Tuesday, February 26, 2013

The Federal Reserve Is Already Insolvent

"I am making the assumption that the Fed will not suffer any losses on the toxic mortgage securities it still holds, and that its other assets are recorded at a fair market value. Both of these generous assumptions would mean that the Fed is probably in worse financial shape than I am indicating.

So the Fed governor's study is off-the-mark. So, again, the Federal Reserve is already insolvent, but like all banks, they get around this reality with accounting gimmicks. A bank only marks assets to market if they are in the bank's “trading” portfolio. If the bank claims it will hold the asset to maturity, the asset is put into its “investment” portfolio and does not need to be marked to market. Of course this accounting gimmick only masks the true value of the asset.
But the simple analysis above reveals that the Federal Reserve is insolvent. Like many zombie commercial banks that are still operating by being propped up with government handouts, the Federal Reserve is liquid, but not solvent. What is important for investors to understand here is that this is dire news for the dollar.”

- James Turk, via a recent King World News Interview: