Keeping the Fed solvent, with accounting trickery! Read these two grafs from Reuters while picturing smoke coming out of Ron Paul’s ears:
“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.”
The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability.
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Did you get that? Instead of taking a losses, the Fed can magically offload the to the Treasury, which is chock full of gold doubloons and fancy chalices and giant piles of silver trinkets and rubies the size of John Madden’s neck. So, hey, no problem.
But wait — there’s less! Skip two grafs down:
“Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible,” said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.
“Technically impossible.” The Fed can never go broke, because… because… because it says so.
We used to send people to jail for this kind of fraud.
I hereby declare that all my debt is owned by my dogs!
That can only be done, according to the Fed’s own accounting rules, with “dogs who think they’re people.”
Otherwise known as “most dogs”.
MSM is really, really terrible w/ a few things, one of which is accounting. The change doesn’t make it impossible for the Fed to be insolvent; it just changes the classification of reserve banks’ payable to Treasury from an equity account to a liability account (and requires them to account for that daily).
In the future, you may want to be less trusting when it comes to MSM reporting, especially for law and accounting.
What you say might be true — and I’m sure it is. However, the line about Fed insolvency being technically impossible came from someone at Bank of America, not from some MSM analysis.
I just took a closer look at the accounting change, and it’s always been impossible for the fed to record negative equity accounts for the reserve banks. The reserve banks pay any excess profit to the Treasury, and do so weekly. To the extent there’s a loss, it reduces future payments. That’s the economic reality.
Prior to 2011, they’ve accounted for that by making one big end-of-year adjustment to zero out the capital account and either record a liability (in case they’ve earned money) or an asset (in case they’ve lost money, so that future earnings can be charged against that asset before anything is due the Treasury).
The accounting change, then, is just to make that adjustment on a weekly basis rather than as a single end-of-year adjustment. I don’t think that’s a very big deal. It’s still pretty easy to see how much the reserve banks are losing (it’s just on a liability line rather than an asset line), and there’s no material effect on the financials. If the reserve banks can’t go insolvent now, they couldn’t before. The only difference is the timing of the adjustment that prevents insolvency, if you will.
Please–most of the people who have Journalism degrees have them because no heavy math was required to get them. Nor was science except at the training wheels level.
The same can be said for people who get degrees in Education. They tend to be the dregs of the product that our colleges produce. I suspect that very few of them have the brain power needed to earn (as opposed to being given) any kind of engineering degree.
Why does the country seem to be headed to Hell in a hand-basket? Because we put the worst and dimmest in positions that should be held by the best and brightest–the people who educate our children and the people who are entrusted to give us the information we need to make informed choices, political and otherwise.
It’s clear to me that you have the weirding way, Martini Boy.
Or maybe you’re just weird…
Why not both?
As for the MSM, rather than getting a degree in journalism (which is what, exactly?) how about getting an education in science, math, accounting, economics, etc. and then learning how to report on those. There are just too many articles out there that when I read them I am dumbstruck by how bad they are in that the reporter misses basic facts.
As I once quoted to a certain managing editor of CJR (now passed away, I recently learned), “American journalism makes extravagant gestures of self-justification. Undergraduate journalism schools, for example, take four years to teach a skill–writing a news story–that most people, even undergraduates, can learn in a week; this perpetuates the fiction that journalism is a profession like lawyering rather than a trade like plumbing.” –Andrew “Not Sullivan” Ferguson
The Fed cannot go broke as it can just print MORE money to pay for it’s debt, just like those economic superpowers of today and yesteryear Zimbabwe and the Wiemer Republic.
By tapping into the transformative power of hope and change President Obama will bring about the same level of prosperity and opportunity to the United States as both those countries enjoyed.
His next “Magic trick” is to Pull Obama” missing birth certificate out of a hat !!!