"Creative Accounting" Makes Fed Insolvency Impossible

Fantastic Article below! The article explains a fundamental change to the Federal Reserve's Balance Sheet. This "creative accounting" is how the Federal Reserve will show its losses but will not call them for what they are, losses. This action by the Federal Reserve is accounting fraud at its core. The new account item is "Interest on Federal Reserve notes due to the Treasury.” The new account should be called "Capital Losses." The Federal Reserve, a private bank, is now transferring the losses, created by its policies of bailing out its friends, to the U.S. taxpayer.

This account I believe represents pure inflation. New money that was created out of thin air is now essentially backed by nothing. True losses are losses to capital and that is what this account represents. If the Federal Reserve increases its assets, then simultaneously decreases capital, we have a direct inflationary condition. Before this account was set up, the Federal Reserve essentially backed its assets with Federal Reserve Bank Deposits, which had a net zero effect on inflation/deflation. Now it appears the Federal Reserve wants to continue to expand its assets and simultaneously destroy its capital, which is inflationary.

Right now the "Interest on Federal Reserve notes due to the Treasury” account is relatively small, $2.9 billion. I will hawk this number for the next years as the Federal Reserve reduces its holdings in MBSs. I believe you will see the real bleeding in losses right here unless the Federal Reserve creates more accounting shell games.

This accounting fraud is just as deceptive as the Fed's account item "U.S. Treasury, supplementary financing account." This account should be called "Federal Reserve Debt Issuance." To learn more about this fraud, read this past post: The Treasury Supplementary Financing Program Is Federal Reserve Debt Issuance (Update 1).


"Creative Accounting" Makes Fed Insolvency Impossible