Jan
30
2013
The Federal Reserve is blatantly bankrupt, when the price a truly
free market would charge to loan money is taken into consideration.
If you think interest rates could rise even 1% eventually, the loss on the price of the extreme amount of bonds held by the Fed would wipe out its $54,730,000 current net worth three times over. Then what?
Well, thanks to a January 6, 2011, accounting change, the Fed would then operate with negative equity, or in bankruptcy, and would stop sending excess income back to the U.S. Treasury. A Bank of America strategist and former New York Fed staffer says, “The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns… about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly.”
The time will come when a decision will have to be made whether the Fed will either be recapitalized by taxpayers or allowed to fail, as faith is lost—slowly at first, then very, very quickly.
We are not the first to report on the issue of Fed insolvency, but logically it only makes sense—buy up 33% of all U.S. mortgages by year-end and more than 27% of the entire U.S. Treasury paper market at 30-year high prices, and what does one
If you think interest rates could rise even 1% eventually, the loss on the price of the extreme amount of bonds held by the Fed would wipe out its $54,730,000 current net worth three times over. Then what?
Well, thanks to a January 6, 2011, accounting change, the Fed would then operate with negative equity, or in bankruptcy, and would stop sending excess income back to the U.S. Treasury. A Bank of America strategist and former New York Fed staffer says, “The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns… about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly.”
The time will come when a decision will have to be made whether the Fed will either be recapitalized by taxpayers or allowed to fail, as faith is lost—slowly at first, then very, very quickly.
We are not the first to report on the issue of Fed insolvency, but logically it only makes sense—buy up 33% of all U.S. mortgages by year-end and more than 27% of the entire U.S. Treasury paper market at 30-year high prices, and what does one
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