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Accounting Tweak Could Save Fed From Losses
CNBC ^ | 1/21/2011 | staff

Posted on 01/22/2011 7:58:37 AM PST by FromLori

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.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said 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."

(Excerpt) Read more at cnbc.com ...


TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: accountin; economy; fed
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To: FromLori
We are - economically speaking - living in the land of Oz, only there is no one Wizard at the controls, but a committee of Wizards (the Fed policy committee) that is as dumb as the Wizard in the movie staring Judy Garland.

So, where we - the citizens and taxpayers - were before indirectly liable for the Fed's losses - due to what those losses will mean as far how the Fed manipulates things, NOW we will be DIRECTLY responsible for any losses and bad “investments” the Fed moves to the accounts of the U.S. Treasury.

This “accounting maneuver" simply gives the Fed more wiggle room to expand how much it is printing money, without it's books looking as bad as they would have if the "losses" had not been transferred directly to the Treasury (taxpayers).

21 posted on 01/22/2011 9:14:55 AM PST by Wuli (e)
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To: BealNoortz

Those tulip bulbs are still worth every penny we paid for the them.


22 posted on 01/22/2011 9:16:21 AM PST by Oldexpat
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To: FromLori

“An accounting methodology change”. What? Accounting tricks used by Bernie Madoff?


23 posted on 01/22/2011 9:17:55 AM PST by 6SJ7 (atlasShruggedInd = TRUE)
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To: Wuli
only there is no one Wizard at the controls, but a committee of Wizards (the Fed policy committee) that is as dumb as the Wizard in the movie staring Judy Garland.

A group of humans is usually stupider than the dumbest individual in that group.

24 posted on 01/22/2011 9:20:01 AM PST by null and void (We are now in day 732 of our national holiday from reality. - 0bama really isn't one of US.)
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To: The Comedian
Coming soon to a financial system near you...


25 posted on 01/22/2011 9:25:03 AM PST by houeto (Government derives its just powers from the consent of the governed.)
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To: arthurus
Accounting tweaks don’t change anything in the real world.

This tweak would change something in the real world. It will reduce the amount of money the Fed turns over to the Treasury, if that is what's needed to cover this new liability entry.

26 posted on 01/22/2011 10:35:49 AM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

I’m going to try that with my taxes this year. Any redistributions to the treasury will be held in a liability account, somewhere...


27 posted on 01/22/2011 12:08:42 PM PST by Huebolt (It's not over until there is not ONE DEMOCRAT HOLDING OFFICE ANYWHERE. Not even a dog catcher!)
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To: Huebolt

...can we ask that the taxes we have to pay come out of our “account” in the Social Security “Trust Fund”?


28 posted on 01/22/2011 4:26:32 PM PST by OneWingedShark (Q: Why am I here? A: To do Justly, to love mercy, and to walk humbly with my God.)
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To: OneWingedShark

Silly idea , that money is in a “lock box” for our future and cannot be used for any other purpose.


29 posted on 01/22/2011 5:47:51 PM PST by Neidermeyer
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To: Neidermeyer

“...some exceptions and restrictions apply.”


30 posted on 01/22/2011 6:02:59 PM PST by OneWingedShark (Q: Why am I here? A: To do Justly, to love mercy, and to walk humbly with my God.)
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