This page has been archived and commenting is disabled.
Fed Study Finds Fed Insolvency "Would Not Create Serious Problems"
Submitted by Simon Black via Sovereign Man blog,
In October 1925, English mathematician Karl Pearson began publishing a multipart series of groundbreaking articles in the Annals of Human Eugenics.
The series was entitled, “The Problem of Alien Immigration into Great Britain, Illustrated by an Examination of Russian and Polish Jewish Children,” and it went on for hundreds of pages over several years.
Pearson’s article focused on “whether the intelligence of the alien Jewish children is closely correlated with their defective physique. . .” and concluded, among many other things, that “Jewish girls have less intelligence than Gentile girls. . .”
Unbelievable.
Pearson was considered a well-respected scientist. Yet his entire career is full of such work analyzing the various races and making ‘scientific’ claims about their deficiencies to the point that he openly advocated for “war with inferior races.”
He wasn’t alone. Some of the leading scientists in the world from the 18th through the early 20th century dedicated their careers to such nonsense.
Dr. Samuel Morton’s book Crania Americana, for example, is a nearly 500-page phrenology tome which makes all sorts of bizarre assertions of various races based on the measurements of their skulls.
This is what passed as science back then.
And even senior policy makers (including the likes of Winston Churchill) believed in the findings. After all, the ‘scientists’ said it was true, and they had a bunch of fancy equations, data, and mathematical models to back it all up.
Today, it’s revolting to think that anyone could have possibly believed such garbage.
But at some point in the future, people are going to say the same thing about us. Only this time, instead of eugenics and phrenology, our faux pseudo-science is economics.
Case in point—the US Federal Reserve recently published a paper entitled, “When Does a Central Bank’s Balance Sheet Require Fiscal Support?”
Translation: how bad do things have to get at the Fed before they need to be bailed out by the federal government?
Remember that the Federal Reserve is ultimately the issuer of the United States dollar. In fact, you’ll notice when you look at your ‘money’ it says ‘Federal Reserve Note’ on the face.
And over the last several years, the Fed has engaged in the most extraordinary program of expanding its balance sheet.
They’ve essentially conjured new dollars (notes) out of thin air and given them to banks in exchange for all the toxic assets that blew up in 2008, along with trillions of dollars worth of US government debt.
What remains for the fed—the bank’s “net worth”—is razor thin. At this point it’s less than 1.3% of its total assets. This is a laughably tiny margin of safety.
It means that if the value of the trillions of dollars worth of assets that the Fed is holding happens to fall by just 1.3%, then the Fed will be bankrupt.
1.3% is nothing. Most people’s investment portfolios go up and down more than that in a single day.
Jamie Dimon (CEO of JP Morgan) pointed out that Treasury yields moved 40 basis points in a single day last October. So, yes, this absolutely can happen.
But the Fed isn’t worried.
In its latest paper, they say that while it is *possible* that their net worth could become negative, such a phenomenon would be “temporary and would not create serious problems.”
What a convenient assumption.
In other words, the issuing authority of the United States dollar and one of the largest financial institutions in the world thinks it’s no big deal if it goes broke.
How can they possibly justify such madness? Simple. They have pages and pages of complex mathematical models and differential equations to back it up.
Funny thing, Karl Pearson and his colleagues had complex mathematical models too. And influential policymakers believed Pearson’s dubious theories, in many cases actually waging war against ‘inferior races’.
Today’s policymakers believe modern economic pseudoscience as well, and they actually are implementing the ideas… like printing your way to prosperity.
These are the people who have control over your savings. Your investment returns. Your livelihood.
We’re supposed to trust that they’re good guys. That they’re smart, responsible stewards of the financial system.
And yet they think it’s perfectly fine if the issuing authority of the United States dollar is bankrupt.
This is total insanity. If you don’t have one already, it’s time to come up with a “financial plan B” that distances your savings and livelihood for such dangerous thinking.
»
- 21897 reads
- Printer-friendly version
- Send to friend
- advertisements -
Interesting list, http://globalfire.tv/nj/04en/history/fdrsneokons.htm
This would make an insterting artcl I wish Mr Durden would explore. What would happed if the Fed's balance sheet went negative ? It does not answer to normal banking laws or accounting practices. Would it cause a confidence crisis ? The confidence behind the Federal Reserve Note is more backed by the commercial banking system and US economy more than the Fed as a truely solvent institution ......
