Stop The Presses: The Fed Can Fund The Treasury With Over Half A Trillion In Emergency Capital
By now some readers may have read ludicrous stories about the Fed coining multi-trillion precious metal coins in a way to loophole the debt ceiling situation. Granted, this plan is so far beyond ridiculous that we have not wasted the time to comment on it. That, however, does not mean that the Fed is powerless to assist the Treasury in a modestly long-term term fix of the debt ceiling fiasco. In fact, as Stone McCarthy's Raymond Stone observes: "The Fed does not want to be a player in this debt ceiling/potential default debate. It didn't want to be a player in the Bear Stearns debacle, or the Lehman situation. But when push comes to shove the Fed will do what it can to avoid a default." In summary there are three avenues that the Fed can pursue in order to help Tim Geithner prolong the cash illusion modestly longer. The three options for Bernanke are to i) book profits; ii) prepay expenses and, yes, iii) sell gold. Combined, these three approaches could squeeze out well over half a trillion dollars, giving the Treasury breathing room not only past August 2, but potentially into 2012! That said, "The Fed would not want to advertise to Congress the possibility of delaying default. It does not want to take Congress off the hook on increasing the debt ceiling." But it will, if it has to, and the end result will be a delay potentially of up to a month. And if it means selling off the Fed's gold, so be it.
The three plans in detail from Stone McCarthy:
Book Profits
The Fed holds roundly $2.6 trln in the System Open Market Account (SOMA). Some of these securities were purchased at a time when market interest rates were substantially above current levels. This subset of SOMA represents securities on which the Fed has unrealised profits. Prior to the onset of the crisis the Fed held roundly $160 bln of Treasuries with maturities in excess of 5 years. These securities have accrued substantial unrealized profits
The Fed could sell some of these securities, book the profits, and then repatriate those profits to the Treasury. If desired, the Fed could reinvest the par value of those securities back into newer Treasuries to maintain the par value of its holdings.
Prepay Expenses
Every week the Fed repatriates its profits to the Treasury. The weekly profits of the Fed largely represent the weekly accrued interest income from the Fed's SOMA, minus interest expense, operating expenses and accrued dividends.
In 2010 the Fed repatriated $79.3 bln of profits to the Treasury. Effectively the accrual of monies to be paid to the Treasury shows up in an expense account (liability) Interest on Federal Reserve Notes (IOFRN). When the payment is actually made to the Treasury each Wednesday, the IOFRN liability on the Fed's balance sheet is reduced and the Treasury deposit account at the Fed is increased by a similar amount.
Over the first 6 months of calendar year 2011 the Fed remitted $46.1 bln to the Treasury, up from $35.3 bln in the comparable period of 2010. In other words, in 2011 the Fed's repatriated profits to the Treasury have been on track to bypass the $79.3 bln of 2010.
Could the Fed prepay IOFRN to the Treasury? In other words, could the Fed pass along profits before the income is actually accrued on the Fed's books? We think the answer is yes, but are not certain. Effectively this would be similar to prepaying any other Fed expense, such as payrolls, rents, etc.
This transaction would effectively reduce the IOFRN liability into negative territory, while increasing the Treasury's deposit by a similar amount. One liability goes down and another goes up.
Gold
The Treasury holds 261,498,899.316 troy ounces of Gold with a book value of $11.041 bln at $42.22/oz. The Treasury has monetarized this gold by issuing to the Federal Reserve gold certificates in an equal amount ($11.041 bln). The monetarization of gold effectively was an accounting entry providing an increase in Fed assets (gold certificates) and an associated increase in the Treasury's cash deposit at the Federal Reserve.
The $42.22/oz official price of gold was last set in 1973. Given that gold is trading above $1,600/oz could the Treasury prevail upon Congress to increase the official price? Would Congress respond under the Gold Reserve Act of 1934? If the official price were reset to $84.44/oz (doubled) the Treasury's deposit at the Fed would rise by $11.041 bln.
The Treasury could elect to de-monetarize gold, taking back the gold certificates from the Fed, and having its cash position reduced by $11.041 bln. After de-monetarizing gold the Treasury could presumably sell gold on the open market. Undoubtedly, such sales would drive the price of gold down from over $1,600/oz, but presumably the Treasury would be able to get a good deal more than the current official rate of $42.22 oz.
So there you have it: combined across all there alternatives, the Fed could probably generate over half a trillion in emergency cash, which would last the country well into next year! So perhaps everyone should immediately forget the relentless lies and fearmongering from Tim Geithner (who could not possible see a US downgrade from AAA as recently as three months ago, which is now imminent) and force the Fed to actually help the one entity that it is supposed to help: the United States, instead of the likes of Goldman Sachs or JP Morgan.
