Posted on 11/27/2022 3:34:20 AM PST by Degaston
I did some analysis on the Federal Reserve and it looks like a Fair Value on their Net Worth is now considerably less than NEGATIVE 1 trillion US dollars. This means that if there was a "run on the bank" with them like happened to Bear Stearns, Lehman Brothers, FTX, and many other entities throughout history then they'd come up over 1 trillion short in meeting their obligations.
If my math is off then please provide your numbers along with justifications so it can be fairly scrutinized.
So true. FTX never ran out of FTT crypto-coins, although FTT coins ran out of value. The same may turn out to be true for the Fed and the dollar.
“Welcome to the Wonderful World of Quantitative Easing.”
Quantitative Easing = Counterfeiting
It is not just the Fed, any firm that holds a large amount of fixed rate securities is upside down.
Which is propped up by the 17th Amendment...
Time to repeal the 17th Amendment
There cannot be a run on the federal reserve bank since they can simply print at well.
You are never “in the hole” if you have a printing press
That sounds about right except they just keep creating dollars out of thin air at will.
I found your post to be a bit vague.
The “run” would be a bit different than your typical Bank Run.
Globally, the world would be rushing to sell their dollars to buy something else like Euros, Yen, Pounds, Oil, Gold, or Silver.
They’d print up a hyperinflation mess like Germany 1922-1923.
Inflation causes long-term interest rates to spike even more upward and thus their holdings of Treasuries/MBS will fall much further in value & they’ll get deeper in the hole.
We’ve seen this type of run hit many fiat currencies. For example, Zimbabwe.
The root cause of this problem is that the United States Congress keeps raising the Debt Ceiling and Deficit Spending. If they would start living within their means then the supply of these bonds would go down, inflation would go away, interest rates would stay low, and the Federal Reserve balance sheet would be able to be above water again, and they’d be able to shrink the balance sheet size. It’s so absurd how the size of their holdings of Treasuries/MBS is over 8 trillion dollars or nearly the entire annual amount of all US worker’ gross wages (approx 9.7 trillion). The people who have been leading Congress this past generation have been very poor leaders. We need some good leaders in Congress ASAP.
Get real, everything else is riskier than the dollar for same reasons x10, not easy to transact, and not in the vested interests of the players in the game. The US, unlikely Zimbabwe, is completely self sufficient. And there is no alternative today. China could have been but Xi chose a different path for them
Here’s another opinion explaining it.
https://youtu.be/L9aye4wQ8Ok
The Currency Reset Will Wipe Out Creditors and Usher in CBDCs.
Really quite a brilliant interview and how the Fed’s balance sheet plays into everything.
Yes the US is more self-sufficient than Zimbabwe. And yes there doesn’t seem to be any good alternatives.
Euro - the ridiculous statist/socialist anti-science mentality of most Europeans has made their own financial situation worse than the USA’s
Pound - see what I wrote on Euro
Brazil - corruption :(
China - despotism :(
Russia - see what I wrote about China
India - see what I wrote about Brazil
Japan - aging and decaying
Why I raise this alarm is because the Federal Reserve has never been anywhere close to being a trillion in the hole with their balance sheet. And now they are more than a trillion in the hole. This hole can’t just be pretended away. The fastest solution will be for long-term yields on mortgages and Treasuries to collapse while keeping those markets liquid and shrinking the Fed’s balance sheet.
That’ll be very hard to do when (a) Social Security now has to sell billions of Treasuries every week to meet its obligations as the acceleration of the OASDI trust money depletion will just grow over the next 8 years until its bust, (b) the CMS agency in HHS is running an annual deficit of 1.7 trillion (i.e. approx 300 billion revenues and over 2 trillion outlays per annum), (c) other financial problems for the federal government (especially the implicit guarantees of pensions, Fannie/Freddie, and much more).
The hole is irrelevant- they created $5T out of thin air in one year, and if they hold to maturity - which they will - it creates zero loss. Everything they own is government or effectively government debt. Any real losses when held to maturity will be nothing. Keep in mind the reason the value of the bonds has tanked is because the fed raised rates. If they really needed the value to go up, all they have to do is lower them again.
You wrote: Any real losses when held to maturity will be nothing.
So, what do you say about the “Unamortized Premiums on Securities Held Outright” on their balance sheet that is over 317 billion US dollars?
Spoiler alert: All of that amount will need to be amortized by the time maturity happens.
Whenever Janet Yellen (or others) say “liquidity problems” what they are really saying is that there are some insolvency problems. The solvent institutions are always going to be able to have plenty of liquidity because they can sell assets to satisfy any liability/obligation and have sufficient remaining assets to cover their liquid needs.
You wrote: If they really needed the value to go up, all they have to do is lower them again.