Hmmmm ?
Yeah I'm Sure, an insolvent Fed would have no effect on confidence!
Considering that all banks would be insolvent if they used mark to market and the public is not rioting, I don't think it will matter to the majority of people and the bankers will figure out a way to profit from it.
For the rest of us who care and take time to understand, yikes.
Dear Debt-Serfs,
As long as We can continue to counterfeit the currency in whatever amounts We desire with absolute impunity that fact that We are completely insolvent is utterly irrelevent.
-The FED.
for the elite.
You know, it's becoming increasingly clear that the government's new role in the market is to simply keep up appearances and downplay the reality of the situation. It is an economy based on nothing more than faith in our keepers. It is the new religion.
The only metric that matters any more is when US debt service approaches Tax revenue...everything else is noise imho.
Interesting point. I've long thought the break will come when the unfunded liabilities make the deficit explode, but the Fed has distorted everything. There is no end of possibilities.
Who would know? Where is the audit?
If they just make up the numbers on the balance sheet anyway, who would know?
Is it then less real or more real.
Zero's and one's , it's all fictitious, i believe faith comes to mind and even that is unsettled.
Then you should already know what happens based on 100 years of experience. Tax revenue and inflation will both increase.
I am not the brightest bulb nor am I a lawyer. But is Canada the only country with a Bank Act? Probably not.
This is so not talked about in media or gov. BUT crawling it's way through the Courts here.
The right and obligation of the Bank of Canada to loan $ to the federal gov. or provincial gov. or municipalities (within defined limits) at NO INTEREST.
COMER http://thetyee.ca/Opinion/2015/04/17/Liberate-Bank-of-Canada/
AND for any interested person part of the filing challenges the IMF, BIS and calls trade deals into question.
A Zion list.
Here's a more current one: https://thezog.wordpress.com/
The banksters need to repay us.
For those interested, they should dig a little into Eisenhower's background. I always wondered why Eisenhower had stymied Patton in favor of the urban warfare of the Low Lands.
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
So he's saying that if the Fed were solvent and a long-term scourge, that would be problematic for us? I agree.
Well if you can conjure up reserves whenever you like, can you ever really be insolvent?
Nope, the only thing that will stop the FED is the dollar collapse and it not being accepted for trade.
Hence the US has the largest military in the world.
The FED and the State, happily married.
pods
Tell me what you want the end result to be and I can build a model to prove it.... That is the problem, models don't 'prove' anything. Economics started to as a mean of predicting outcomes but we've gone from predicting to creating and right into demanding certain outcomes. Reality will laugh while destroying them.....
I have no idea why economics started but I am certain what kept it going academically in the last 100 years: a source of distraction and sorcery.
Not to mention mark to make-believe. It is what they want it to be.
All "national" currencies (except for the Axis of Evil) are derivatives of the dollar.
Indeed; how would anyone know if the Fed became insolvent? It's not like they are known for allowing independent audits.
They were insolvent the day they began business. It's all just smoke and mirrors, bullshit, and fairy dust. I laugh because I actually think people believe that the FED has 20 or 30 trillion dollars laying around in a vault somewhere gathering dust.
They don't have squat. Nor can you audit them. What purpose would there be to an audit anyway? We would simply learn what we already know to be true.
Yes and no. Your point is well taken, but one must consider: "What is a FRN"? A FRN is an obligation to tender "lawful money of the united states." That basically means coin (remember, only Congress has the constitutional power to coin money and set the value thereof). So as long as the lawful money of the United States is available to the FED in unlimited supply, they're sitting pretty. On the other hand, if congress makes lawful money something more difficult to obtain (e.g. gold) then the Fed can go bankrupt (but I won't hold my breath).
I don't think the FRN has any "money" obligations anymore. They used to be like silver certificates or US notes, and would pay the bearer on demand lawful money, but for as long as I can remember, the FRN lost all interchangeability with Nixon closing the gold window. FRNs were accepted due to them being convertible when they first came out, but eventually that went by the wayside. Now they are merely legal tender.