Yes, in the process the Fed's barbarous relic "tradition" will be sold off and the market price will plunge, only to subsequently explode to record highs (although we expect that gold would be then be confiscated from the broader population), but at least in the process this will allow the politicians to finally resolve the long-term problems of this country in whole, instead of the proposed partial resolutions that do nothing but at best slow the rate of debt accumulation.
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Sell Gold?
How can you sell tradition?
I was told tradition is not money.
Well, they have to de-monetize it first...
I'm confused. If Ben says Gold is not money, why must it be de-monetized before it's sold for money? /sarc
An excellent question! I hope Ron Paul get's a chance to ask him that. I'd love to see him squirm while trying to think of an answer. The more Ben talks about it, the more he digs a hole for himself.
Ya, they will sell the kind of gold that Fausto and Juan Jose de Elhuyar found.
www.silvergoldsilver.blogspot.com
Also, "Prepay expenses" looks like a wonderful transfer pricing accounting fudge (turn profits into expenses - normally for the purpose of tax avoidance via regulatory arbitrage)! But I doubt anyone will notice ...
Mesmerizing avatar. Took me a moment to see the small blue circle.
What gold? Got audit?
You don't trust your government?
Doubt they'll be able to sell tungsten at $1600 a troy ounce...
Inasmuch as die Luftwaffe cannot currently hit NY, they can steal Germany's. Or replace it with an IOU.
Already done, I thought?
tradition is transient
Sell our countries' gold?? Why don't we just cut off our dick while we're at it?
Please observe the distinction between "our country" and "our government". The latter is the one in possession of the gold, which it shamelessly and blatantly stole from the former. Furthermore, the government is not really ours anymore, if it ever was.
If US GovCorp wants to sell gold at rock bottom prices, I'll be more than happy to scoop some up and secure it somewhere it can't be stolen so easily this time around.
sorry child, if you or any of your critters voted then you endorsed the "country" as it is.
You are just another of the great merican that can't even take responsibilty for your own actions.
Fraud and criminality your own friend.
You are obviously an idiot or have no idea how the system works. Do you know the word...PATSY? Yea well one is put up on the Dem side and one is put up on the Rep side. That's it pal, that's your 'vote'. you can shove it up your arse, your vote. This country is no democracy OPEN YOU EYES.
Actually, the TP'ers are - so far - doing exactly as they were instructed to do by their voters: stiff the System. Also, you ingnorant fuck, it's (supposed to be) a Republic. Not a "democracy".
Cool.. I'll hop in my truck and head over to Ft. Knox for the sale...
Back er on up..
I don't think gold-plated tungsten is going for $1,600 an ounce bro.
Hey, even tungsten is worth more than $42/oz! But who says they bothered with that charade, anyway? If you're going to lie....why bother.
I guess you did not get the memo about QEZimbabwe
They won't sell the gold, but regardless they can keep this charade going indefinitely. The August 2nd deadline was always an artificial tactic to press the Republicans into compromise prior to the 2012 election cycle heating up.
They will keep it going for years as they continue to use the MSM and "education" system to inculcate the masses to control, theirs of course
I can help! I can help!
And it won't even cost ya much....
the fed would never sell gold to the public.
either 1.) they dont have the gold anymore and it just gold-plated tungsten anyway
or 2.) they just default so be it, but never sell the real stuff
It would be sold to the treasury, who then puts it on the crimex or whatever. Don't forget, that gold would be purchased by the kleptocrats after major takedowns shake confidence, giving them a great entry. It would make for a good prize just before the big reset. I would expect similar of other state assets like SPR again, land, resource rights, etc.
I think this tells us we should expect a good old IMF bang-up job. It worked so well everywhere else, why not here?
the Crimex is not a gold warehouse for gold miners to shop their wares, dude. It's a cash-settlement futures exchange.
If the UST sells gold, another sovereign with a large reserve account of $ would buy it
We have an unnecesary large reserve in $. It would be nice to add some Ft. Knox Centenarios as diversification to our reserves.
You're right. Probably not crimex. The point being it will be bid on in a market somewhere. Probably a closed market consisting of PDs, Soverigns, the like. Similar to how the SPR was done.
There are seriously clever people in Obama's administration eg Steven Chu, i bet they do have a plan like this behind them. Sell emergency gold supplies, like they just did oil. Uh-huh.
In the long term, both gonna go thru roof i guess.
There's always a way these guys can get money to keep the rich rich!
The public will suffer, but the elite will be just fine.
