Skip to comments.In One Day, Federal Reserve Posts $8 Billion In Unrealized Capital Losses (And Possibly Double That)
Posted on 12/14/2010 6:12:54 PM PST by FromLori
Today we get a brief glimpse of what will happen to the Fed's balance sheet when rates surge. In the span of one day, the Fed took an $8 billion unrealized loss on its $1.07 trillion in Bonds, TIPS and Agencies. It also likely experienced a comparable loss on its MBS portfolio. It's a good thing the Fed has $57 billion in capital accounts. Which means 4 days like today, and all of the Fed's equity buffer is wiped out. What happens next is up to congress.
The question that Zero Hedge has long been posing, namely why the Fed, which is now the world's biggest and most leveraged hedge fund (well second most, after the ECB) has no interest rate hedges on its books whatsoever, remains as valid today as ever. And with it being in print, Ben Bernanke will not have the fallback option of saying nobody had ever suggested the idea...
No problem—they’ll just get the printing machines going 24/7 again.
That worked well for Zimbabwe...
A nice tax writeoff!
As the Repubs and Obummer are about to add another trillion to the debt, it’s going to become a lot more expensive to finance...
I like your tagline.
Re: tagline and screen name
Are you one of those dang Kzin?
Larry Niven, Sci-fi writer, wrote stories, and oversaw a shared univrse about intelligent cats, known as the Kzin. Very funny and true to cat’s nature!
(yeah, yeah, I know. Inteligent cats. No one buys it!)
“The Kzinti are a fictional, very warlike and bloodthirsty race of cat-like aliens in Larry Niven’s Known Space series. The kzin were initially introduced in Niven’s story “The Warriors” and “The Soft Weapon,” (1967), both collected in Neutron Star (1968). A Kzin character, Speaker-to-Animals, subsequently played a major role in Niven’s Hugo and Nebula award-winning Ringworld (1970), giving considerably more background of the Kzinti and their interactions with human civilizations. Following this, Niven gave permission to several friends to write stories taking place in the time following were collected in a number of volumes of The Man-Kzin Wars, which eventually reached twelve volumes, the first published June 1988.
Ron Paul: The Fed Spends More Money Than the Congress Does
Read more: Ron Paul: The Fed Spends “More Money Than the Congress Does” http://dailyreckoning.com/ron-paul-the-fed-spends-more-money-than-the-congress-does/#ixzz188yxFiml
“(yeah, yeah, I know. Inteligent cats. No one buys it!)”
Shoot, we have two, and I guaranty both of them are evil genius’s.
It’s their house, we’re just living in it.
“both of them are evil geniuss”
The degree to which this is true is rather serious. The US treasury is paying for the operation of the US government, including welfare, social security, medicare, medicaid, unemployment, by borrowing money through issuing bonds.
The Fed is buying those bonds, under QE2 to fund the federal government. Rising interest rates means the feds holdings are shrinking in value, and the money they have to buy bonds is shrinking. The point of the Zero Hedge article is that the Fed is on the verge of being insolvent if rates keep rising.
They have not actually been printing money only increasing debt. They need approval from congress to actually print dollars ( pointed out in the article.)
This creates a serious problem. If the Fed's(approximate) 57 billion runs out. They are broke. The treasury has no one to buy their bonds, or the interest rate becomes a run away rate like the 1980’s under Carter.
The Fed could withdraw liquidity from the banks, but this would crash the stock market. The banks would also fail.
Printing actual money turns the dollar into Zimbabwe (think $10.00/gal. gas). The USA could become Greece, Ireland, etc over night. The more they keep spending the worse it is getting. The problem TARP was supposed to address has never really been solved.
Ron Paul made the point, I believe in an interview (I do not recall where) when asked about abolishing the Fed, that the Fed may abolish itself.
"Mortgage Flippers", "Societal Change"???
Will we ever realize we've gotten the big fandango from our buddies on Wall Street and their political puppets?
Personally, I doubt it.
More fun here:
Fort Griffin Fandangle
Texas’ Oldest Outdoor Musical ~ Albany, Texas
The Fort Griffin Fandangle is theatrical history, written and directed in 1938 by Robert Nail, an Albany native. It is still directed, lighted, costumed, sung and danced by the people of Albany in its own prairie theater. It has been produced since 1938 and has grown into a community production, staged in an acre-sized amphitheater with a cast and crew of over 400. The Fandangle commemorates the government outpost, Fort Griffin, which stood on “Government Hill”, overlooking the Clear Fork of the Brazos River and the town of Fort Griffin, Texas.