So the FRN is merely a way to disharge debts but cannot be exchanged for lawful money.
pods
US coins are lawful money. FRN's can be exchanged for lawful money - US coins. The Fed has to pay face value for US coins. Anyone who wants to drive a stake through the heart of the Federal Reserve only need to exchange their Federal Reserve Notes for US coins and use ONLY coins.
"Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."
https://www.law.cornell.edu/uscode/text/12/411
Federal Reserve Accounting for Currency and Coin
Federal Reserve notes are liabilities on the Federal Reserve's balance sheet. These liabilities are collateralized by the assets of the Federal Reserve Banks.
Coin held by the Reserve Banks is an asset on the Federal Reserve's balance sheet and the Federal Reserve buys coin from the Mint at face value. When a depository institution orders and deposits coin from its Reserve Bank, the institution's account balance is adjusted accordingly.
http://www.federalreserve.gov/paymentsystems/coin_about.htm
That's right, pods. I said on ZH many times long, long ago, that the concept of "bankruptcy" and "insolvency" don't apply to any Central Bank with it's own printing press. They can either recapitalize via the printing press (less likely) or simply declare that the normal rules of insolvency don't apply to them (more likely). And, sure enough, that latter choice is the way they are leaning, if this article is accurate.
Unfortunately, collapse of the dollar won't get rid of the Fed. They'll be needed more than ever at that point to print a veritable orgasm of dollars when the end game comes. For themselves, for the Federal Government and for banks.
Well theoretically, the collapse of the dollar could topple the whole Apple Cart. I do think that a supranational currency would be waiting in the wings though, which would also be another fractional reserve currency.
pods
yeah... just ask weimar of germany
6/1921- 1/1924 of hell when the ottoman's really took the brunt???
You don't seem to recognize the key differences. Weimar's debts were mostly external not internal. Weimar's debts were not fiat. In this case the stage was set for a foreign occupation and economic dislocation of which the Weimar hyperinflation was more a symptom than a cause.
Yup- Germany had to repay in the creditor's currency, not their own, or repay in gold. The modern FRN will survive until it is no longer reserve currency. When that happens, shit gets real - fast!
perhaps you didn't read between the lines regarding weimar and the ottoman empire.
the turks paid the highest price for wwi, even though they were on the peripheries.
Germany wanted in on the Ottoman Empire vast vessal states (emphasis on Iraq's` Mosul) where the real fault-lines of wwi were essentially about.
you must realize that they were fast becoming a european powerhouse lacking energy, in which france and england held a lock!
similarly, just as japan entered wwii where "AUTARKY" was the word throughout the 20th century.
bankruptcy doesnt apply - insolvency, as a practical matter could.
The problem is that there is some unknown quantity, a tipping point, where dollars escape from EU banks and large corporation off shore accounts, etc. and start getting into the real economy of transactions for goods and services.
I look at the price of milk, bread, eggs, and coffee.
the trend isn't good, but its not surprising.
Exactly. When you have a printing press, insolvency is just a state of mind.
This should be plastered on the forehead of every citizen in the world.
Maybe, once one understands that the ability to print money that everyone will accept as medium of exchange, never been spurned by anyone for anything, it is not necessary to read pieces like this which have to come from the Freshman class of some community college in Compton, specializing in remedial reading comprehension.
The problem will be in the people's insolvency.
Well that's a relief..
the fox has the hen house well guarded Ma...
All this is for Phd economists to discuss over lectures. It really doesnt matter. The only thing you need to know is the FED has the power to print money from thin air. The rest is all details.
Uh hum.." Devilish detail
(Not to interrupt)
My understanding is that when a parasite exhausts a host, it moves on to another.
Take down the US dollar and the economy and the military goes along with it.
Like the old Soviet Union.
"how bad do things have to get at the Fed before they need to be bailed out by the federal government"
Never ... the FED bails. It can print, print, print until forever. The above assertion is a joke since the CB of every country that has one is bailing out their sovereign
Right like the Feds been bailing out crappy political policies
And we should belief the gov has the money to bail out the fed..... Yea and there is ur 300% debt.
