Former Federal Reserve governor William Ford joins Larry Kudlow to discuss the Federal Reserve and the possibility that the central bank, essentially of the entire world, may be just one step away from being technically bankrupt.
The Fed holds trillions of dollars in assets, but those assets carry interest rate risk, credit risk, and of course, the (likely) possibility that they have been overvalued by Federal Reserve accountants, which means when they go to sell these on the open market they will be revalued at a significant loss compared to the bank’s current mark-to-model valuations.
A lot of things can go wrong with the Fed’s current strategy, which begs the question: What happens when the world reserve currency’s central bank goes bankrupt?
(Video follows excerpts)
If interest rates rise by 1% on $1 trillion long-term bonds, you lose $150 billion in value and the capital value on their balance sheet last Thursday was a little over $50 billion, so they could be technically bankrupt.
…
They do their bookkeeping using a non-GAP method of bookkeeping…If you read their annual report of the 12 banks, their outside accounts says they use an accounting system – and this is a direct quote – unlike any other in the United States of America. I mean, what else do you need to know. they need to go to GAP accounting to report their earnings honestly.
…
They’re leveraging themselves like crazy.
Video Interview with William Ford:
Who do we call for a bailout if and when the Fed goes broke?
Hat tip Market Ticker, Tom of the North
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I use to watch Cudlowe. He’s an idiot.
OK…..somebody explain to me HOW you can go “bankrupt” when you have the ability to create unlimited “money” from thin air ?
I can see how you could destroy the currency with that ability, but I simply can’t see HOW you could bankrupt.
The whole thing is one Big Fraud and more people are startingto realsie it .The day is coming . Come on QE3 and QE4 and QE5 ,this will ensure a collapse quicker !!!!!!!
Comments….. I never see any frn’s printed in the year 2010, just plenty of pennies, nickels, and quarters. how about any of you guys and gals out there?????????????? Â
I agree with TnAndy. The private Federal Reserve wont officially be bankrupt until the USDs they print have a value of zero.
Just goes to show how slow the MSM is to report on the things we all have known for months if not years.  Morons…..
Can anyone assess this you tube? It’s from professor Richard Wolff from Massachusetts university.
His suggestion seems logical.
It has Greek subtitles but i couldn’t find another. Sorry if it causes any inconvenience.
Manos
Kudlow loves stocks (paper promises). I think that says it all.
Comments…..
Manos…..how did you insert that youtube video? I want to do the same but have no idea how to do it.
@Manos…Watching your video, have to say it is the typical class-warfare BS to from the left. Why is the answer always higher taxes? The answer is the government needs to STOP!  STOP THE SPENDING!! CUT THE SPENDING!! These elitist liberals think that they have a right to the peoples money (through taxes) that those people (well most) worked for. I for one do not believe that it is my job to fund the governments fraudulent, wasteful, immoral spending.Â
Comments…..My local bank teller had stacks of new FRN’s in Dec 2010. She was complaining about them. Harder to count accurately.
TnAndy, excellent point – and I, too, am a bit confused as to how the FED of all companies, could go bankrupt. I guess they would be “technically” bankrupt, but only until they print more money or QE more money to the Treasury, which would then ‘lend’ it back to them as a bailout? I really don’t know, and that’s why I found this interview quite interesting.
Slippery, I inserted Manos’ video when moderating the comment. I try to do that with videos whenever I catch a comment in the moderation queue, but don’t always get to them.
If you post the link within your comment, and I catch it when approving the comment (WordPress requires that I moderate and approve all comments with links) then I will try to embed directly on the page so that people don’t have to leave the site to watch it.
Thanks!
Mac
Comments…..Thanks Mac. Let’s see if this works. It’s from The Silver Bear Cafe.
Home
Damn…update from Markets entity…
Too many immediacy values with too high sums in the impact, duration, and tension levels to ignore so had to stop work to extract and post the update below. Rest of the report better not be like this or it will take forever….
