The Federal Reserve Is Going Broke

Seal of Federal Reserve SystemEveryone’s favorite private business pretending to be a government agency by using “Federal” in its name — no not Federal Express, I’m referring to the Federal Reserve — may be on its way to going broke according to economics professor (and consultant to the Minneapolis branch of the Fed) Varadarajan Chari. From Reuters:

The U.S. Federal Reserve’s journey to the outer limits of monetary policy is raising concerns about how hard it will be to withdraw trillions of dollars in stimulus from the banking system when the time is right.

While that day seems distant now, some economists and market analysts have even begun pondering the unthinkable: could the vaunted Fed, the world’s most powerful central bank, become insolvent?

Almost by definition, the answer is no.

As the monetary authority, the central bank is the master of the printing press. It can literally conjure up money at will, and arguably did exactly that when it bought about $2 trillion of mortgage-backed securities and U.S. Treasuries to push down borrowing costs and boost the economy.

The Fed’s unorthodox steps helped it generate record profits in 2010, allowing it to send $78.4 billion to the U.S. Treasury Department. But its swollen balance sheet leaves the central bank unusually exposed to possible credit losses that could create a major headache at a time of increasing political encroachment on the Fed’s independence…

[continues at Reuters]

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  • Addjian20
  • Honu

    Oh no, the so called largest private banks in the world may go bankrupt? Gosh I really hope they’re ok.

    As if the real owners of this country would be at risk. All this tells me is that the real power brokers have probably already moved their money elsewhere.

  • Honu

    Oh no, the so called largest private banks in the world may go bankrupt? Gosh I really hope they’re ok.

    As if the real owners of this country would be at risk. All this tells me is that the real power brokers have probably already moved their money elsewhere.

  • 5by5

    Well AIG is due to pay back the U.S. Treasury for what it took, let’s watch and see if the privately-owned Federal Reserve tries to steal some of that, shall we?

    • http://twitter.com/phantom3x Joey Hall

      Erm, the fed prints the currency out of thin air at interest. When you have a monopoly on printing a currency.. debt doesn’t effect you, in fact, all debts of the currency are owed to you… not by you.

      </3 fractional reserve banking + compound interest.

  • 5by5

    Well AIG is due to pay back the U.S. Treasury for what it took, let’s watch and see if the privately-owned Federal Reserve tries to steal some of that, shall we?

  • Liam_McGonagle

    Maybe I need to read this more carefully, but I was left feeling kind of confused.

    I think it’s saying that the Fed is engaging in a lot of non-value added transactions in the market because it’s basically impotent to address the real problem–control of the money supply by the Big Banks. The Fed is unable to do more than carry their water, at this point. And if that’s what this article is saying, I for-totally agree.

    But even if I’ve got that right, I think I have some major disagreements on other points. Even if the net outcome is pretty ambiguous, it seems fundamentally wrong to say that the Fed itself could be bankrupted by the Big Banks’ incompetent stewardship fo the money supply. Here’s what I mean:

    1. The Fed will always have the option of “printing” more money. Always. So it is conceptually impossible for it to EVER be in a negative position if it is willing to “print” enough.

    2. That said, “printing” enough money on the scale required would almost certainly result in inflation so high that it’d make the images of grandmothers pushing wheelbarrows of Deutsche Marks to Weimar era bakeries for a loaf of bread seem like a fond old memory of the good ol’ days.

    I’ve been wrong before, but I don’t think that’ll happen. Even Bernanke can’t be so fucking stupid that he wouldn’t realise that a much better strategy to get capital flowing in the real economy again would be to simply tax the securities holdings of corps and wealthy individuals.

  • Anonymous

    Maybe I need to read this more carefully, but I was left feeling kind of confused.

    I think it’s saying that the Fed is engaging in a lot of non-value added transactions in the market because it’s basically impotent to address the real problem–control of the money supply by the Big Banks. The Fed is unable to do more than carry their water, at this point. And if that’s what this article is saying, I for-totally agree.

    But even if I’ve got that right, I think I have some major disagreements on other points. Even if the net outcome is pretty ambiguous, it seems fundamentally wrong to say that the Fed itself could be bankrupted by the Big Banks’ incompetent stewardship fo the money supply. Here’s what I mean:

    1. The Fed will always have the option of “printing” more money. Always. So it is conceptually impossible for it to EVER be in a negative position if it is willing to “print” enough.

    2. That said, “printing” enough money on the scale required would almost certainly result in inflation so high that it’d make the images of grandmothers pushing wheelbarrows of Deutsche Marks to Weimar era bakeries for a loaf of bread seem like a fond old memory of the good ol’ days.

    I’ve been wrong before, but I don’t think that’ll happen. Even Bernanke can’t be so fucking stupid that he wouldn’t realise that a much better strategy to get capital flowing in the real economy again would be to simply tax the securities holdings of corps and wealthy individuals.

  • APR

    “The process by which banks create money is so simple that the mind is repelled.” – John Kenneth Galbraith, Economist – http://video.google.com/videoplay?docid=5352106773770802849#

  • APR

    “The process by which banks create money is so simple that the mind is repelled.” – John Kenneth Galbraith, Economist – http://video.google.com/videoplay?docid=5352106773770802849#

  • Dan Mac

    Congress simply needs to order the fed to print enough notes to pay off the national debt. Then the fed will be broke, the creature slain, the military/medical complex will be choked off, and the economy of “we the people” will begin to thrive as the economy of the elite collapses.

    The same needs to happen to every central bank the world over.

    • Jordan

      Fed collapses = We collapse. Our national debt is impossible to pay off at this point. They could order the FR to print as much money as they like, but that would be the end of the dollar. It’s hardly worth anything now, let alone after more money is in circulation.

    • Marc

      unfortunately that would lead to massive inflation.

  • Dan Mac

    Congress simply needs to order the fed to print enough notes to pay off the national debt. Then the fed will be broke, the creature slain, the military/medical complex will be choked off, and the economy of “we the people” will begin to thrive as the economy of the elite collapses.

    The same needs to happen to every central bank the world over.

  • Jordan

    Fed collapses = We collapse. Our national debt is impossible to pay off at this point. They could order the FR to print as much money as they like, but that would be the end of the dollar. It’s hardly worth anything now, let alone after more money is in circulation.

  • Marc

    good

  • Marc

    good

  • Marc

    unfortunately that would lead to massive inflation.

  • http://twitter.com/phantom3x Joey Hall

    Erm, the fed prints the currency out of thin air at interest. When you have a monopoly on printing a currency.. debt doesn’t effect you, in fact, all debts of the currency are owed to you… not by you.

    </3 fractional reserve banking + compound interest.

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