Billion In Unrealized Capital Losses (And Possibly Double That)
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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They´ll just print more, no problem.
they'll need to because the losses are up to 9 billion on the day since this was calculated
...at least somebody knows how to lose more unrealizeds than Pimco.
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?
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.
Oh really? Too bad the US government can't do a fuckin' thing about it.
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.
"the FED does not have a police or an army."
Actually it does, by proxy.
The FED does have the power of the Police and the Courts thru the IRS.
"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...
The FED is bound by law?
What law are you referring to? Imaginary unicorn law?
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.
"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...
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.
"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."
Yes.
"but that will never happen."
So that's what I said. The problem is your Congress, not the FED.
http://www.youtube.com/watch?v=jgMXmod3TBE
http://www.youtube.com/watch?v=kUJIG3JNPk0&feature=related
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?
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.
http://www.ronpaul.com/legislation/audit-the-federal-reserve-hr-1207/
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.
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.
Let them crash the markets. The powerz are the only ones left in, anyhow.
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." - http://en.wikipedia.org/wiki/Nicholas_Biddle_(banker)
www.RevokeTheFed.comMarch 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.
SO HELP US GOD!
LOVELY....just wonderful.... please update us on the actual status of said Proclamation, besides a draft. I see a date March 2008; what happened?
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?
</sarcasm>
"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.
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.
"What law are you referring to? Imaginary unicorn law?"
The 12 Skittle Commandments. Maybe it's 9.
"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.
sunny
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.
And miraculously, the Congress did not realize the fraud? And the current Congress cannot do anything about it?
Lmao.
http://www.youtube.com/user/InformedCitizenNews
An excellent account of when and how the Fed was formed.
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.
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?
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!
It was both of them.
Isn't counterfeiting making fraudulent copies of something valuable?
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 http://mises.org/books/defending.pdf
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?
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.
"Squatters' rights," for the non-cognoscenti !
Don't be funny.
FED is the US Government,they control everybody, the congress is full of puppets .
puppets...bought & paid for; Fed exercises full ownership rights
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.
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'.
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.
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.
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.
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.
I agree with this.
Also it points out why, if you have gold for safety, you want physical.
If you simply want a place to store your gold, you can simply place it with a vault service.
Under such a system, depositor accounts must be time-deposits rather than demand-deposits. How else do you avoid collapse in the event of a bank run? Make all loans callable (unrealistic)? Or does the depositor simply accept the risk of loss in the event of a bank run (ie., a borrower default)? The essential problem with banking, obviously, is that banks borrow short and lend long, leading to inevitable liquidity problems. How does your system resolve this? Or does it? Genuinely interested..
Scottish Free Banking saw a system emerge that allowed the banks to issue IOUs that were redeemable in 30 or 60 days. In additon, the problem of bank runs in the US was greatly compounded by regulations forbidding multiple branches for a given bank. WIth multiple branches, bank runs become exponentially less likely, as people can go to different, widely dispersed branches, which can get the required specie before the bank run spreads to them.
Further justification for expanded QEX.X. Money is being destroyed so we need to stave off deflation. All part of Benny's grand scheme.
anything this large is bound to have what look like enormous swings. the question isn't any more relevant than "what's the difference as a percentage of total" and that marginal difference (in aggregate) with all of the programs in place.... that is the marginal difference that matters. we may find that the FED actually makes money on these programs, in aggregate. it's going to be interesting to see if they actually make money, in aggregate, while they are absolutely certain to take hits on all kinds of things over time.
Indeed, in comparison to the 900 Billion in (a new 2-year) liability that Congress enthusiastically embraced today.
This unrealized loss....in aggregate.. is no more than a rounding error...
Watch as the "law of large numbers" kicks in.
you are right man
We dunt need no steenkin' hedges man!
I was driving around today thinking, if the Fed has gone on record that they will buy bonds at the top of the historic range ( and beyond in juicy bubble territory) WTF would anybody not sell to them? ( apparently "they are " )
Now, will the Fed have to stop buying stocks at some point to ease the sell off in bonds?...