I knew u could do it Kiki !!!!!
Insane Fed thinks its sane.
Ah but there is no word as sane.... Ask any lit fuck!
The FED owns US Treasury securities which for 30 years have been appreciating in value. Please do not be idiotic in any analysis of the FED. Learn before speaking, please? The best investment that the FED. and Social Securitiy admin. could have made over the last 10 years has been LONG US BONDS. Next ?
That's funny. You think the Social Security admin has investments? Hilarious!
Learn before speaking?? Appreciating debt instruments paid with inflating and eroding fiat easily counterfeited?? Sold to whom when the bond bubble bursts?? Are you trying to be an idiot??
"This has not, however, stopped their earnings from pushing back the boundaries of hypermathematics, and their chief research accountant has recently been appointed Professor of Neomathematics at the University of Maximegalon, in recognition of both his General and his Special Theories of Disaster Area Tax Returns, in which he proves that the whole fabric of the space-time continuum is not merely curved, it is in fact totally bent." - The Hitchhiker's Guide to the Galaxy
"But the Fed isn’t worried."
The FED is pretending it isn't worried.
Theoretically the Fed could hold assets to maturity. As long as those assets aren't dogshit...
sad, but true
Can't freak the public or front run itself worth shit to hedge against all that's been put in place as they dint have enough to break even....
China like I said last night are they gonna have money when it does go to hell if u spend it all now for less productive investments waiting to pop since ur throwing good money after bad money and fucking over ur good money.
We shall see....
Amd don t u know they all will outlaw anyone having money afterwards as to really make sure their is no rebound. We shall see... Perhaps not.... Maybe their afraid of training the robots too well and their swarms.
just move along, nothing to see here...
Does Simon Black talk about any other country besides the United States?
Its the only country to talk about right now, given it owns the World's Reserve currency. In a few years it will be Russia and China.
Simon worries too much. What could possibly go wrong?
Don't forget another pseudoscience that has swept the land......global warming, err climate change. Or is being called something else now.
When I was a kid we just called it "weather."
I don't think it would matter either. But it has nothing to do with math. They print as much money as they want. Their balance sheet value is meaningless. It is ownership that counts when money has no meaning. If they need a few zeros they will just print them. But they don't need them because their balance sheet is priced in a meaningless unit of account they completely control. It probably already has a negative value based on trillions in written off or hidden loans anyway. Why would they even tell anyone? It is a ponzi scheme, after all.
What did you mean by this?
What unit of account are you referring to?
Here is the best portfolio recipe:
Foundation consists of equal weight in 3 metals: Gold, Silver, and Lead
Middle consists of tax-free income: Indexed Universal Life Insurance or ParWL to stock money away, grow tax deferred and taken out tax-free
Top Layer: $SLVO and $MORL for income, $NUGT & $AGQ for metal appreciation plays for the reset.
Now you have your bases covered; physical insurance, tax-free income, growth metal plays at 30-70x current prices, and an income portfolio that rocks a return of 20% with a fairly balanced delta.
No such thing as a 20% return in this economy. Sounds like no risk-adjustment is being factored in. Also, relying on indexing to what? CPI? That's a joke compared to inflation of money and credit supply in the economy.
Let me speak slooowly for you. 20% just look at the dividends for the stocks mentioned, one of which is silver and has room for growth.
2nd, indexed life insurance, look it up, if your wealthy you use it or know about it. Indexes are to S&P500, DJIA, Eurostox, Hang Seng.
"...it’s time to come up with a “financial plan B” that distances your savings and livelihood for such dangerous thinking."
That plan B stuff all sounds nice on paper, but Jade Helm starts in a matter of weeks and how well will anyone's financial plan B survive the day Jade Helm is not a drill?
Translation:
"The economy would rebound overnight and grow at an exponential rate till the end of time if those annoying unwashed peasants would just give up a little more control and personal freedom: THINK OF THE CHILDREN!"
http://www.bigeye.com/griffin.htm
Note: ~95% of FRB is controlled by NY ?!?
Lincoln and Kennedy met their demise being obstructionist to the private jewish cabal...
Ps. Nothing has been heard of, or spoken of, about the renewal of the 100 year franchise!
