The Dirty Fed Quietly Rewrites Accounting Rules to Disallow Their Own Insolvency
Hey, any accountants out there to explain what the fuck a "negative liability" is? A normal person might assume a negative liability to be an asset (since a negative asset would, obviously, be a liability) but not in this case, this is magical Fed accounting we're talking about.
If you weren't paying attention (I know I wasn't, they snuck this one by me too), you probably didn't notice this January 6 announcement from our friends at the Board. The best part is they used "transparency" as an excuse. Oh it's transparent alright, just not in the way they hoped we'd think it was.
The Board's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," has been modified to reflect an accounting policy change that will result in a more transparent presentation of each Federal Reserve Bank's capital accounts and distribution of residual earnings to the U.S. Treasury. Although the accounting policy change does not affect the amount of residual earnings that the Federal Reserve Banks distribute to the U.S. Treasury, it may affect the timing of the distributions. Consistent with long-standing policy of the Board of Governors, the residual earnings of each Federal Reserve Bank, after providing for the costs of operations, payment of dividends, and the amount necessary to equate surplus with capital paid-in, are distributed weekly to the U.S. Treasury. The distribution of residual earnings to the U.S. Treasury is made in accordance with the Board of Governor's authority to levy an interest charge on the Federal Reserve Banks based on the amount of each Federal Reserve Bank's outstanding Federal Reserve notes.
Effective January 1, 2011, as a result of the accounting policy change, on a daily basis each Federal Reserve Bank will adjust the balance in its surplus account to equate surplus with capital paid-in and, in addition, will adjust its liability for the distribution of residual earnings to the U.S. Treasury. Previously these adjustments were made only at year-end. Adjusting the surplus account balance and the liability for the distribution of residual earnings to the U.S. Treasury is consistent with the existing requirement for daily accrual of many other items that appear in the Board's H.4.1 statistical release. The liability for the distribution of residual earnings to the U.S. Treasury will be reported as "Interest on Federal Reserve notes due to U.S. Treasury" on table 10. Previously, the amount necessary to equate surplus with capital paid-in and the amount of the liability for the distribution of residual earnings to the U.S. Treasury were included in "Other capital accounts" in table 9 and in "Other capital" in table 10.
What this means, for dumbass sheep like you and me, is that instead of a negative capital balance, it is instead a negative liability against the money they were going to turn over to the Treasury. So those last two huge announcements about record Fed "profits"? Just a fluff for the big assraping they gave us all via the Fed balance sheet. The worst kind of assraping too because they tried to do it silently and sneakily as if you wouldn't notice a giant ache in your taxpaying, higher-price-suffering ass after the fact.
Take note, accounting students, professors and professionals alike: the Fed called it a "change in presentation". Remember that when you are out in the field trying to figure out how to defraud investors and be sure to use it as a defense when the DoJ comes down on you for your criminal activity. What? Fraud? Me?! I merely changed that $900 billion liability into a debit to someone else's accounts receivable that we accrue for as if it is our own, it is merely a change in presentation!
Now I wonder what Bob McTeer has to say about that. Remember how he got all pissy the other day when a former Dirty Fed operative went spreading the truth about their scam?
First, there is no need for the Fed to mark to market since its assets are not held for trading and can easily be held to maturity or recovery if necessary. Second, the Fed’s liabilities are mainly the required reserves of the banking system not subjecting to withdrawal except as banking assets shrink. Fed liabilities are not hot money. Third, the Fed’s capital is required to be held by member banks and is subject to calls that would double its size if necessary. In other words, the Federal Reserve and other central banks are unique institutions and the usual rules and ratios don’t apply.
Regular banks, to some degree, still “borrow short and lend long.” They are vulnerable to losing deposits and faster than they can liquidate assets; so their capital is at risk. The deposit liabilities of Federal Reserve Banks, however, are the reserve deposits that banks are required to maintain at the Fed as a percentage of their own deposit liabilities. The excess reserve component has risen in the past two years, but mostly they are required reserves. The Fed’s ability now to pay interest on reserves, including excess reserves, gives it a tool, if needed, to incent even excess reserves to remain. In other words, those who hold the Fed’s liabilities are compelled to do so.
Aha! It's all clear now that Bob knew what idiots like us can't possibly figure out: this money laundering scheme is so genius that there's NO way it can go wrong. Look, he admitted right there what's happening and why it can't possibly fail. Well, assuming no one outside of the circle jerk who is pissed that these jackasses are inflating the currency to their heart's desire finds out and dumps their dollars. But that would never happen, surely.
Anyway, as of the latest Fed balance sheet release, they've come up with 2,895,000,000 as "Interest on Federal Reserve notes due to U.S. Treasury" for the 12 regional Fed banks. JDA finds that term to be hilarious since everyone knows we actually pay THEM for the privilege of using said Federal Reserve Notes so perhaps they could have come up with a better term like "Treasury Slush Fund to Make the Fed Look Solvent" or "Big Fat Lie Account".
We all saw what you did there.