Or do they just keep it all up until the next blowout crash in all assets ( as I suspect ). If this is true aren't we about there now? Given the Banksters have now succeeded ( I am sure even beyond their own twisted dreams ) in recreating the grand Ponzi all over again?
Bernanke doesn't "print" monie.
Another issue - the cost of paying the interest on our debt (and what it will cost municipalities and corporates on rollovers) as well as the additional debt we are incurring in the public sectors.
More good reasons why Bennie will attempt a stick save. Since there is no Plan B for the yield blowout, he is creating one as we speak. If I were Ben, I'd cook up a scheme to prick the equities balloon, but what do I know.
Since the Fed can print money why would its paper valuation losses matter? Wouldn't simply the accumulation of the paper (ownership rights) be the sole goal of the central banking cartel?
True, but any talk of unwinding is now pure fantasy.
Exactly, after the dust settles the Fed will hold a bunch of IOUs and say, "pay up or I'll confiscate your goods/business/real-estate etc." The wealth transfer will be epic if not total.
As if the FED is held to MTM accounting...hahhaha you jest..
True. But perceptions will start becoming reality soon. It is now obvious to all the PTB the endgame is approaching and inevitable. The rats are jumping the ship and the Fed is liquifying them for one more year-end bonus and likely buying some UST's from China to keep them at bay. The further underwater the Fed's portfolio gets, the last notion of an exit fades from view. There is no light at the end of the tunnel.
nope, nothing is coming. Consumer is all but delevered. Credit flowing. Jobs are coming back. Market is 80% of the lows.
Keep on dooming, its a free world after all
Since you like to believe your own lies...
Credit Card Debt Continues to Climb"Using data from the Federal Reserve, CardHub found that consumer credit card debt had increased by $6.5 billion in the third quarter of 2010, a figure that seemingly contradicts other studies that say credit card debt is actually starting to decline.
This contradiction stems from the fact that most credit card debt studies fail to account for charge-offs, which occur when creditors consider the debt uncollectable, according to Odysseas Papadimitriou, Cardhub’s CEO and founder. By law, banks and credit card issuers are required to write off loans that are delinquent by 180 days or more. While they legally still can (and do) try to collect on such defaults, the debt is essentially off the books."
http://www.mainstreet.com/article/moneyinvesting/credit/debt/credit-card...
U.S. Card Losses Wane as Write-Offs Decouple From Jobless Ratehttp://www.bloomberg.com/news/2010-12-03/u-s-card-losses-wane-as-write-o...
Consumer credit jumps by most in more than 2 years
http://tiny.cc/3x73u
Consumer Credit in U.S. Increases for Second Monthhttp://www.bloomberg.com/news/2010-12-07/consumer-credit-in-u-s-increase...
Canadians With More Debt Than U.S. Spark Policy Makers' Warninghttp://www.bloomberg.com/news/2010-12-14/canadians-with-more-debt-than-u...
October Consumer Credit up $3.4 Billionhttp://abcnews.go.com/Business/wireStory?id=12335435
Spend and pretend...fake it till you make it...kick the can...
No fair; you're arguing with actual facts.
The Maestro's face with Che's revolutionary tresses -- "green shoots" abound ! Gloomboom must be none other than Larry Kudlow !
I gave up on guessing who is who on this site. I do however, suspect that some commenters are really HFT algorithms! :>D
Lookit this site used to be a helluva a lot more incisive than this type of shallow article. Anyone familiar with bank accounting shenangans, which have been employed like forever knows that assets in the portfolio, or assets held to maturity, know there is no MTM and the asset is accreted over its maturity life.
I am 100% sure, like The Bernank, that the FED will post record earnings this year as a result of the carry they earn on the 2.7 trillion and growing assets. Hell, they might even grant a special dividend to the stockholders.
Its a waste of time talking about the leverage the FED employs, its all a shell game. BUY THE DIP!