Extract from upcoming Shape Report: Markets entity:
As 2010 fades rapidly from sight, and mind, we note that the Markets entity is pretty much as its primary supporting descriptors would have it, a [basket (of) crises]. The [basket-case markets] set has secondary support coming from [interwoven] and [inextricably twined] which are themselves both supported at their primary levels by [bad foods] which, given its supporting sets, we are interpreting as [indigestible products]. These [indigestible (financial) products] are about to make [minions (within markets)] go into [spasms] of [violent puking]. This is indicated to be a [planet wide] level event, that in its turn brings [international grievances] and [inter country tensions] to a [visible] and [frightening] level that will be described (in the msm propaganda press) as being a [boil over] situation. The interpretation that we have about the [indigestible products] is that they fall into the category of [derivatives] in general, but specifically there are linguistics around the idea of a [gold price tied/bound] form of [derivative] that [fails] in an [instant] due to a [crisis] in the [gold/precious metals market]. This forecast is based on a lot of immediacy data value sets and so may be within days of happening, and likely will be occurring by the time that this Shape report is published.
Â
clif
January 11, 2011
riseandriseagai,
You’re right that they must not add more taxes to us; the plain people.
But this guy suggests to tax the stocks and bonds that millionaires have. He says that if a government does this, there is the potential to eliminate any deficit without touching the people.
In any case, i too believe that no measures can turn the tide back. Decisions have been made in lobbies and offices beyond our imagination.
Small things though can slowly give a new breeze. To give you an example.
Greek contractors took over the national highways and placed tolls every 30 miles. For a trip from Athens to Salonica one needs around 45 euros for toll fees only.
Some angry people found the contracts and international laws, and discovered some black points concerning the payment in relation to quality of the road.
Today, almost 6 months later, 50% of citizens don’t pay the toll. They just step out of the vehicle, push the bar aside, and continue.
It’s very funny and the government along with the private companies cannot do a single thing about it. Most of these companies are now try to think a way to escape the “investment”.
Manos
Kevin, they havent been literally printing money with the QE, they have been pushing digital money to the banks. Basically they are adding zeroes. The Bernanke actually says that in his latest interview with 60 minutes.  They call it Digitizing. So I guess we can say they are “Digitizing the debt”*, rather than “monetizing the debt”.
*That term is copyright me 2011!
You are correct Havok. But they are digitizing the world, military, Fannie, Fredie & T bills also.
As I sit and watch these videos…I bought a new shirt. I’m double sewing all the buttons. I plan on having this shirt the next 20 years. In short, I don’t plan on spending any more money…just the basics….I bought my last flat screen, cancelled cell phones and such. No more vacation. What do I buy? SILVER SILVER SILVER.  Even if it goes down in price…at least the govt. cannot steal it easily.   This is the age of wealth preservation. Not rate of return. In the end…the dollar will collapse…the metals will go through the roof. Can you say Wealth Transfer via fiat currency default. Then, in that year…I’ll cash in the silver and buy farm land to leave to my family….with a supporting home I own that makes money to pay the farmland taxes. All locked up in a trust fund. At least my grand children will have the choice to live a free life. I had to go be a debt slave. ps. Fuck all the RV driving boomers. They caused all this. The should have been aborted or we should have had a massive war to “thin the herd”.   As for the NWO….I’ll be a data guy for them and give them wrong numbers and be a cubicle deweller sucking off them…as they trashed my generation…I’ll be a useful cog that is sleeping. ha
The Fed can print money, but the Federal Reserve Notes will be an asset as well as a liability. Therefore, printing money won’t make the Fed more solvent.
It is really hard to get your head around “bankruptcy for the U.S.”. We spent so much time preparing for the “one second after” scenario (solid book) and now it may just be death by a thousand cuts… or a thousand percent inflation. The dollar will always be around, but if no other country accepts it as payment… how do we pay for all that oil, rare elements, cheaply manufactured toys and food?Â
It sure seems like someone in Washington was hell bent on making the US the weakest that he could – apologizing and bowing to every other nation’s leader. He spent trillions to drive us deeper in debt with no end or recovery in site. He signed massive suffocating legislation to kill our best industries – health care/delivery, automotive manufacturing and banks (devastating your local bank and then left the NY Investment banks free to still screw us all).  His latest Food SAFETY bill will smother our family farms.Â
And the “greatest achievement” lately, signing the START treaty to give away our military defense systems to Russian authority.Â
When the world reads the history of the early 21st century for what once was the US of A – his name will sure be prominent. I think he did achieve the CHANGE that he wanted. He may go down as the most “successful” President ever – accomplishing exactly what he was built to do. Destroy your Country, its economic prowess and its military dominance without the sword – just the pen. Wow.
