Federal Reserve moves all losses onto taxpayer's back

Discussion in 'Economics' started by bearice, Jan 23, 2011.

Is this true?

  1. Yes

    7 vote(s)
  2. No

    3 vote(s)
  3. Not sure

    3 vote(s)
  1. 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.

    "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."

    "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.

  2. I think Elitetrader is dominated by USA members.
  3. 1) 2-0-1. :confused:
    2) Ancient Chinese proverb....."Creative accounting always precedeth great fall from grory". :cool:
  4. Are you from Szechuan or Hunan province? :confused:
  5. How do you know it's not taxpayer's front?

    In seriousness, what do you mean "moves"? Everything is already backstopped by the taxpayer, so the accounting change the SMR paper highlights is just a way of avoiding having to mark-to-mkt the Fed portfolio.
  6. how much of that $1 trillion in monetized debt is / are directly attributable to the horrific damage done to the US, the American people, the upsetting and debasement of the American middle class by the 8 (eight) year Bush II administration and its policies?

    how much?, certainly more than 3/4 of it, because he received a surplus and no 30yr T-Bond debt, and look at where we are at now, and what it is taking to stop that death spiral that that administration caused...

    mission accomplished...
  7. I am moving to Alaska after sometime.
  8. This thread should be moved to chit chat.

    The treasury is the lender of last resort - always has been. The Fed doesn't incur losses in the traditional sense. What the talking head in the OP link doesn't understand is that all this does is save the Fed the step of increasing M3 to absorb any monetary imbalances.

    This isn't a change - this is the removal of a few steps to make things less cumbersome and bureaucratic.