No, here is what the Chinese are doing with their treasuries.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/12/14_KWN_Source_-_When_That_Happens,_The_Game_is_Over.html
Yahtzee!
good thing their holdings in AAPL and AMZN are up $3 trillion in the last year.
Game over until the next POMO
Means... We are that much closer to the jig is up?
Will the jig ever be up?
So the Chinese have lost 16 billion.
In war, all expenses are justified when the enemy suffers greater losses then you.
Some of our "leaders" actually believe that.
Why would China lose 2x more when the Fed has more Treasurys?
"In war, all expenses are justified when the enemy suffers greater losses then you."
Worked For LBJ... ;>)
"We're winning the war of attrition in Viet-NAM."
America was clearly winning. It where the Hippies that went all smushy and called for a pullback.
If that war took 5 more years, there wouldn't have been any Vietnamese left to shoot at.
hippies elected NIXON.
Were you alive?
Hippies were less than .01 of pop.
Nixon, law and order ran against the anti-war hippies.
Nope , the country and the troops said this is insane and nothing is there to win.
thus your vol mil now , only way to fight is to keep you idiots blindfolded.
Would have been a ton of Chunese though.
Not sure we could have bombed them out we had to set the stage for NWO! don't ya know.
bankers stop or start the wars, clown.
hey ben, dont worry. i'm sure the PD's and china will be happy to buy those back.
how can you not laugh at the shear lunacy of our fiscal situation?
holy fuck.....we're fucked!
The Fed is killing itself with each additional bond buy. It's just a matter of when, not if at this point.
We might be a little early, but, we suspect this recent down leg in treasuries is close to a short-term bottom. 30's tested our 119.07 support target area today. Thus, it would not be unusual to see 30's bounce and retest the 124.00/125.00 area testing the staying power of the shorts. We've had a quick 8-9 handle move down in the last 10 days. Therefore, the risk here is overstaying one's shorts. This market will give everyone another sell signal from higher levels. It's prudent to peel back some exposure down here if one hasn't already. Good luck everyone.
The black hole widens, increasing its gravitational pull exponentially.......
until it reaches event horizon..
US Treasury rolls over $9T+ and rising annually (up from about $4T in '08 and prior).
As of Nov, the interest rate paid on all debt (all issuance / rollover) was 3.007%. By time December report comes out, many of the shortest rates (that have the greatest issuance) have doubled (2yr from .32 to .65, 10yr from 2.23 to 3.47). If rates remain elevated, the Fed's ability to subvert the pricing mechanism of the markets will mean big interest bills. Potentially forcing Congress to think before spending? The simple move from 3% to 4% for all debt per month on nearly a Trillion in Treasury issuance is $10 billion a month additional. If we hit 5% (which is very possible given the big moves, it means we'll be paying additional $240B annually over current...starting now).
Almost starts to be real money. Plus, muni's and states are getting killed and will need that bailout much sooner than Fed hoped...Cali, Illinois, NJ, Chicago, etc. will all need help asap.
BTW - this creates the need to create ever more debt to pay the higher debt costs...also known as the death spiral.
Most of your description is just known as the churn. Also, as FED fills long demand the churn should trend towards the short end, increasing sensitivity to rates.
We all wonder, will we then sell more debt to cover the interest?
Strange things will happen on the way to a currency crisis. For example, If the FED owned 80% of the debt (churn), all the interest (beyond funding of the FED) towards this 80% would go back to treasury. So we really only incurred a FED funding expense. But can the FED reach 80% ownership without a crisis of some sort? Can the FED reach 40%? At what point does the FED exist to just monetize debt?
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Central bank accounting and the problem with an unbacked fiat based central bank, which is allowed to move into assets and fund foreign banks:
The primary mechanism of FED balance sheet usage is mainly to support the member banks in order to support the Federal Reserve Banking system. Look at it as a special way to organize the creation of money through credit. Mainly a type of special accounting.
However, when the FED is allowed to go beyond maintenance of the banking system and into financial instruments we venture into a realm of plausability of purpose, which includes real hidden costs and the theories of direct rate control and bond market participation in the cost of credit.
