Audit of the Federal Reserve Reveals $16 Trillion in Secret Bailouts

[bf4btc]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

China is a net exporter of goods to the US. This essentially forces them to be a net buyer of US dollars. If they did not do this then their currency would get too strong which they do not want (and would hurt their own economy)

[RoadTrain]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

China is a net exporter of goods to the US. This essentially forces them to be a net buyer of US dollars. If they did not do this then their currency would get too strong which they do not want (and would hurt their own economy)

Exactly. The simple accounting principles tell us that Chinese are accumulating dollars because they have to, not because they want to.

[BTCmoons]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

China is a net exporter of goods to the US. This essentially forces them to be a net buyer of US dollars. If they did not do this then their currency would get too strong which they do not want (and would hurt their own economy)

Exactly. The simple accounting principles tell us that Chinese are accumulating dollars because they have to, not because they want to.

They really don't have many other options for investments to use their massive trade surplus. The Euro is really only the viable option, however it's face is not certain and it has come close to breaking up in recent years. The next widely traded currencies are the british pound and the yen which are really too small for the Chinese to buy in any significant quantities. 

[rugrats]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

Or, the Federal government can impose some form of currency controls, preventing instrument holders from removing their dollars out of the country.
Or, the Federal government can just impose a payment moratorium on Chinese-held instruments under some made-up pretext.

Either way, it remains in China's best interest to remain on friendly economic terms with the United States.

[RoadTrain]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

Or, the Federal government can impose some form of currency controls, preventing instrument holders from removing their dollars out of the country.

Well, there's no reasonable way to remove these dollars out of the country.

[rugrats]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

Or, the Federal government can impose some form of currency controls, preventing instrument holders from removing their dollars out of the country.

Well, there's no reasonable way to remove these dollars out of the country.

I'm sorry, but I'm not quite sure I get what you're saying.
Billions of USD exit the United States daily.
Enforcing capital control is the only method to stem the outflow.

[RoadTrain]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

Or, the Federal government can impose some form of currency controls, preventing instrument holders from removing their dollars out of the country.

Well, there's no reasonable way to remove these dollars out of the country.

I'm sorry, but I'm not quite sure I get what you're saying.
Billions of USD exit the United States daily.
Enforcing capital control is the only method to stem the outflow.

I mean, the only way to 'remove' dollars out of the U.S. is to convert them to cash, load a tanker with it, and sail away.
But today, when dollars are mostly electronic, they are not 'leaving' U.S., they remain in the financial system.

Imagine an Asian export company that sells goods to the U.S. The dollar revenue they receive is credited to their account in some U.S. bank. It's still in the U.S.

[rugrats]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

Or, the Federal government can impose some form of currency controls, preventing instrument holders from removing their dollars out of the country.

Well, there's no reasonable way to remove these dollars out of the country.

I'm sorry, but I'm not quite sure I get what you're saying.
Billions of USD exit the United States daily.
Enforcing capital control is the only method to stem the outflow.

I mean, the only way to 'remove' dollars out of the U.S. is to convert them to cash, load a tanker with it, and sail away.
But today, when dollars are mostly electronic, they are not 'leaving' U.S., they remain in the financial system.

Imagine an Asian export company that sells goods to the U.S. The dollar revenue they receive is credited to their account in some U.S. bank. It's still in the U.S.

You're laboring under a flawed assumption, RoadTrain.
Actually, dollars do leave the country, either electronically or physically - every minute of every single day.
Foreign exporters are not required to hold bank accounts in U.S to conduct trade.
Flip to page 14 (Table 2), and you can see the entire foreign direct investment (not trade) outflow of dollars from the U.S. for the period between 2007-2012.

[RoadTrain]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

Or, the Federal government can impose some form of currency controls, preventing instrument holders from removing their dollars out of the country.

Well, there's no reasonable way to remove these dollars out of the country.

I'm sorry, but I'm not quite sure I get what you're saying.
Billions of USD exit the United States daily.
Enforcing capital control is the only method to stem the outflow.

I mean, the only way to 'remove' dollars out of the U.S. is to convert them to cash, load a tanker with it, and sail away.
But today, when dollars are mostly electronic, they are not 'leaving' U.S., they remain in the financial system.

Imagine an Asian export company that sells goods to the U.S. The dollar revenue they receive is credited to their account in some U.S. bank. It's still in the U.S.