Ps2. a private bank controls the greatest democracy in the world and a century hence our proud country build on strong humanist fundamentals has been totally compromised by a war-mongering pseudo-fascist, oligarch of foreigners... we know[est] naught!!!
Ref: "The creature from Jekyll Island!"
jmo
Our system is so funny.
"OK Everybody, you guys have to hustle to make dollars. Pull yourselves up by your bootstraps. Invest in yourselves. Connect with your grit - your work ethic - your bravado. Man up. Be a team player. Create synergy. Go your own way. Fight the difficult battles. Show up an hour early. Leave an hour later than everyone else. Its this kind of tough-thinking manliness that is the pinnacle of our awesome, amazing American system."
"Excuse me, Mr. Lecturer, Sir, but who is that man in the corner?"
"Oh, thats Leonard. Leonard supplies us with money to play this game."
"Does Leonard have grit, Sir? What is Leonard actually doing?"
"It's Leonard's generosity that makes the whole game possible, Son. You see, its Leonard's dollars that you and your friends are fighting over. When you have just accomplished a manly act of Capitalism, let's say you sold a startup for 5 million, it's only because Leonard was generous enough to lend someone those 5 million to purchase your startup with."
"How does Leonard make the money?"
"Just focus on the game, Kid."
Western tribalism is now a construct of position and then ideology. Watch the news. We'll pull out the eugenics again when it suits us.
I would argue though that even the philosophical and scientific exercise to validate killing others sets our culture above all others. We should proceed with the freedom bombings immediately!
All that matters is that the distribution supply-chain for food & fuel (and 'transfer' payments) remains 'solvent'. At least as far as preventing total chaos within 72 hours is concerned.
planet earth's prospects of making it beyond the 21st century is basically negative. do u understand? ww3 is coming, and nothing will be habitable!
the oligarchy know this as does every drone working the bee-have hive?
actually the only thing that can save planet earth from these diabolical madmen is a catastrophic event coinciding with a backwash, and the culprit most likely mother-nature under the instruct of the "ALMIGHTY" !
wow!!!
please think thrice, before u down vote this cassandra??? ;-)
As a wise man once said: the us can’t go bankrupt.
Remember that and think about it when cup of coffee costs 50 bucks.
what a bunch of horseshit - like a 15 year old Dungeon Master explaining how a bunch of made up rules would operate to fuck you over in real life.
Economics is not a science - few scientists, learning how it operates, think so [go ask a former physicist working for a fund what they think of economics PhDs - get a couple drinks in 'em first - would make a great article].
The trouble is giving them so much power over the tokens of exchange which we are given for our labor - after kicking in to Uncle Sugar.
End the fucking Fed.
If the DOJ can operate within the Executive, the issuing power and regulator thereof can operate within Congress.
I still haven't heard one argument about what possible bad real world result would occur if the Fed's liabilities exceeded its assets. All I hear are 1. Hyperinflation (so tired of hearing this one) 2. Price distortion (robbed by bankers? ring the newspapers!) 3. US government doesn't default on debts / collapse / end social security (bad thing?!?) Seriously. Gimme one.
the frb has no tangible assets, just 1s & 0s and asaturated thinning *worthless ink, sponge!
it works only as a symbiotic (emphasis on plurality?)construct under the auspices of the ust.
jmo
How does anyone know that the Fed's balance sheet is not negative NOW without an audit? But we are not allowed to audit the Fed...
Just like we didn't know what was in Obamacare until they twisted arms, played tricks, and shoved it through on a weekend night....
Just like we won't know what's in the Iran Treaty, until it's signed...
Just like we have never actually seen a Hawaii stamped Birth Certificate for the Usurper, or his College records--- just trust them they are there. They say there is "No evidence" that Hussein Obama wasn't born in Hi. (even as there is no evidence that he WAS-- a pic on a website is proof of nothing)
and so it goes... Doesn't the FED need a current charter to operate? Was it automatically renewed in 2013?
How did a Republic, won by patriots fighting the most powerful military power in the world, fall to its apathetic condition of today? How do we allow these cretins to operate under the public trust?