But this goes to the heart of existance of the FED.
The belief that there is actually any real control as enacted by the FED. Based on the FED ability to fullfill its need, I believe that the FED is an unneeded cost.
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One can only look at the system and say that the FED goals are not only unacheivable but also just rediculous. We look at the FED as if it is somehow responsible or is concerned about profit or loss on assets. It is not. The lie is that there are no consequences to these losses. There are, but they are not an obligation of the FED.
The FED is in control of our money, without the checks and balances needed to protect the currency. It goes against all the principle of sound money, and by extension, the health of the nation.
One interesting angle is to ask, how does the FED reduce a balance sheet of $2.5T (owning T's for example) without creating a massive hole in the debt market? Over what time frame relative to sensitivity of rates? It is unworkable on so many levels.
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What happens when the state's (citizens), through taxation, can no longer support the costs of the central government, in addition to the costs of the states (basic services)? How will the accumulation of these costs in the form of debt, ever be paid without the removal of basic services or through inflation of the currency? How? What is the plan?
Mark Beck
Mark,
always appreciate reading your posts.
Seems we are truly off the grid of the knowable any longer. How much further the Fed can go, where the triggers and land mines are I simply don't know. Inflation, deflation, reflation, collapse, hyperinflation, muddle? I can't even pretend to know.
All I know is the math is ludicrous. The path of pulling forward massive credit tobe spent in the present is likely nearing it's end. Taxes will be at their lowest rate in the past 100yrs with this final tax cut. Debt so out of control in so many countries and a minor increase in lending rates can now tip so many over. If the US has it's own financing issues, how can it backstop all the Euro nations via the IMF and all the states.
It's not that we couldn't pay it off but not sure if anyone wants to and there is certainly no political will to do so. There is no growth path, spending cuts, tax increases, or even inflationary path that leads to a lessening of our indebtedness.
In the end it seems it must all be restructured and the lowering of standard of living no matter how we approach it?
The market is nearly 80% off the lows. Inflation is low. THe economy is recovering.
Time to be greatful folks! We would be living through absolute hell right now without the actions taken by Bernanke, Paulson, Geithner, Bush and Obama.
No Great Depression 2.0. Nothing else is coming
Sarcasm or serious?
100% serious. No doubt about it. Where are the bubbles? Why so much doom?
It is working! Everything! I cannot beleive how fast we have recovered, I am proud to be an America where at least I know I won't have to endure a Second Great Depression.
Question, are you people serious about Gold? I am not great at detecting sarcasm. It's going to crash folks!!! Get out! the dollar isn't going anywhere
I can't even bring myself to junk you cause either you like to pull chains or I pity you.
Automatic Junk for you from here on out numbskull.
Boom, I will agree with you if we can come to terms on a few items -
NEW RULE: stop calling this a free-market economy, capitalism & we take back every Economics Nobel prize ever awarded.
If we were living by the book, my fund would own the US right now and we would be starting over.
I so agree about the economics nobel prize. So many that won have been proven dead wrong and it's such a fuzzy 'science'. It's failed psychology with some difficult equations to stop English majors and fiction writers from taking over the subject.
Amen.
The "Nobel prize" in economics???
Oh, you mean the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel that was founded by and is funded by a central bank:
http://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences
This is like the Nazi Party handing out prizes for outstanding research in genetics. Or like NAMBLA handling out prizes for child psychology.
hilarious, we are so fucked.
Eugenics was once touted as "The American Way"
"It's failed psychology with some difficult equations to stop English majors and fiction writers from taking over the subject."
I love it!
Another day another Troll.
What are you doing here? I thought trolls like to hang out on mountains and play with rocks.
gloomboomdoom. the hybernation thing aint worken fer ya. I junked you for PROFOUND ignorance.
Harry, is that you?
Why are we worried about this? This is stimulative! Buy Buy Buy! \
gold that is, and some silver.
Tyler- title typo. Losses, not loses
"what will happen to the Fed's balance sheet when rates surge."