After the Civil War, the savage Commanches returned to their old haunts from the Indian territory to prey upon the white settler and their blood enemies, the Tonkawas.
For the protection of the settlers, Fort Griffin was established, July 31, 1867, as a part of a defense line of forts which stretched from Fort Concho at San Angelo and Fort Sill in the Indian territory. The famous Mackenzie Raids were conducted from Fort Griffin.
Beneath the hill in the shadow of the fort on a flat beside the river, a town grew. Soldiers with their pay, buffalo hunters, trail drivers on the cattle trail to the rail head in Kansas, cowboys with money to spend and the people who came to help them spend it made Griffin a frontier town as wild and lawless as any known in the Old West.
Because of the protection of the fort on the hill, sturdy pioneers also came, bringing their families. Loving this land with its rolling hills and plains with grasses growing stirrup high, they determined to settle here.
Although the years numbered few until Old Glory was unfurled for the last time from the flag pole on the fort, the history that was made in this country was bountiful. It is that history that the Fandangle seeks to bring to you, not as its comes from books but as it is remembered by the old timers. It is history set to music for the Fandangle is a musical show, written primarily for entertainment.
With cowboys on horseback, covered wagons, a stagecoach, Indians, authentic costumes and sets, there are six performances beginning at dusk on the last two week-ends in June. These are attended by over 10,000 people each year, some who return year after year to refresh their memories and to enjoy the surprises of a new Fandangle production.
The “Reteif” series should be made into a movie, if I were in charge!
These days you have to make up words to fit unprecedented situations.
The loose, informal definition of "fandango" is "nonsense", "tomfoolery". It seemed to fit.
That was my intended meaning of the word.
I was trying to give a little commic-relief to a very grim subject.
My play on words was weak humor.
The Fed is a serious issue, has been one for a very long time. More people today are listening to the discussion than at any time since the Federal Reserve System began.
Your welcome thank you for breaking it down so people realize the magnitude of the problem. Bernanke is enabling that spending and he has no plan to stop.
Thomas M. Hoenig who is a Fed governor (probably the best one)knows Bernankes policies are a disaster.
To him, Mr. Bernankes plan is a dangerous gamble and a bargain with the devil, strong words that have rankled some officials of the Fed, where dissent is tolerated but not celebrated.
None the less Banana Ben plans on moving full steam ahead!
Fed Retains $600 Billion Bond-Buying Plan to Boost Economy
Were not very far from the level where the economy is not self-sustaining, Bernanke said. Its possible the Fed may expand bond purchases beyond $600 billion, he said.
10 Signs That Confidence In U.S. Treasuries Is Dying And That Financial Armageddon May Be Approaching
Just send the bill to the taxpayers, couldn’t be any more easier than that. What? Me worry?
The problem is not a matter of politics, it is the math. Increasing debt with compounding interest on a credit card destroys personal finances. It can also destroy nations. It is happening in Europe. It can happen in the USA and will if the spending does not stop.
At this point it will mean cutting entitlements, unfortunately, whether one wants to do so or not.
The irony is that Fred Thompson had a Christmas video a couple of years ago at the time of TARP which explained all this.
I'm sorry about that...I read your post again and I was the one being weak.
Maybe I am blowing this out of proportion (I don't think so) but my gut tells me we are in big trouble and this time it's different. Everything I've considered "normal" and "right" now raises doubt in my mind.
Read this little snippet from a publication widely bashed as left-wing and tell me what's wrong with this picture. It concerns the "Federal Crisis Inquiry Commission" led by former congressman and chair of the House Ways and Means Committee Bill Thomas [R]
During a private commission meeting last week, all four Republicans voted in favor of banning the phrases "Wall Street" and "shadow banking" and the words "interconnection" and "deregulation" from the panel's final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.
I have no doubt that the “banking crisis” was planned.
The question is who is behind Obozo (Dems, RINO Pubbies and foreign interest)? The assault is much bigger than Soros. It the “Globalist” interests in Government, Banking, Industry and Academia. Traitors.
A second real estate collapse would mean houses being sold for nothing as they are next to nothing now.
and the money they have to buy bonds is shrinking.
How do you figure that?
The point of the Zero Hedge article is that the Fed is on the verge of being insolvent if rates keep rising.
Insolvent? I thought that meant unable to pay your debts? What debts does the Fed have?