There is nothing wrong with a little suffrage. It build character and makes you appreciate the American Dream.
.
--You WILL Obey!
http://www.youtube.com/watch?v=dTOcAt44_QA
Dear Mr. Thug,
suffrage is the right to vote
suffering is just left of pain
succotash is a meal we should get used to
Who axed for you're help. Dummy. I not might be good at spelling but I'm much better at identifying out of control suspects spewing grammar tits.
your username must actually be a description of yourself, not some sarcastic bit. suffrage? really?
Hyperinflation, bitchez!
The real question is, 'does the Federal Reserve have any gold to sell?' And nevermind it being tungsten, my specific question: 'have they not leased it all already?'
the FED admitted during Ron Paul's Monetary Committee hearings that they hold no physical gold.
That's not to say the Treasury wouldn't hand over its holdings to the FED in an emergency...
Maybe Treasury could sell the gold to the Fed? Just another multibillion $$ accounting entry and voila more money!
That way they could get around inspections and such.
Vic has gone AWOL....we need Vic!!!
The Treasurie holds no gold; the Federal Reserve Bank holds gold on their books as being in the i) NYFED ii) Fort Knox. They hold 14k tonnes on their books. The use the gold as loans to increase their reserves, and then use the reserves on loan to increase their assets, in the fractional reserve sense of the word.
'does the Federal Reserve have any gold to sell?'
sure they do, the Germans'...
Fed selling gold is a China wet dream
Just like the SPR release, it will be JPM doing the buying.
yeah the clan that took over the nation of Germany post-weimar still had access to credit from their banker cousins.
So will it be with JPM. Their debt ceiling isn't breached.
Speaking of the Chinese, the debt limit impasse appears to be the last straw.
http://www.bloomberg.com/news/2011-07-28/roach-says-chinese-officials-appalled-by-impasse-on-raising-debt-ceiling.html
Maybe we can tell them what they so often tell us, "stay out of our business"
maybe you can accept that you owe them money and take it like a man instead of a crying deadbeat.
If you can't stand it then don't go begging bitch.
Appalling is running your own citizens over with tanks.
Appalling is running over other countrys citizens with tanks, like you had the guts even for that.
Appalling is killing other countries citizens that you have not even declared war on.
stuff your outrage where the sun don't shine.
What the hell are you babbling about?
Sell the gold plated tungstun bars. Yea they ought to go over real well in China.
Oh, the scam potential here.
Sell gold at it's currently booked price (which I think is around $45) to GS.
Fund government for a few more months. When scam is revealed... "We had to sell it!"
edit: the details I spoke of were in the story... slow today.
Hmmm, the true purpose of all this theater raises it's ugly head. No wonder China has been so quite. No doubt they are planning to buy up the entire Ft. Tungsten reserve in one fell swoop.
I think the PDs probably believe they can get ahold of it first.
Can't have a gold standard if you don't have any gold...
Nor can you have an economy if you don't have any gold and the rest of the world goes to the gold standard.
Sir, you have been caught with illegal bullion in your home. How do you plead?
You'll have to ask my attorney: 7.62x51mm, Esq.
I would like to place an order immediately for these new coins before they are devalued.
Sell the gold! Sell the gold!!!
Seriously though, the Author did not explain how bailing out the treasury bennefits the FED. Paper loss on treasuries in case of default?? the FED shareholders wouldnt care about that. The FED can buy treasuries from FED shareholders at face value. Until someone explains how bailing out the treasury helps the FED, I wouldnt spend much effort on the what ifs.
The fed( parasite) can't let the U.S. (host) die. It must keep it around as long as possible to transfer as much wealth as possible.
The big interests no longer regard the US as a going concern to be milked. They regard it as a junker to be stripped of assets. CF Catherine Austin Fitts.
How much gold do they have anyway? 200-300 billion worth? just enough to keep up the farce for a few more months?
Stay calm, Bitchez... If Fed sells gold China, India, Russia, Iran and Saudi Arabia will run to buy every scrap at any cost (ie exchanging their worthless dollars for something real).
Fed/Treasury knows this. If they sell now it's game over as far as future cred
Ding!!! Gentlemen, we have a winner! Caviar Emptor gets the big brain of the day award.
ALL the centrral banks are buyers, and yet, gold and silver have been on a long march, not a short sprint. If the Treasury sells all the gold that is left, there is ample buying power out there. You would see a "drastic" drop in prices of 3%-8%, and then the price of gold and silver would ramp right back up to the going rate and continue the march. I have no fear at all about the USA dumping their stock on the markets and ruining me. The long side is a very safe trade with virtually unlimited demand and a global horde of potential Johnny-Come-Latelys. We won't see the bull market in PMs broken before they break the fiat currencies, it has progressed far, far, past that point.