Does anybody know what made rates surge all of a sudden? If 7 days is all it takes, what happens on the 8th straight day? Could that happen? Back to Congress?
so Fed buys up most of the debt. U.S. defaults. China screams.
Fed makes a journal entry.
badda-bing, never happened ;-)
FREE THE BERNANK!
That's okay. Congress will just give the Fed more capital. That will allow the Fed to loan more money to congress. However, this will create more losses for the Fed.
Well, that's okay. Congress will just give the Fed more capital. That will allow the Fed to loan more money to congress. However, this will create more losses for the Fed.
Then, that's okay. Congress will just give the Fed more capital. That will allow the Fed to loan more money to congress. However, this will create more losses for the Fed.
After, that's okay. Congress will just give the Fed more capital. That will allow the Fed to loan more money to congress. However, this will create more losses for the Fed.
This economy stuff is easy! Where can I print my PhD in Econ?
+10
There was another Hindenberg Omen triggered today!!!
http://ewtrendsandcharts.blogspot.com/
What is that, like the 50th this year...
Well, retail eats shit again and meanwhile Wall St gets there printing press called a steep yield curve back. What a sham of "fair" world we live in.
I swear to God, I thought turkeys could fly.
Money to burn. As a side note I'd like to share this one. I was talking to a pilot in the air force who flies refueling tankers - he told me for just his one plane he can't even count the number of times he's followed protocol and dumped $200,000 - $400,000 of jet fuel when ordered to land (since they aren't supposed to land with more than "X" amount of fuel). BTW - you should really consider turning down the thermostat and put a sweater on......
Outstanding.
Keynesian stimulus!
Yes indeed, let's burn down the country so we can employ lots of people to rebuild it!
Military logistics waste are nothing less then mind shatteringly shocking. This is why I'm convinced America could never fight a real opponent. Our logistical system is outrageously wasteful. All an opponent really needs to do it hang on and not get knocked out to fast. This isn't just Air Force, it's universal in the service. Have had friends in all branches and the waste and theft is shocking. One of my friends dated an auditor when he was in the service. Gal said they knew that more then 2 billion had "vanished" over the course of several years. She had evidence the base commander was involved. Shortly after nothing was done, she was transferred and he retired...to a cushy job with a contracting company.
Hugh is hopefully hegded on those US and Japan positions
And who might be big enough and creditworthy enough to sell the Fed the interest rate protection for over $1T? Are U thinking what I'm thinking??? A-I-G????
(as in partially owned by the Fed AIG)
The AIG precious metals connection has never been explored nor the rotating door of political types like Holbrooke, Wisner etc..
These losses are not a problem. They'll just make it up on volume
what is coming? What is the BIG EVENT? why is everyone dooming?
What does everyone see that Bernanke doesn't? time to go on record!
He is correct this time. HE was correct about no "Double-Dip"
A collapse that never seems to come. I'm holding my breath waiting for it to happen? and I'm starting to turn blue.
gloomboomdoom = toathis
Robot = Harry
I wouldn't give Robo that much credit...just kidding.
We're all waiting. The FED is very powerful, no one knows how long he can keep the balls in the air. We just feel like he can't do it forever. I am waiting to see the dollar crack. Rates start to rise gold/silver up, the FED having to buy all the treasuries because no one trusts them. Sounds like right now doesn't. I'm spooked. just don't know when to get short so I don't get my knees taken out
Everyone stop feeding this troll.
Red alert, please, stop feeding the trolls! Copy.
Palin can see better than bernanke.
Why do your trolls bother? Japanese Businessa Mood Worsen for First Time in 2 Yearsa.
gloom boom,
You have the wrong handle.
Plus no Double Dip?,dude, we are living it, and the prosects for it changing are more grim by the day.
The Chinese are dumping our Treasuries and buying Gold and Silver hand over fist.
This to me, is them Finally saying FIRE in a crowed theater.
We are screwed.How do we service even the interest on our debt at current levels?.
The chickens have come home to roost,obviously you are in denial, and it ain't a river in Egypt.
Wake the FU!
