“Many are at once surprised that the Fed can set its own guidelines,…”
Oh, really? So many people have really no idea about the Fed:
The Federal Reserve is above the law.
Reuters has a very hot story out tonight on an accounting change the Fed snuck into a regular weekly report. It will move off the capital part of its balance sheet any losses the Fed may have on paper it purchased from Goldman Sachs, or anybody else for that matter. Here’s Reuters via CNBC (My emphasis):
Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.
The significant shift was tucked quietly into the Fed’s weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on Jan. 6.
But the new rules have slowly begun to catch the attention of market analysts. Many are at once surprised that the Fed can set its own guidelines, and also relieved that the remote but dangerous possibility that the world’s most powerful central bank might need to ask the U.S. Treasury or its member banks for money is now more likely to be averted.
But they are averting asking the Treasury for money in the future by an accounting gimmick that will simply dump the debt off the capital part of the balance sheet, so it won’t be reported as a loss, and make it a liability to the Treasury. More from Reuters:
[According to]Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey, “An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital.”
The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability…
“Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible,” said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.
“The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed ‘insolvency’ in a scenario where interest rates rise significantly,” Smedley and his colleague Priya Misra wrote in a research note.
Bottom line: We all knew the Fed was going to have to do some kind of monkey business to deal with all the junk securities it purchased, here it is: Negative liabilities. Yes, only at your local Fed.
Note: I hasten to add this does not appear to resolve the problem of the Fed going cash flow negative as a result of having to raise interest rates on excess reserve to a point where they are higher than most of the income earning debt they hold. Expect future monkey business on this front.
Friday, January 21, 2011
Source: Economic Policy Journal
More on the private Federal Reserve banksters:
– Federal Reserve To America: We Will Continue To Nuke The US Dollar!
– Quantitative Easing Explained
– Federal Reserve Withholds Collateral Data for $885 Billion in Financial-Crisis Loans
– Federal Reserve Made $9 Trillion In Emergency Overnight Loans
– QE2: Fed Chairman Bernanke Is Still Fighting INSOLVENCY With LIQUIDITY
– Federal Reserve To Spend $600 Billion More To Destroy The US Dollar And The Middle Class
– How The Federal Reserve Stole $2 Trillion From The U.S. Treasury
– Ben Bernanke Tells the Truth: The US is on the Brink of Financial Disaster
– Elite Puppet Fed Chairman Ben Bernanke knows exactly what he is doing!
– Renaissance 2.0: Lesson 1 – Revisiting American History – Financial Empire
– Renaissance 2.0: Lesson 2 – Revisiting Economics 101 – Debt
– Renaissance 2.0: Lesson 3 – Revisiting Civics 101 – Ownership
– Renaissance 2.0: Lesson 4 – The Culture of Empire
– Renaissance 2.0: Lesson 5 – The Emerging Global Empire – The New World Order
– Meltup (Documentary): The Beginning Of A US Currency Crisis And Hyperinflation.
– Fed Chairman Bernanke Admits Printing $1.3 Trillion Out Of Thin Air
– Mike Krieger: Goodbye Disneyland! – The Neo-Feudalistic, Gulag Casino Economy Has Already Begun
– James G. Rickards: Possible Run on the Gold Bank, Fed Insolvent, Currency Endgames in US Debt Crisis
– Peter Schiff: Alan Greenspan Is A Traitor To Everything America Stands For
– Rep. Ron Paul Grills Ben Bernanke on Saddam Hussein, Watergate and the Fed