2-22-2013 Economic Collapse: The Fed Just Went Bankrupt ... Game OverSubmitted by carpavel on Mon, 02/25/2013 - 21:00
DEAD MAN WALKING
James Turk Warns The Federal Reserve Is Already Insolvent
“... the Federal Reserve is already insolvent.” Turk also stated, “Because of the intense leverage that the Federal Reserve employs, this means the mark-down on its $2.844 trillion of securities is, in reality, a staggering $57 billion loss.” Here is what Turk had to say in this extraordinary interview:
... The Fed owns $2.844 billion of long-term debt securities. It also has $253 billion of other assets for which is does not disclose a detailed breakdown, but there is probably not much liquidity to them. But let's focus just on the securities.
The price of these securities have declined about 2.5% since their high prices and low yields were reached in June. But let's use a smaller percent price drop because the Fed has been purchasing long-term debt for a while, meaning that some of their paper has higher yields. This is also a conservative approach to take.
So instead of a 2.5% decline, let's assume the average price of the long-term paper owned by the Fed has declined by just 2% since June. Because of the intense leverage that the Federal Reserve employs, this means the mark-down on its $2.844 trillion of securities is, in reality, a staggering $57 billion loss, which is actually greater than the Federal Reserve's $55 billion equity. Because the loss on the Federal Reserve’s securities is already greater than its equity, this means that the Fed is already technically insolvent.
What's more, 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.
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