Fed Will Bankrupt the People or the Government

The Federal Reserve is not understood at all by 99% of Americans.  It is not owned by the Federal Government and if you look at who the original owners actually are you would find some nefarious players. They essentially create money out of thin air and then loan that “money” out and charge interest on the thin air.  They also will “buy” US Treasuries by simply bidding on them at auction and using money they don’t have to “buy” them.  This is one way they control interest rates.  Since the Fed came into existence 110 years ago, the US Dollar has declined in value over 95%.  One day it will become worthless and some folks are saying that day is near...very near.  The emperor really has no clothes and the Fed really has no money.  When faith and confidence fail, so will the Dollar.  We hope this happens after the rapture.

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Why Is the Fed Insolvent Now?

A sizable part of the reason that the Fed has become insolvent in recent months (and almost certainly will be in 2023 overall) stems from the fact that since 2008, the Fed has bought up trillions of dollars in Treasury debt and mortgage-backed securities (MBSs). The Fed has done this to prop up the prices of real estate and government bonds (i.e., to subsidize Wall Street, banks, and the real estate industry.)

The end result? The Fed is now paying out more interest to banks than it earns in income from the MBSs and government bonds that it holds in its portfolio. Thus, as we saw in the Fed's Friday release, outflows in interest payments have surged but income has not, and the Fed is now forced to defer its promised payments to the Treasury.

Another complicating factor driving the Fed deeper into the red is the fact that its portfolio is also losing value.

(The key to understanding how this becomes a problem is to remember that bond prices move in the opposite direction of interest rates. So, as newly issued bonds' interest rates [i.e., yields] move up, the prices of existing bonds move down.)

As interest rates have moved up in the past year, the value of the Fed's MBSs and Treasury debt has fallen. So now the Fed also has less capital. Thanks to Enron-like accounting, however, the Fed's bankruptcy is legally just a matter of "deferred assets," so it's not a legal problem for the Fed.

Nonetheless, that the Fed's losses are likely to mount further and require a bailout can be seen in the fact that we've seen this sort of problem before. As noted by Alex Pollock in a 2022 lecture at the Mises Institute, the Fed has put itself in a situation similar to the one that sank the savings and loans in the early 1990s. 

Like the S and Ls, the Fed "invested" in large amounts of long-term debt at low fixed interest rates. But then interest rates went up. The fixed-rate interest income stayed largely the same, but interest payment obligations increased sizably. That's where the Fed is now.

For a normal financial institution, this situation leads to bankruptcy. But the Fed will bail itself out by printing money. In the end, that means price inflation, either in assets like stocks and real estate or in consumer goods like eggs and auto parts. 

Ordinary people will see their cost of living go up and their real wages fall, and they'll get poorer. Through it all, though, the Fed and the regime itself will benefit. As the Fed has been careful to say in recent days, its de facto bankruptcy does not impede its ability to carry out its usual inflationary monetary policy. 

Never fear--because the Fed can create its own income at will via monetary inflation, the regime will continue to benefit from the Fed's usual tricks. The regime will be able to run higher deficits, spending on "free" benefits for the voters and on corporate welfare for the politically powerful. It's all a great scam for the parasitical class. For the productive classes? Not so much.

 https://www.prophecynewswatch.com/article.cfm?recent_news_id=5851