You're laboring under a flawed assumption, RoadTrain.
Actually, dollars do leave the country, either electronically or physically - every minute of every single day.
Foreign exporters are not required to hold bank accounts in U.S to conduct trade.
Flip to page 14 (Table 2), and you can see the entire foreign direct investment (not trade) outflow of dollars from the U.S. for the period between 2007-2012.

Money flows are virtual. When money "flows" from an American company to a Chinese one, it only changes the ownership, but it all happens over the U.S. payment system, namely the Fed payment system. If not directly, then via intermediaries.

As I said, only physical dollars can actually leave the country. You'd better tell me what implications it has on the U.S.

[rugrats]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

Or, the Federal government can impose some form of currency controls, preventing instrument holders from removing their dollars out of the country.

Well, there's no reasonable way to remove these dollars out of the country.

I'm sorry, but I'm not quite sure I get what you're saying.
Billions of USD exit the United States daily.
Enforcing capital control is the only method to stem the outflow.

I mean, the only way to 'remove' dollars out of the U.S. is to convert them to cash, load a tanker with it, and sail away.
But today, when dollars are mostly electronic, they are not 'leaving' U.S., they remain in the financial system.

Imagine an Asian export company that sells goods to the U.S. The dollar revenue they receive is credited to their account in some U.S. bank. It's still in the U.S.

You're laboring under a flawed assumption, RoadTrain.
Actually, dollars do leave the country, either electronically or physically - every minute of every single day.
Foreign exporters are not required to hold bank accounts in U.S to conduct trade.
Flip to page 14 (Table 2), and you can see the entire foreign direct investment (not trade) outflow of dollars from the U.S. for the period between 2007-2012.

Money flows are virtual. When money "flows" from an American company to a Chinese one, it only changes the ownership, but it all happens over the U.S. payment system, namely the Fed payment system. If not directly, then via intermediaries.

As I said, only physical dollars can actually leave the country. You'd better tell me what implications it has on the U.S.

Just to be clear,

(i) Are you saying that when, say, a Bank of America branch in New York is instructed to transfer US$1 million to the Industrial & Commercial Bank of China in Guangdong, the Federal Reserve merely change the ownership of said funds in its "payment system"? Do they automatically create third-party accounts for ICBC as well in their payment system?

(ii) What do you think it means when countries say they have $xxx million US dollar reserves?
Does that mean the Feds has internally allocated US$xxx million in its "payment system"?

(iii) When a Japanese company pays for a product supplied by an Egyptian company in US$, do the affected parties (or their banks) contact the Feds to facilitate said payment?

(iv) Does the Feds directly participate as middlemen in foreign exchange trades between brokerages?

I am really, really trying to understand what you are trying to argue with me here.

Edit: Also, are you still maintaining that foreign companies have to open U.S bank accounts to trade with American companies?

[RoadTrain]

(i) Are you saying that when, say, a Bank of America branch in New York is instructed to transfer US$1 million to the Industrial & Commercial Bank of China in Guangdong, the Federal Reserve merely change the ownership of said funds in its "payment system"? Do they automatically create third-party accounts for ICBC as well in their payment system?

Considering that Industrial & Commercial Bank of China has a subsidiary in the US, that well may be that simple. Anyway, the bank must somehow have access to the US payment system, either directly or through intermediaries.

(ii) What do you think it means when countries say they have $xxx million US dollar reserves?
Does that mean the Feds has internally allocated US$xxx million in its "payment system"?

It means that they have amassed some dollars that they can use. It's like a bank account.
Some portion of these reserves is placed at the Fed directly, yes. Reserves can also be managed by intermediary financial institutions (custody services).

(iii) When a Japanese company pays for a product supplied by an Egyptian company in US$, do the affected parties (or their banks) contact the Feds to facilitate said payment?

I think they don't. It's usually done via SWIFT, i.e. by using payment orders between banks. Anyway, the banks need to somehow have access to the dollar payment system, either directly or via intermediaries

(iv) Does the Feds directly participate as middlemen in foreign exchange trades between brokerages?

I doubt it, but everything is linked to the Fed payment system anyway.

Also, are you still maintaining that foreign companies have to open U.S bank accounts to trade with American companies?

I don't, and I never did. It was just a figure.

