FEDERAL RESERVE NOW INSOLVENT
Turner Radio Network
At present, the Federal Reserve Bank holds $3.84 trillion in outstanding
loans, with capital of just $54.86 billion, putting the Fed at 70-to-1
leverage against its stated capital. Talk about distortions. Bear
Stearns and Lehman were only leveraged at 30 to 1 but they collapsed like
the house of cards they were.
Given the relatively long maturity of Fed loan holdings, even a 20 basis
point increase in interest rates effectively wipes out the Fed?s capital.
With the present 10-year Treasury yield already above the weighted average
yield at which the Fed established its holdings, this is not a negligible
consideration.
In addition, the Federal Reserve now owns 50% of all U.S. Government
Treasuries maturing between 10 years and 15 years. That leaves barely
$100 billion of treasuries outstanding for the public to buy. This has
resulted in many companies issuing their own debt bonds for 10 years and
longer which is now distorting the corporate credit market.
The Fed has created such a void of paper that pension funds and others
that want somewhat longer dated assets need to fill with corporate debt.
This puts those Pension funds and others at greater risk if the economy
continues to tank and corporations start going bankrupt.
Not only is the Fed losing credibility, but their balance sheet is making
the Fed look increasingly insolvent. Remember, the Federal Reserve got
rid of all of its short-term government paper. All it owns now is
long-term paper.... And as long-term interest rates climb, the market
value of that paper declines.
With the rise in interest rates over the past 4 or 5 months, our guess is
that the market value of those Treasury securities has declined by more
than the Federal Reserve?s net worth.
On a straight accounting basis, the Federal Reserve?s net worth is already
wiped out because it?s leveraged at 70 times its net worth. When you are
leveraged at 70 times your net worth, all you need is a 2% decline in
asset value to wipe out your net worth.
Given its high leverage, given the fact that it?s been buying long-term
paper, and the fact that interest rates have been rising and the value of
that paper has been going down, the solvency of the Federal Reserve itself
should be called into question.
We are NOT licensed financial advisers and are NOT offering financial
advice. That said, it isn?t hard for anyone who can add and subtract to
see the entire banking system is on the verge of complete and total
collapse. It should also be obvious to any thinking person that the
activities of the banks are having such widespread effects, their collapse
? which is now a mathematical certainty ? will take just about everything
else with it.
Of course you should NOT make any financial decisions without first
consulting a licensed financial expert, but as one friend to another, we
suggest you get your cash out of the banks.
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