This Blog Has Moved!

My blog has moved. Check out my new blog at

Your Ad Here

Thursday, January 27, 2011

Federal Reserve "Negative Liabilities"

The Federal Reserve announced a new accounting trick. It's called "negative liabilities".

When "monetizing" Treasury debt, the Federal Reserve makes a guaranteed riskless profit. The Federal Reserve cannot go broke, if they do nothing but purchase Treasury debt.

Recently, the Federal Reserve has been purchasing mortgage bonds from banks. This is a stealth backdoor bailout. The Federal Reserve pays more than the bond is actually worth.

Suppose the Federal Reserve pays $1B for a bond that's worth $0. Now, the Federal Reserve has a loss of $1B. If enough such losses accumulated, the Federal Reserve could have negative equity.

The Federal Reserve makes a profit when "monetizing the debt". The Federal Reserve uses this profit to pay its own operating expenses. The Federal Reserve does not need money appropriated by Congress. Any surplus profit is returned to the Treasury.

A pro-State troll says "The Federal Reserve returns surplus profit to the Treasury! That proves they aren't evil!" The "surplus profit" is negligible compared to the total amount stolen via inflation. The value of the Federal Reserve is not this profit. The value is the cartel power to fix interest rates. The value is the ability to print money and give it freely/cheaply to your bankster buddies.

The Federal Reserve bought mortgage bonds for an above-market price. Now, the Federal Reserve has losses. If these losses are big enough, the Federal Reserve could theoretically be bankrupted.

The "negative liabilities" trick rescues the Federal Reserve from insolvency. Suppose the Federal Reserve has a loss of $100B. The Federal Reserve enters a "negative liability" of $100B in its account with the Treasury. The Federal Reserve will use that $100B negative liability to offset future Treasury interest rebates.

Suppose that there is a "negative liability" of $100B. The Federal Reserve makes $50B surplus profit "monetizing the debt". Instead of paying $50B to the Treasury, the "negative liability" is reduced from $100B to $50B.

The Federal Reserve incurred a loss when bailing out banks. The Federal Reserve purchased bonds for more than they're worth. Now, via the "negative liabilities" trick, that loss is passed on to the Federal government.

Government is not subject to the same accounting rules as slaves. If I tried to write myself a check for $10M, it would bounce and/or I'd be prosecuted for fraud.

There is no limit to how big the "negative liability" can be. The Federal Reserve could have a "negative liability" of $100T, and keep operating as if nothing bad happened. After briefly googling, I could not find a reference for how big the "negative liability" actually was.

The Federal Reserve unilaterally changed its accounting rules! The law was not changed. The Federal Reserve decided to introduce a new accounting gimmick. That shows how the Federal Reserve is sovereign, and not Congress or the President.

Where did the "negative liability" loss go? It was used to bail out the banksters. That money was stolen via inflation.

The Federal Reserve introduced the "negative liabilities" accounting trick to hide losses. The Federal Reserve lost money, via a stealth backdoor bank bailout. The Federal Reserve purchased mortgage bonds for more than they were worth. Via "negative liabilities", that loss is passed on to the Federal government.


Scott said...

Wow. Great article. How is it that you are the only person in the world following any of this stuff. I guess their obfuscation tactics work well enough that the few in the mainstream media who aren't part of the problem just don't have the background or math competency to understand the scams that are being run.

FSK said...

I saw "negative liabilities" mentioned on zerohedge and

This Blog Has Moved!

My blog has moved. Check out my new blog at