[Eastwind]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

China is a net exporter of goods to the US. This essentially forces them to be a net buyer of US dollars. If they did not do this then their currency would get too strong which they do not want (and would hurt their own economy)

Exactly. The simple accounting principles tell us that Chinese are accumulating dollars because they have to, not because they want to.

They really don't have many other options for investments to use their massive trade surplus. The Euro is really only the viable option, however it's face is not certain and it has come close to breaking up in recent years. The next widely traded currencies are the british pound and the yen which are really too small for the Chinese to buy in any significant quantities. 

One day if the US cannot afford the goods from China, USD is useless.

[rugrats]

(i) Are you saying that when, say, a Bank of America branch in New York is instructed to transfer US$1 million to the Industrial & Commercial Bank of China in Guangdong, the Federal Reserve merely change the ownership of said funds in its "payment system"? Do they automatically create third-party accounts for ICBC as well in their payment system?

Considering that Industrial & Commercial Bank of China has a subsidiary in the US, that well may be that simple. Anyway, the bank must somehow have access to the US payment system, either directly or through intermediaries.

(ii) What do you think it means when countries say they have $xxx million US dollar reserves?
Does that mean the Feds has internally allocated US$xxx million in its "payment system"?

It means that they have amassed some dollars that they can use. It's like a bank account.
Some portion of these reserves is placed at the Fed directly, yes. Reserves can also be managed by intermediary financial institutions (custody services).

(iii) When a Japanese company pays for a product supplied by an Egyptian company in US$, do the affected parties (or their banks) contact the Feds to facilitate said payment?

I think they don't. It's usually done via SWIFT, i.e. by using payment orders between banks. Anyway, the banks need to somehow have access to the dollar payment system, either directly or via intermediaries

(iv) Does the Feds directly participate as middlemen in foreign exchange trades between brokerages?

I doubt it, but everything is linked to the Fed payment system anyway.

Also, are you still maintaining that foreign companies have to open U.S bank accounts to trade with American companies?

I don't, and I never did. It was just a figure.

Roadtrain, the Fed "payment system" you spoke of is actually Fedwire, which is similar in nature to CHIPS, SWIFT and ACH.
These are clearing houses that facilitate transfer of funds between endpoints with reciprocal arrangements.

To make it easier for you, think of fund transfers before the internet, when telex, telegraphic, fax or even phone instructions between reciprocal parties are conducted, including those by Fedwire - hence the use of routing codes in the form CHIPS UID, Fedwire ABA, IBANs and SWIFT BIC to transfer funds to specific designees.
Settlements, netting and novation via direct transfers, basket of currencies or instruments are thereafter conducted to balance book shortfalls of endpoint agents.
Actual settlements DO take place on regular basis, and funds are not held in trust.

For your reading pleasure:
• Page 100-106, THE DEPARTMENT OF THE TREASURY BLUEPRINT FOR A MODERNIZED FINANCIAL REGULATORY STRUCTURE 
• Transparency and Compliance for U.S. Banking Organizations Conducting Cross-Border Funds Transfers 

Now, going back to my original statement of currency controls to restrict the outflow of dollars, there are precedents - similar frameworks were enacted in Chile (1991-98) and Malaysia (1998 - now).

• INTERNATIONAL BORROWING, CAPITAL CONTROLS AND THE EXCHANGE RATE: LESSONS FROM CHILE
• Did the Malaysian Capital Controls Work?

Also, are you still maintaining that foreign companies have to open U.S bank accounts to trade with American companies?

I don't, and I never did. It was just a figure.

Your words.

Imagine an Asian export company that sells goods to the U.S. The dollar revenue they receive is credited to their account in some U.S. bank. It's still in the U.S.

[zinger]

Well, that is the work of the government and its aids. We should not be surprised by it.

[Kluge]

Economists and Libertarians both must be scratching their heads at this type of information.

Bottom line is that it is a complete mystery that these loans haven't created more than just a yawn in the global economy.

Either:

1. It is only a matter of time before these new dollars have the classic negative impacts that we expect when a government basically prints money by the truck load.

OR

2. Every economist and Libertarian needs to adjust their views on fiat money, printing and the like.

I think #2 is more likely as I don't see a global collapse of value. It just hasn't happened. Doubling my gas and milk prices in 7 years is not enough for me to buy into an economic collapse around the world.

Can't we agree, there are certainly some new economics in play here that we don't have our heads wrapped around yet?....

