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 ...
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).
Those tulip bulbs are still worth every penny we paid for the them.
“An accounting methodology change”. What? Accounting tricks used by Bernie Madoff?
A group of humans is usually stupider than the dumbest individual in that group.
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.
I’m going to try that with my taxes this year. Any redistributions to the treasury will be held in a liability account, somewhere...
...can we ask that the taxes we have to pay come out of our “account” in the Social Security “Trust Fund”?
Silly idea , that money is in a “lock box” for our future and cannot be used for any other purpose.
“...some exceptions and restrictions apply.”
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