The seven deadly sins did it to us. Evil is like water, it seeks its own level.
All legal dealings hava a 100 year limit. the Federal Reserve had a 100 year limit, but in 1927 the U.S. Congress made the FED mandate changed to "in Perpetuity", meaning Forever, or until the Congress changes it.
link please
Thankyou. McFadden Act 1927. May they rot in hell
The ship, it's y'know....unsinkable.
Good ship lifestyle?
https://www.youtube.com/watch?v=Uu8gO8d4aT8
Does the market crash coincide with dollar bye-bye? As in do you stay cash rich and wait for some real cheap assets flooding the market after the bust, or does the cash sink as well?
The salient point is who knows what securitites are on the Fed Balance sheet who is marking them to market. The answer to both questions is the Fed itself. Sooo... Mark to Market valuation ? No. Mark to Unicorn valuation? Yes.
Only the US military stands between the USD and the deep blue sea.
The claim has been made by many that if the Fed were to use mark to market they in fact would be insolvent.
It’s not about balances, it’s about the flow.
Confucius said, “Money flows to power”
Wall Street, the Fed, and their government lackys say, “You’re damn right C-man, especially the power to print and control the flow of money”
This isn't 1971. Your Fed issued dollar can't be redeemed for anything. End of argument.
It was irredeemable in 1971 excepting for a limited number of central banks.
1964 was the last year of specie for the Merkins. Silver was rapidly taken from circulation after 1964.
Gold went in 1933.
The Fed can not become solvent by printing more dollars. Dollars are a liability of the Fed (federal reserve note) not an asset. When the Fed prints dollars and buys treasuries it expands the balance sheet but does not increase its solvency. The dollars are a liability and the treasuries purchased are an asset, they offset each other. If the Fed needed addditional capital it would have to come from the government. Of course the government would have to borrow to inject capital since it is running deficits. The US is not the first country to have a reserve currency. To think the Fed can print dollars without consequences in perpetuity would truely mean this time is different. The Fed does not print wealth. A dollar is merely a claim on wealth. Printing trillions in additional claims erodes the purchasing power of each unit of currency over time. Clearly, the rate of erosion is a derivative of confidence. Confidence generally erodes quickly, and is more apt to erode as it becomes apparent the Fed will remain the primary funder of the Treasuries debt stock.
The stockholders of the Fed are the commercial banks. It would be logical for them to be required to pony up additional capital to resolve any deficiency in the Fed's capital line. It would also be just, since the commercial banks have been receiving interest on their excess reserves since Lehman - something that did not occur before, and is the prime cause of the Fed's declining capital line. By the way, does the Fed headquarters in Washington DC still have those tennis courts in its internal patio?
Presumably the Fed can create and destroy as much money as they want at will. The entire system is artificial. Insolvency is completely irrelevant in this type of artificial system where the Fed can just print more to make itself solvent.
Bopeople, the Fed can not print to make itself solvent. The Fed prints dollars which is a liability on the Fed's balance sheet. Under QE the Fed has used the newly created dollars to purchase bonds. The bonds become an asset on the Fed balance sheet offsetting the printed dollars on the liability side. The balance sheet expands as a result, but the Fed's solvency is unchanged. I hope that helps.
If the Fed expands its bond holdings (asset side) as well as the reserves due to commercial banks (liability side) while its paid-in capital remains the same (liability side), then its "solvency" is indeed changed, since its ratio of capital to assets is reduced. But not to worry. It can call in more paid-in capital from the commercial banks. The Fed continues to operate profitably, but its profits (which it pays in part to the US Treasury) have been reduced by its new payments of interest to the commercial banks on their excess reserves.
If the Fed expands its bond holdings (asset side) as well as the reserves due to commercial banks (liability side) while its paid-in capital remains the same (liability side), then its "solvency" is indeed changed, since its ratio of capital to assets is reduced. But not to worry. It can call in more paid-in capital from the commercial banks. The Fed continues to operate profitably, but its profits (which it pays in part to the US Treasury) have been reduced by its new payments of interest to the commercial banks on their excess reserves. In effect, what used to be paid to the taxpayers (treasury) is now being paid to the commercial banks.
was he talking about Janet Yellen?