The Eighth Wonder of the World - The Federal Reserve Balance Sheet

[theonewhowaskazu]

Theres something I don't quite understand here.

http://www.federalreserve.gov/releases/h41/current/h41.htm

"Reserve Bank credit": 3,863,833,000,000

Presumably this means the total amount the Fed owes to others, right, including currency.

"Currency in Circulation": 1,220,210,000,000

Presumably this means the total amount of Federal Reserve Notes not held in reserve deposits at the Fed.

"Reserve Balances with Federal Reserve Banks": 2,473,552,000,000

Add it up and we get 3,693,762,000,000 or 170,071,000,000 less than the total Reserve Bank Credit. The majority of this (104,734,000,000) are reverse repurchase agreements, I.e, collateralized loans the Fed takes out from banks. The vast majority of this in turn is from international banks.

Now bear in mind the fact that the Federal Reserve can legally issue as many Federal Reserve Notes as its assets are worth. So, why in the name of heck is the Federal Reserve borrowing money, and offering US Debt as collateral, to borrow its own notes (i.e, its own credit) back from foreign banks for interest (albiet a low amount)? That makes absolutely no sense to me.

OK now here we go again:

"3,857,198,000,000" = credit
"3,942,816,000,000" = "total factors supplying reserve funds" = the value of the reserved assets, I presume.

Can somebody explain to me how the heck that's possible? Doesn't the fed have to turn over its profit to the treasury? When did it last do that?

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[AnonyMint]

Hahaha, thread title so true.

You really need an appropriate graphic in your OP showing us the Niagara Falls of base money growth.

[lindatess]

One of the reasons why there are still reserves is that the Fed is trying to recapitalise the banks so that they don't fail. There will be enough money even after people unwind their risky positions (due to fractional reserve banking some of the money will disappear, but afterwards due to these reserves, that no longer becomes a problem).

Another reason is that it's actually more closer to a currency war. The idea is to fool the forex markets just like Easy Abe did. None of that extra liquidity will actually reach the market to cause inflation. The banks won't lend it out due to their prudent stance. Do you guys know how difficult it is to borrow at 0.25% or some other low interest rate value?

This is also why everyone saying that there will be hyperinflation is fooling themselves. The money isn't being injected into the system like the conspiracy theorists believe. That's why the reserves are so big. My personal opinion is that this is a phony currency war. That's why no money is being lent out.

QE infinity has no effect, it's a delusion to get ordinary consumers spending and the plebs pumping up asset bubbles. When they take it away, bubbles shouldn't pop like they do, but the ordinary citizen doesn't understand it and will sell anyway. The same amount of liquidity usually remains in the market, with a few exceptions.

There are plenty of other reasons in the FOMC minutes if you go read them and other commentary.

Carry trade money doesn't end up at the Fed... If the U.S. brokers sell USD and carry in EUR for example. It's the europeans that would have the money now. Where is the evidence that they are redepositing this into the Fed reserves?

Hell, those articles are foolish. Why would someone just lend rather than sitting on funds if the risk of getting nothing back is too high? The fact is they don't want the banks to lend... It's a currency war and the carry trade is part of the devaluation of the dollar to increase U.S. exports and to bring back manufacturing to america.

If they really wanted to force banks to lend, they should impose a NEGATIVE rate of return on their reserves. Make rates negative for people is pointless unless you want the banks to make more money.

Not going to happen. If you want more lending, expect more inflation, it's as easy as that. Relaxing the lending standards would be the key rather than doing QE. That's why it's nonsense.

[AnonyMint]

You parrot Paul Krugman's nonsense. The QE ended up as dollar bond issues in the developing world, because of the carry trade on ZIRP ostensibly through the primary dealers and other arbitrages.