AFAIK, there's never been a proven correlation between more USD being created and CPI increasing. Ever. CPI seems to be almost entirely dependent on economic dynamism and a RNG.

[pattu1]

The same thing is with government debt. It's in there because domestic private and foreign sectors are willing to save. There are no any shenanigans in this, sectoral balancing is a simple thing that anyone can manage understand.

The day foreign countries like China decide they have enough USD, the government may find it difficult to manage its high debt levels.

China is a net exporter of goods to the US. This essentially forces them to be a net buyer of US dollars. If they did not do this then their currency would get too strong which they do not want (and would hurt their own economy)

Exactly. The simple accounting principles tell us that Chinese are accumulating dollars because they have to, not because they want to.

They really don't have many other options for investments to use their massive trade surplus. The Euro is really only the viable option, however it's face is not certain and it has come close to breaking up in recent years. The next widely traded currencies are the british pound and the yen which are really too small for the Chinese to buy in any significant quantities. 

One day if the US cannot afford the goods from China, USD is useless.

As long as China holds large amounts of USD, they will not allow this to happen.

[RoadTrain]

Roadtrain, the Fed "payment system" you spoke of is actually Fedwire, which is similar in nature to CHIPS, SWIFT and ACH.
These are clearing houses that facilitate transfer of funds between endpoints with reciprocal arrangements.

I can't agree here. Fedwire is fundamentally different from the rest because it's a real-time gross settlement system and is directly operated by Federal Reserve banks. It doesn't employ any netting or bundling. It's actually the backbone for the whole US dollar payment system. As the base money is transacted via Fedwire, any other payment systems ultimately rely upon it.

Certain payment and securities settlement systems, such as CHIPS and CLS, also rely upon Fedwire Funds Service to allow participants or their correspondents to provide necessary funding. CHIPS and CLS also use Fedwire Funds Service for settlement services by establishing zero-balance settlement accounts to settle clearinghouse participant obligations.

As the Fed is a source of dollars and it controls the dollar payment system, how can dollars leave the U.S.? Maybe if you explain that, we can reach to an agreement.

[scarsbergholden]

Economists and Libertarians both must be scratching their heads at this type of information.

Bottom line is that it is a complete mystery that these loans haven't created more than just a yawn in the global economy.

Either:

1. It is only a matter of time before these new dollars have the classic negative impacts that we expect when a government basically prints money by the truck load.

OR

2. Every economist and Libertarian needs to adjust their views on fiat money, printing and the like.

I think #2 is more likely as I don't see a global collapse of value. It just hasn't happened. Doubling my gas and milk prices in 7 years is not enough for me to buy into an economic collapse around the world.

Can't we agree, there are certainly some new economics in play here that we don't have our heads wrapped around yet?....

AFAIK, there's never been a proven correlation between more USD being created and CPI increasing. Ever. CPI seems to be almost entirely dependent on economic dynamism and a RNG.

CPI changes based on the demand and supply of goods and services. It will increase when the economy grows so quickly that growth in economic demand will outpace growth in economic supply AND there is not enough incentives to keep money in savings type products.

[rugrats]

Roadtrain, the Fed "payment system" you spoke of is actually Fedwire, which is similar in nature to CHIPS, SWIFT and ACH.
These are clearing houses that facilitate transfer of funds between endpoints with reciprocal arrangements.

I can't agree here. Fedwire is fundamentally different from the rest because it's a real-time gross settlement system and is directly operated by Federal Reserve banks. It doesn't employ any netting or bundling. It's actually the backbone for the whole US dollar payment system. As the base money is transacted via Fedwire, any other payment systems ultimately rely upon it.

Certain payment and securities settlement systems, such as CHIPS and CLS, also rely upon Fedwire Funds Service to allow participants or their correspondents to provide necessary funding. CHIPS and CLS also use Fedwire Funds Service for settlement services by establishing zero-balance settlement accounts to settle clearinghouse participant obligations.

As the Fed is a source of dollars and it controls the dollar payment system, how can dollars leave the U.S.? Maybe if you explain that, we can reach to an agreement.