Their loss is our gain. I hope!
It is just Tax Payer Money why should the FED care?
Not even that, it's just Bennie Bucks, so I'm sure that they care even less.
A paper loss to an entity with a printing press is a non-event in a world without functional markets. It does help them to shake the weak hands out of the trees, though.
Meanwhile, I see a hedgie guy on CNBS this morning crowing about how they got completely out of bonds back in Oct., and have already deployed ALL of their cash into equities. So, in other words, he isn't going to be the one applying selling pressure to bonds, nor is he representitive of the fictitious "money on the sidelines waiting to enter the market."
"Washington’s Role Is To Serve The Banks" Says Spencer Bachus Incoming House Banking Chairman
The Bachus needs be tried for treason then allowed to stretch a good hemp necktie
And Ben can raise rates any time. Yeah, right.
I think the market just did it for him.
30yr fix rate now round 5.25apr. That is a 25% to 30% increase in financing cost over a month ago. Good thing that shouldn't have any effect on house prices. (yes, sarc...the wife is a realtor)
6/10 of one percent. I need more soil than that to justify cleaning a handkerchief
87% of all statistics are made up.
....and the remainder are lies.
Ben B. is doing you guys a favour by printing currency that is effectively greenbacks - the dollar is still the worlds reserve currency - this deprives the surplus mercantile states of interest income yet increases the price of commodities which will eventually force industry to come back to America.
If I was a American I would be seriously pissed off with the initial QE but Ben is now giving yee a Christmas gift.
We live in a world of static or declining resources yet you have been given a greater share of the worlds energy tokens - for God sake do something useful with it this time as another decade of Tim the Tool Man Taylor jokes would be too much for the rest of starving humanity.
Your dorkness (or is it your Corkness?),
I'm not sure how I follow that BB giving free int money to banks for banks loss producing assets (for which I'll be taxed on both the creation and loss) and then I get to pay more for gas, food and suffer higher interest rates, higher unemployment...where did I win?
BB is helping somebody, but it is not the American people. Help me understand why you disagree?
@Hambone
Although I am very sceptical of the water into wine parlour tricks that our saviour Ben is engaging in with regards turning worthless securities into treasuries.
His 75 Billion monthly purchase of treasuries is perhaps showing the hidden nationalistic side to BBs nature - (the more obvious explanation is that he wants to survive so needs to insure his host is a viable organism going forward.)
This manufacturing of dollars will insure that the US goverment will remain funded and while the rise in oil and other commodities is extremely unfortunate those Arabian dollars will eventually come home boosting US wealth.
The rest of the world will begin to fall apart as the remaining resources of the planet will again go to US consumption.
This replacement of credit money by high powered money is just getting started.
This will further collapse the price of credit money dependent items such as houses and drive up the cost of food and fuel.
But this must happen as the global supply chain as presently constructed is too energy intensive.
Ships going back and forth across the pacific to exchange junk for precious BTUs is so last decade.
Maybe Ben wants Gold to rise in dollars to protect the Fed / treasury balance sheet ?
Anyhow I wish Ireland could produce Punts that the Arabs would have to accept - this austerity thing is a bitch.
I've seen this argument in slightly different form. Try this
High energy prices (shipping) and increasing scarcity/animosity re. commodity resources will tank world trade. The US, being relatively large, diverse, and self-sufficient, will suffer less than others.
The Traitor Ben is not doing this for our benefit, but there are always unintended consequences. I tend to agree that price dislocations and government theft trump everything else right now, but when we get to the other side...?
I don't think any of Bens actions are meant to benefit average Americans (or any other nation on earth).
However, I do agree and believe that US will never go w/ Austerity. US will instead go protectionist, raise import taxes over 3 or 4 years all while performing a later day Marshall plan. US has the resources, will likely rebuild the manu base, and gain employment in building, producing, farming, etc.
Not sure it won't kick off WW3 but desperate Americans will probably go w/ blaming the Chinese for our troubles and closing the export doors on them and Asia. Not nice but desperate times will get desperate reactions.