Sleep well, Big Brained Bitchezzz
comment moved..
http://www.zerohedge.com/news/stop-presses-fed-can-fund-treasury-over-ha...
The day the Fed sells gold is the day to max out the CC's on all PM's asap. Because that debt with become worthless sooner than later.
They could still confiscate gold to increase their supply.
They'll end up collecting far more lead than gold.
umm...why can't they just "cancel" some or all of their $1.6 trillion treasury holdings? inflationary?
I'm afraid the Red Shield would not approve.
Profits on the government debt it bought during the meltdown. Ha I love it. The Fed prints up some dollars and then reaps profits by selling treasuries it purchased at a depressed rate. They then give this profit back to the people who they loaned the money to in the first place. Even fairy tales are more believable than the shit going on for real.
Sorry, "book profits" is also squarely in the beyond ricidulous category. As ZH has often pointed out, the Fed paid par for most of this stuff -- that's why it is called a bailout.
Selling it would book massive losses and actually create a drain on the Treasury. That's why the Fed accounting rule change was put through!
"Every week the Fed repatriates its profits to the Treasury. The weekly profits of the Fed largely represent the weekly accrued interest income from the Fed's SOMA, minus interest expense, operating expenses and accrued dividends."
These (6% on profits) dividends are tax free form Local, State and Federal income taxes.
So, if i'm understanding this correctly, the US interest on the debt payments are not actually an expense, if the bond was purchased by the FED (through the PD), because the interest, after admistrative expenses, is given back to the Treasury?
So as the system implodes, and the Fed buys the lions share, there is no interest expense.
Oh what a whacky world. I need a drink.
But it makes sense, now ....obviously. Otherwise who would actually be putting this interest income in their pocket....tax free.
We know this is a bluff, so lets play along. I love to buy tradition, bring it on Bernank.
How much is Tungsten going for these days, anyway?
It's done well this year: http://www.metal-pages.com/metalprices/tungsten/
even the damned archetypal fool who wrote this horseshit for stoned mcarty was smart enuf not to put his or her name on it!
make that raymond stone. my apologies for calling the damned fool anon. only one junk? i'm surprised i didn't piss off the whole site!
i won't get into the damned fool's raving about, gold, the Treas., the FED, congress, ft knox, and what they shld do so goldi-locks is happy, forever.
well, ok, but just part of it (Paste): The monetarization of gold effectively was an accounting entry providing an increase in Fed assets (gold certificates) and an associated increase in the Treasury's cash deposit at the Federal Reserve.
translation? the T sold the value of the gold to the FED as "gold certificates" and then the goobermint spent the money. so, the goobermint "owes" the FED for the "gold certificates" if it ever wants to "unencumber" the gold. in ft knox. yeah.
and then, he tells us exactly what to do about it, which is nice, really, and well done and very clearly shows that raymond stone knows what's up and how to get things done when it comes to encumbered gold in fort knox, ky, and what we need to do to get it the fuk off the books, before somebody actually wins the right to lookat it, like last time in the truman administration or---wait! that was ike, wasn't it? man, those mccarthy hearings were a bear, weren't they?
any questions, please refer them to raymond who may be taking deposits for select clients to actually purchase certificates of ownership of this gold, and thereby insure their own family's security of wealth while really helping out the old USA by buying, uh,...gold certificates redeemable for gold at the Treasury. is that right? unless the "gold window" is closed that day, for some reason, of course?
stoned mcarty---paper gold since 1849!
Hey Slewie, Who is the more badass pirate now?
http://i55.tinypic.com/r93600.jpg
How did you get this picture of Penelope Cruz?
Never heard I looked like Penelope Cruz before, that is a new one.
Thanks, I guess...
Must have been the pirate costume.
now that you have the ears, b_B, i will waive the requisite ass check (most begrudgingly, for the record) award you a "9.9" for a fabulous ass, unseen & ungrabbed (at least by me, dammit), and fondly relinquish the helm to milady.
No, actually, that's not a peg leg in my pocket.
?Four Year Strong-Bada Bing Wit A Pipe? - YouTube
Vielleicht Electric Junk oder auch der LSD Marsch?
That Gold may have sold or monetized 10 times....in keeping with established banking traditions.
Calm down Slewie, the Tresurie holds no gold. They have loans for paper gold, similar to if you held shares of GLD. Not real.
The Fed's business is to lease gold. That is what they do. In fact, that is all they do.