My answer: The Fed only directly controls short-term rates. Where these losses I’ve reported have occurred have all been with bonds that are not short-term and most of the losses have been for bonds that are 10+ years until maturity.
IF the Fed were to resume pumping the system with more money as they have done in the past 16 years where their balance sheet is now 10 times what it was back in 2006 then it would cause even more inflation and technically be called hyperinflation.
https://www.federalreserve.gov/boarddocs/rptcongress/annual06/sec6/c3.htm
https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1
It’s why they have no choice now but to try to KILL Inflation. They know if they fail on this then the USA Central Bank of 2022-2023 will be like the German Central Bank of 1922-1923.
Do you understand how bonds work? If you buy a bond with a 2% yield with a 5 year maturity and then the yields for similar bonds go to 5%, the value to buy in that market drops at that time. However, if you hold to maturity and it doesn’t default, you still get your 2% yield you bought. Bond funds don’t quite track this because they are constantly buying and selling bonds, which locks in the loss/gain. At any rate, $317B is nothing in an economy that will do $25T this year in GDP.
Yes, I understand how bonds work. My largest holding in the market is the ticker SHY that is made up of US Treasuries that are 1-3 years from maturity. It’s down over 5% :( If I was using margin and living on the edge that 5% drop would have me subject to a Margin Call. That’s because the total sum of these bonds are being marked to market price every day by the market.
This “hold to maturity” gimmick is being used to cover up insolvency by the Federal Reserve and many other institutions. It’s a hope that they won’t have to liquidate these assets to meet any obligations before the maturity date. Yes I’m aware that its a legal gimmick. But that doesn’t change the fact that its an unethical dishonest gimmick built on a foundation of greed and/or denial of reality/responsibilities.
And just a reminder that 317B is over 7x the total “official market net worth” of the entire Federal Reserve System. It’s the equivalent of about $3000 per American family which is about 5x more liquidity that more than half of American families have. Are you by chance a member of Congress? They tend to think that hundreds of billions of dollars is a nothingburger. But for most people it’s actually considered quite a bit of money.
So, I think it would be a good idea if we all just be honest and ethical about what’s happened to the Federal Reserve. Yeah, it’s not joyful to see what’s happened. But it is what it is and the sooner we face this matter honestly the better it’ll be for America in the long run.
I don’t think you really understand how the Federal reserve works. They can create more USD at anytime - like they did $4T in 2020 - they absolutely can hold to maturity without any issue and if they really wanted to increase the value of their bonds they can again just lower rates - since - once again they control those rates. They are not like a “bank” - they are the controller of USDs. They can create inflation but have no risk of insolvency.
Also the reason the hold to maturity is discussed isn’t for regular banks - which do buy and sell these things all the time - but for entities that do not - which would be individuals like my parents, the federal reserve, and some larger investment funds are not public and don’t sell/trade often. The shorter the duration of the maturity (3 months to 5 years) is more reason to do this than long duration (10+ years)
Yes, I know how the Federal Reserve works. I used to work for the OCC and I’ve been reading Federal Reserve reports carefully for over 2 decades. Yes they can print USD anytime. If they print $10T then it means they have $10T of assets to go buy up assets and $10T of liabilities to the money markets. At any point in time (just like with any organization) there could be a “bank run” where their creditors (like people who have Federal Reserve Notes or balances in checking/savings) will dump dollars for something else & then while the market value of these assets will keep ratios that are relatively the same the dollars will lose tremendous value. We call that hyperinflation.
What my concern is on how they value their assets in their weekly reports as it’s an obfuscating dishonest tactic. Like me, you, and most people/organizations they should be marking their assets to Fair Market Value or some reasonable approximation of this.
Well, they aren’t the first organization to fail to mark their assets to Fair Market Value. That’s what Enron did, they became insolvent, and then they blew up. That’s what Lehman did, they became insolvent, and then they blew up. That’s what Bernie Madoff did with same result. And it looks like FTX did that too.
The difference for a central bank like the Federal Reserve is that instead of blowing up it’ll be the currency that blows up. Then the day will come when people will have to spend a full wheelbarrow of $100 bills just to buy a loaf of bread. But that’ll be just one day because the next day they’ll need 2-3 wheelbarrows of $100 bills for an even smaller loaf of bread.
What Key Lay (Enron), Dick Fuld (Lehman), Bernie Madoff, and the rest should’ve done was started being honest a lot sooner.
I have no problem whatsover with people/organizations holding on to assets to maturity. What I have a problem with is when they deceive people on the truth on what the true fair market value of those assets happens to be and do it at the level where people might erroneously conclude that they are solvent but in reality they are insolvent.
And I have a yes/no question for you & I’m going to ignore you going forward if you don’t straightforwardly answer this & provide a straightforward explanation in case the answer is YES.
Do you believe that the Federal Reserve is Solvent if their Assets are all valued at Fair Market Value?
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