So in 2015 you will hear a giant sucking sound from BRICs et al into the dollar as these loans have to be serviced into a collapsing global trade given ECB just started NIRP (negative interest rate policy).

http://armstrongeconomics.com/2013/11/21/negative-interest-rates-coming-soon-to-a-bank-near-you/

http://armstrongeconomics.com/2013/11/17/negative-interest-rates-eliminating-cash-the-summers-solution/

http://armstrongeconomics.com/2013/11/18/15800/

http://armstrongeconomics.com/2013/11/21/will-electronic-money-be-deflationary/

http://armstrongeconomics.com/2013/11/20/the-tree-has-been-cut-electronic-money-will-force-an-underground-economy-based-on-barter/

http://armstrongeconomics.com/2013/11/20/the-bitcoin-hearing/

http://armstrongeconomics.com/2013/11/19/congressional-hearings-on-bitcoin/

[lindatess]

You parrot Krugman's nonsense. The QE ended up as dollar bond issues in the developing world, because of the carry trade on ZIRP through the primary dealers.

So in 2015 you will hear a giant sucking sound from BRICs et al into the dollar as these loans have to be serviced into a collapsing global trade given ECB just started NIRP (negative interest rate policy).

http://armstrongeconomics.com/2013/11/21/negative-interest-rates-coming-soon-to-a-bank-near-you/

http://armstrongeconomics.com/2013/11/17/negative-interest-rates-eliminating-cash-the-summers-solution/

http://armstrongeconomics.com/2013/11/18/15800/

http://armstrongeconomics.com/2013/11/21/will-electronic-money-be-deflationary/

http://armstrongeconomics.com/2013/11/20/the-tree-has-been-cut-electronic-money-will-force-an-underground-economy-based-on-barter/

http://armstrongeconomics.com/2013/11/20/the-bitcoin-hearing/

http://armstrongeconomics.com/2013/11/19/congressional-hearings-on-bitcoin/

I'm in Australia, we don't have your nonsense conspiracy theorists, thank you. Learn the economics behind it and try to apply it to another civilised western country. You will find that putting America by itself and the other western countries in another basket is just nonsense.

I don't know who your Krugman guy is but she sounds like a great person.

Tapering is happening soon, so if you don't want to game the Fed. That's your problem. Everyone knows this is transparent information. Everyone started to buy assets when QE started. So what will people do when QE stops? They will want to hold cash. We don't have QE in Australia, we just have rates going up and down, but it's the same thing. QE is just basically OMO without the interest rate mechanism.

You guys blame the Fed but if you had the money to protect it, why didn't you just move it all into Gold? It's all transparent. The Fed's balance sheet looks normal. It's because you don't believe the conspiracy theories.

[AnonyMint]

I'm in Australia, we don't have your nonsense conspiracy theorists, thank you.

The socialists are going to diehard. They are so fixated in their belief that what goes up (debt) never crashes back to earth and makes a big crater.

[lindatess]

I'm in Australia, we don't have your nonsense conspiracy theorists, thank you.

The socialists are going to diehard. They are so fixated in their belief that what goes up (debt) never crashes back to earth and makes a big crater.

What are you talking about? We have no socialism down under.

In fact america is a communist society. Trying to make obamacare work, free stuff everywhere, food stamps for free, free free. Coupons, free. I mean we don't have any of this stuff down here. No funny coupons to get free stuff from the supermarkets...

We have one of the lowest debt levels in the OECD. Our interest rates are going up.

Either way it's relevant because if every other central bank starts raising interest rates. The U.S. Fed will have to do the same otherwise they will look like the odd one out. Get ready to make some money gaming your central bank. Stop complaining and go make some money.

Seriously, if we had negative interest rates, most people would just withdraw their money and put it under the mattress. That way you don't have to pay the bank to keep your money.

That's why it is not going to happen. Everyone knows how to game the Fed. That's why we should be thanking the Fed for giving us the opportunities to make money.

Everyone who has an interest in bitcoin has to thank the Fed for the price appreciation we have seen so far.

Bow down to your masters.

[AnonyMint]

Australia 275% total debt-to-GDP ratio. Read and weep.

And your GDP will implode when China does, since they buy much of your mining output, which is a huge chunk of your mono-economy. So the ratio above will skyrocket.

[lindatess]

Australia 275% total debt-to-GDP ratio. Read and weep.

