2 votes

Federal Reserve going bankrupt

There has been a lot of uncertainty as to what the Fed going insolvent actually means. Traditionally central banks are supposed to be self-funded, their expenses are meant to be paid out of interest earnings. In times where the Fed has been or is anticipated to be short on capital, the Treasury has provided supplementary financing to the Fed.

The threat of a Fed insolvency is more a political issue than anything technically impairing to the Fed in terms of continuing operations. The Fed's liabilities are not redeemable so they can never become cash flow insolvent in a bank run environment one normally associates with a bank bankruptcy. The Fed has infinite power to issue further liabilities so is in no way technically restrained by having the capital wiped clean. The Fed can easily fund operations internally by issuing liabilities, though indirect routes are more likely to be taken to skirt the political mess associated with such a scenario.

Whether the Fed can legally operate without seeking financing from the Treasury in the event their capital is wiped thin is the biggest question that still remains. I wish this would be addressed to the Fed chairman, or preferably the Fed's legal council directly so we can finally validate where the Fed stands given a capital deficiency.


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Gee, if only all the money

Gee, if only all the money created had to be backed by hard assets.

To climb the mountain, you must believe you can.

Hard to go bankrupt

when you are the one with the ONLY printing machine making the FRN's. I seriously doubt the 'FED' uses anything in the realm of real value to back these dollars in their vaults. After all, they have 300 million Americans that agencies of our Beloved Government (the IRS, HSA, TSA, and other armed agencies with 2 Billion rounds of hollow point ammo) will go after to get what is owed when it's time.

The American people will be bankrupted by force. The Fed only creates debt in OUR name to be backed by us and takes profits off the 'loans' it burdens us with.

I can't be broke,

I still have checks!

Tweeting occasionally as himself @cudnoski on the twitter.

The Goose that laid

the green paper egg retired?