I read a lot of comments in different places for people who planned and maybe really wanted a “One Second After” scenario… Americans can survive that – we did once against the King of England, we’d do it again. While we planned for that end of times, our Leader in the Oval Office put so much weight in our saddle – the U.S.A will never win another horse race. He didn’t kill our country – He broke our capitalist legs. Chicago Politics.Â
November 2012 can’t get here soon enough – it may not before we watch our hard earned dollars turned into hard earned bird cage liner.
Look to God…look really hard this time.
TnAndy asked, “OK…..somebody explain to me HOW you can go “bankrupt†when you have the ability to create unlimited “money†from thin air ?”
Answer:
It’s Not as simple as “just printing” more money.
Bankruptcy is Not when the USDs they print have a value of zero, it’s before that point.
“[Geithner] said the government will default. This means that the government doesn’t have enough cash to pay its obligations to the many and sundry persons to whom it owes cash unless Congress authorizes an issue of even more debt.
After the government issues the new debt, its overall debt will be even higher than before. Unless its obligations that require cash payments are reduced, or unless it finds new sources of revenue, or unless the interest rates that it pays decline, the same situation will surely occur again and occur even faster because its overall debt will have risen. It will run short of cash to pay its obligations.
Suppose that you had a debt of $10,000 that required a payment of $500 in order to stave off your creditors’ seizing your assets. Suppose that you didn’t have the $500. One way out would be to borrow $500 from a new lender and use that $500 to pay off the old lenders. That buys you time. However, now you have debts of $10,500. You have to find ways of lowering this or else you will again be faced with an even worse situation.
You are approaching insolvency when you begin to run out of new lenders who are willing to add to your debt. The willing lenders dry up because they know that they have to get in line to get their promised payments while you continually seek out new borrowers, all the while making your situation worse and worse.
Knowing their precarious position, the new lenders are likely to demand rising default risk premiums.
That means they demand higher interest rates.
That means your cash payment obligations go up. That hastens your approach to insolvency.
Insolvency occurs when you cannot find enough cash from any source, even new lenders, in order to make required payments.
The U.S. is approaching insolvency, according to its Treasury Secretary. He didn’t put the matter in precisely that way, but he put it in words that are as close as you can get to it. He said that the U.S. would default, and its only way out at this moment is to issue more debt…”
http://www.lewrockwell.com/rozeff/rozeff338.html
Comments…..
TnAndy..because the money they create out air is…uh…air!
An FRN is a prommissary note. Every prommissary note is backed by something. The question is what? If you haven’t noticed, the FRN has nothing on it stating it is backed by full faith and credit, blah, blah. Got no faith and I don’t give credit.
FRNs were designed as a transactional currency, not as a store of wealth. It is meant to be spent. Wealth is tangible, not some piece of paper.
Yeah….got that point JJ……because they’ve driving it home since 1913, when 20 paper dollars would buy a 20 dollar gold coin, and today it takes 1400 paper dollars to do the same thing.  You’d THINK that alone would motivate folks to end the FED.
But until they drive the value of the paper dollar to zero and all it is a trinket of history, like the French Assinat, or the Continental dollar or the Confederate dollar, then there doesn’t seem to be any way they can “go bankrupt”……at worst, they might have trouble floating all the digitized cash out into the system…..which is what I think buying up crap assets like toxic mortgages is REALLY all about…..a way to keep the money system expanding, which by it’s debt nature, MUST be done so payback of previous debt + interest can happen. They can’t let true deflation of the money supply set in, or the whole thing will suck into a black hole.
if rates go up to 6% again whoooohooo I’ll start makin money again. Than a 2 or 2.5% COLA on that.