It's the lowest next to Canada. Lol.

Either way, it will only be private citizens that borrowed too much that will get hurt. All of us with excess cash will make money. That's why cash is so important! When everyone defaults, they have to sell. Why are you bashing the opportunity to make money. It's like you guys hate making money. But you like making money with bitcoin, that's delusional.

How is the Fed's balance sheet relevant to this anyway?

The one who took the thread off track with your socialist comment. Take a look at the post above, it relates to QE and the Fed.

We answered your question already. It doesn't need to make a profit. Central Banks are not there to make a profit but to maintain financial stability... You have to understand how OMO (Open Market Operations) work. It's basic economics. It's a controlled currency war. That's why america isn't suffering hyperinflation. That's why it works. It's financial trickery. But you can make money from it!!! That's all that should matter for an informed investor.

Peter Schiff screams about the Central banks but because of the Central banks, he has made a fortune as a result of central bank policies. DAMN RIGHT!

OMO Basics - To put money into the market, the Fed basically buys govt bonds and puts extra money into the market. If it wants to go the other way, it sells government bonds and other collateral (see long list of collateral on the Fed website).

---------------

It seems like the real problem is that you haven't added.

Foreign currency denominated assets
Gold stock
Special drawing rights certificate account
Treasury currency outstanding

The whole ledger is there. What are you complaining about? It balances, it's simple accounting...

Reserve Bank Credit includes everything that is collateral!

[theonewhowaskazu]

So as usual when posting a title with 'Federal reserve' in the entire thread turns into a flame-festival and my questions go entirely unanswered.

[AnonyMint]

So as usual when posting a title with 'Federal reserve' in the entire thread turns into a flame-festival and my questions go entirely unanswered.

Sensationalizing it with "The Eighth Wonder of the World" means I expected something more exciting when I opened your boring, tedious OP. Who cares if the numbers match up! Central banking is a giant fraud. Got it?

[theonewhowaskazu]

So as usual when posting a title with 'Federal reserve' in the entire thread turns into a flame-festival and my questions go entirely unanswered.

Sensationalizing it with "The Eighth Wonder of the World" means I expected something more exciting when I opened your boring, tedious OP. Who cares if the numbers match up! Central banking is a giant fraud. Got it?

...
The numbers do match up, I simply don't understand the motivations behind the numbers. Seriously, get out of my thread and go back to your trolldom that is the ponzi scheme threads.

[lindatess]

So as usual when posting a title with 'Federal reserve' in the entire thread turns into a flame-festival and my questions go entirely unanswered.

Sensationalizing it with "The Eighth Wonder of the World" means I expected something more exciting when I opened your boring, tedious OP. Who cares if the numbers match up! Central banking is a giant fraud. Got it?

...
The numbers do match up, I simply don't understand the motivations behind the numbers. Seriously, get out of my thread and go back to your trolldom that is the ponzi scheme threads.

Reserve Bank credit
+
Foreign currency denominated assets
Gold stock
Special drawing rights certificate account
Treasury currency outstanding
=
Total factors supplying reserve funds

[AnonyMint]

Seriously, get out of my thread and go back to your trolldom that is the ponzi scheme threads.

Make it a self-moderated thread next time.

I am not trolling. The person who uses that word is trolling.

I am giving you feedback on you wasting my time with your misleading thread title. Think next time how you name things and cause me to click your thread thinking it is about something interesting to me.

[theonewhowaskazu]

So as usual when posting a title with 'Federal reserve' in the entire thread turns into a flame-festival and my questions go entirely unanswered.

Sensationalizing it with "The Eighth Wonder of the World" means I expected something more exciting when I opened your boring, tedious OP. Who cares if the numbers match up! Central banking is a giant fraud. Got it?

...
The numbers do match up, I simply don't understand the motivations behind the numbers. Seriously, get out of my thread and go back to your trolldom that is the ponzi scheme threads.