1. Please stop cherry picking my quotes. Kindly respond to my posts in its entirety.
2. Please read the links I've provided. Please don't ignore them and then ask for an explanation. I honestly can't believe we're still on this subject. I hope you're not just arguing for pride.
3. The Federal Reserve and the Fedwire are not the same. One is a central bank, and the other is a payment system facilitating fund transfers between reciprocal domestic agents. Useful reading to differentiate between central banks and clearing houses: http://www.chicagofed.org/digital_assets/others/events/2014/annual_over_the_counter_derivatives_symposium/tucker_clearinghouses_new_central_banks_tucker_2014.pdf
4. Fedwire works alongside other clearing houses, especially for international transfers. However, the Federal Reserve has it's own liquidity swaps program with several central banks. Guess what they're swapping? http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm
5. Fedwire's RTGS system is not unique - nearly all first world central banks performs RTGS - as well as those in the majority of developing coutries.
6. Central banks, banks, financial institutions, and private corporations are different entities. Central banks, like the Federal Reserve, DO NOT have access to private wealth - even in Communist nations.
7. Your own link above does not contradict what I said.

8. Let's do a quick recap:
I originally said the U.S. Federal government might implement currency controls as one of the options to circumvent a dollar debt crisis with China.
You say dollars do not leave the Feds and the U.S.. You say foreign companies trading with U.S companies must have local bank accounts.
We've already established that both of these assertions are incorrect.

9. A concise summary on the subject: What happens to the US dollars used to buy imports?

Let me end this by presenting a few more questions for you to ponder on.
• Why do you think the Chilean and Malaysian governments implemented currency controls if it has no effect on their currency outflow?
• Why do commercial banks in U.S. are required by federal law to seek coverage of the Federal Deposit Insurance Corporation?
• Why do you think some people hide their dollars - electronically - in bank accounts in Switzerland, the Cayman Islands or the Bahamas, if it's still in the U.S?
• Why is money laundering an issue if the Feds has control of all of the dollars?
• Why do the Federal government blacklist banks or bank accounts of terrorist organizations if the Feds have control of these funds?

[RoadTrain]

rugrats, you don't argue kindly, so don't ask me to do the same.

You say foreign companies trading with U.S companies must have local bank accounts.

I never said so, stop claiming that. That was a figure.

Imagine an Asian export company that sells goods to the U.S. The dollar revenue they receive is credited to their account in some U.S. bank. It's still in the U.S.

Don't you understand the word "imagine"? Where is the word "must" what you repeatedly put in my mouth?

2. Please read the links I've provided. Please don't ignore them and then ask for an explanation.

I've read your links. Honestly, they didn't give me anything new. That's why I asked for your explanation as if it could shed some light on the issue.

3. The Federal Reserve and the Fedwire are not the same. One is a central bank, and the other is a payment system facilitating fund transfers between reciprocal domestic agents. Useful reading to differentiate between central banks and clearing houses: http://www.chicagofed.org/digital_assets/others/events/2014/annual_over_the_counter_derivatives_symposium/tucker_clearinghouses_new_central_banks_tucker_2014.pdf

Again, I never said they are the same. I said that Fedwire is operated by the Fed. C'mon, I know they're not equivalent.

4. Fedwire works alongside other clearing houses, especially for international transfers. However, the Federal Reserve has it's own liquidity swaps program with several central banks. Guess what they're swapping? http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm

Be more concrete, what's your point here?

5. Fedwire's RTGS system is not unique - nearly all first world central banks performs RTGS - as well as those in the majority of developing coutries.

I know that, and?

6. Central banks, banks, financial institutions, and private corporations are different entities. Central banks, like the Federal Reserve, DO NOT have access to private wealth - even in Communist nations.

Tell me the point of your statements concerning our discussion.

7. Your own link above does not contradict what I said.

Neither do yours contradict mine.

8. Let's do a quick recap:
I originally said the U.S. Federal government might implement currency controls as one of the options to circumvent a dollar debt crisis with China.
You say dollars do not leave the Feds and the U.S.. You say foreign companies trading with U.S companies must have local bank accounts.
We've already established that both of these assertions are incorrect.

Have you established that in your head only?

9. A concise summary on the subject: What happens to the US dollars used to buy imports?

Thus, we see that those US dollars that leaked out of the US economy from purchases of imports by labor or capital are counterbalanced in various ways, including foreign investment in the United States, loans from foreigners and the actions of foreign central banks.

This article states that the dollars somehow "leak" but given the BOP requirements, they must come back in form of loans, investments, etc.. That's exactly what I mean, dollars do no "leave" or "leak" the U.S.

Sorry, I won't comment the rest, we seem to be discussing different ideas...