Everything is going up in cost no matter what the BLS says, and berrnie needs to raise rates soon. All you see now are stories of food riots. no inflation my ass.
Of course the metal heads will be wondering what happned, sm
Manos: Thanks for sharing that video but it is a very frustrating ideology that he is sharing.Â
His logic is that the solution to government excesses is to steal from others. Â
For now he is proposing a 10% tax on their stock portfolio, then in 10 more years it will be another 10%, and then another, until finally these high net worth individuals will liquidate their stocks or move out of the country or both.
This is an ideology of theft.
Mike,
The guy is an “official” marxist (if i may use this word).
Their basic philosophy relates to capital=theft. So more or less it considers rich people as wealthy individuals who became wealthy by exploiting masses of poor people.
I’m sure that it is not the best, and in any case we all saw that communism and marxism gradually failed.
To pay the devil’s advocate though, if rich people really wanted to see peace and love all over the world, i’m sure they could give away some of their money.
Judging from my country’s experience, all rich people have stolen, one way or another, from the state. Today, through the infamous austerity measures, the Greek people are being called to save the country.
My dad was working since he was 15. Today in his 73, the state cut his pension by 540 euros per month because the country was (or still is) going down. But his pension was actually his life-time savings. So something is wrong here.
A final remark. The money given to Europe, actually come from your pockets. So as soon as the austerity hits U.S. who is going to save you?
The Chicom probably? And if so, with what interest?
Check out the book The Creature from Jekyll Island : A Second Look at the Federal Reserve by G. Edward Griffin.
Not only does that book do an incredible job at dissecting the Federal Reserve, it even explores the question why would they do something they know would result in its failure.
Another thing the great majority of the masses do not realize is that the stock holders of the Fed (those banks which are members) are guaranteed a 6% return on the amount of those holdings, *before* anything is given back to the Treasury.
See Section 7, (a), 1., A. of the Federal Reserve Act.
Here’s the pertinent piece:
“After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend of 6 percent on paid-in capital stock.”
Complete section from the Horse’s Mouth:
http://www.federalreserve.gov/aboutthefed/section7.htm
Of very interesting note is the fact that the Revenue Act of 1913 was signed into law on October 3, 1913, *before* the Federal Reserve Act was signed into law on December 23, 1913. The Revenue Act of 1913 is, of course, the law that gave us the federal income tax.
Since 1971, after President Nixon unpegged the dollar from gold, the U.S. dollar has been backed by debt, and thus the full faith and credit of the U.S. government, AKA U.S. taxpayers. To make matters worse, if everyone in the U.S. paid back all debt, we would essentially wipe out our money supply since it is, for the most part, the sum of our total debt.
What a trump card, eh?
The continued calls for higher taxes on the “rich” are also problematic. Right now, 1% of wage earners in the U.S. pay 40% of the total tax burden. When taxes go higher, those paying the most tend to relocate, which pushes the tax burden down the totem pole. And that’s absent the argument higher taxes are a punishment for those who are more successful and productive, let alone being an obstacle for those who are striving for similar success and productivity.
The case is made that the Dollar is already worth zero in the article, Gold Versus Defective Economists and Delusional Leaders on Drugs:
“All that is accomplished by making capital freely available to the world who doesn’t want it or need is to confirm for even the unborn and newly dead that the capital proffered is worth exactly its cost: zippo bippo.”
“For Canadians, there will be much less pain, but pain nonetheless.”
http://financialsense.com/contributors/james-west/gold-versus-defective-economists-and-delusional-leaders-on-drugs
Rhea, (if this is your name),
This you suggest, which is supported by the site, is a pure escape.
Just give up your arms to the enemy and let him take your castle.
I don’t agree with you. I’m not an American citizen, but if i lived there i would try to gain my life, dignity, self respect, and FREEDOM. All that by staying on my ground and surely not going to work for Cosco, or Mitsubishi, or Daewoo.
What happened to U.S. companies, U.S. farms, or inudstries?
You N.W.O employees managed to take knowledge from this country, and now you want to suck human resources?
Unless you are just so good people with pink beautiful hearts, and you really want to help the nation.
But if so, why don’t you try to find jobs to people within the country?