Reserve Bank credit
+
Foreign currency denominated assets
Gold stock
Special drawing rights certificate account
Treasury currency outstanding
=
Total factors supplying reserve funds

Wait, so then where is the bit where it says all the obligations of the Federal Reserve?

And this still doesn't explain why they're borrowing so much when they can basically print however much they want.

[lindatess]

So as usual when posting a title with 'Federal reserve' in the entire thread turns into a flame-festival and my questions go entirely unanswered.

Sensationalizing it with "The Eighth Wonder of the World" means I expected something more exciting when I opened your boring, tedious OP. Who cares if the numbers match up! Central banking is a giant fraud. Got it?

...
The numbers do match up, I simply don't understand the motivations behind the numbers. Seriously, get out of my thread and go back to your trolldom that is the ponzi scheme threads.

Reserve Bank credit
+
Foreign currency denominated assets
Gold stock
Special drawing rights certificate account
Treasury currency outstanding
=
Total factors supplying reserve funds

Wait, so then where is the bit where it says all the obligations of the Federal Reserve?

And this still doesn't explain why they're borrowing so much when they can basically print however much they want.

Currency in circulation
+
Reverse repurchase agreements
Treasury cash holdings
Deposits with F.R. Banks, other than reserve balances
Other liabilities and capital
=
Total factors, other than reserve balances,
absorbing reserve funds

Total factors supplying reserve funds
-
Total factors, other than reserve balances,
absorbing reserve funds
=
Reserve balances with Federal Reserve Banks

There is a small ident in the table where it provides a breakdown.

------

As with the Fed injecting temporary levels of money. They can, it's legal. There is nothing wrong with it, in fact it is designed to create opportunities for investors. Everyone knows what the Fed is doing, so there is no concern and you can make money too. Furthermore, a currency war has allowed it to become cheaper to manufacture in the United States rather than China..

http://www.smh.com.au/business/comment-and-analysis/the-hk-aussies-outsourcing-to-the-usa-20131121-2xwvo.html

Looks like the United States will be able to repay their debt afterall and taper. Basically, that's evidence that it's working.

EDIT: Changed the word unlimited to temporary. That's the main reason why theories about QE going on forever are false. They won't do it, the elites in America want to be able to spend their money too. Why devalue it to zero?

[NUFCrichard]

Australia 275% total debt-to-GDP ratio. Read and weep.

And your GDP will implode when China does, since they buy much of your mining output, which is a huge chunk of your mono-economy. So the ratio above will skyrocket.

Moneyweek claim the UK has 908% debt total.  It's not a pissing contest, we are all in trouble!

[johnyj]

In future, every one will born with several million dollars debt to pay back, and when he die, that number will become several magnitudes higher

[AnonyMint]

In future, every one will born with several million dollars debt to pay back, and when he die, that number will become several magnitudes higher

Nothing is sure in life, except debtH and taxes.

[BitchicksHusband]

I'm in Australia, we don't have your nonsense conspiracy theorists, thank you.

The socialists are going to diehard. They are so fixated in their belief that what goes up (debt) never crashes back to earth and makes a big crater.

What are you talking about? We have no socialism down under.

In fact america is a communist society. Trying to make obamacare work, free stuff everywhere, food stamps for free, free free. Coupons, free. I mean we don't have any of this stuff down here. No funny coupons to get free stuff from the supermarkets...

We have one of the lowest debt levels in the OECD. Our interest rates are going up.

Either way it's relevant because if every other central bank starts raising interest rates. The U.S. Fed will have to do the same otherwise they will look like the odd one out. Get ready to make some money gaming your central bank. Stop complaining and go make some money.

Seriously, if we had negative interest rates, most people would just withdraw their money and put it under the mattress. That way you don't have to pay the bank to keep your money.

That's why it is not going to happen. Everyone knows how to game the Fed. That's why we should be thanking the Fed for giving us the opportunities to make money.

Everyone who has an interest in bitcoin has to thank the Fed for the price appreciation we have seen so far.

Bow down to your masters.

Most people already pay their banks to hold their money.  The fees are much higher than the interest in a year.  They would be better off with cash in a hidden safe.