Should the Fed record dollars as equity or as liabilities?

[rpwi]

when they buy something, they inject new money into the economy & when they sell their assets, they withdraw/destroy money from the economy; therefore by the very nature of things, the assets they buy must go on Assets side & the money they create must go on the Liabilities side & I've also cited reasons why it does, that's how their accounting HAS TO BE in order to reflect their position

You are stuck pointing out that the grass is green, while I'm trying to explain to you that I already know this and that my point is the sky is blue. Are you familiar with accrual accounting? The core concepts are that when you purchase something you just swap assets...and when you increase your wealth from non-financing sources, you increase retained earnings (equity). In orders for dollars to be a liability, the dollars would have to be loaned from the banks to the Fed. The banks didn't create those dollars, so they can't loan them to the fed. Yes...the accounting 'adds up' with the status quo...but it is incorrect because dollars are credited to liabilities instead of equity.

From some of your previous posts in many other threads, I thought you were looking for an honest & objective view on things but I guess you buy too much into conspiracy theories & therefore you're unable to look at the issue objectively, as is the case with most people on this forum & elsewhere & because of which, Ron Paul & the whole movement loses a lot of credibility; but anyways, so as things stand, I don't see the point in carrying on,

Who said anything about a conspiracy theory (as if that is a bad thing)? I have yet to find another person who is making the same argument that I am (that the liabilities assigned to MB belong instead to equity).

if someone were objective enough they'd have gotten their answers by now with respect to why central-banks account the way they do

That's why you are confused. This entire thread you have been arguing the wrong arguments and assuming I'm arguing a position I am not. Your scope is too narrow...I understand fully how the Fed currently accounts for MB creation...I understand why they do this...I understand that is adds up in a black and white sense. I'm taking a step back and analyzing IF it should be done in this way. I've repeatedly demonstrated why...to which case you ignore what I write...and parrot simple Fed ledger entries. Because you don't understand what I'm arguing, this has given you false confidence and false exasperation. In your mind, you must repeat the same arguments, when in fact you need to take a step back and realize the argument was not what you thought it was.

It's not realistic for Treasury to default on its Treasuries with the Fed because Fed is owned by the government, it receives Fed's profits so the government also stands to bear Fed's losses so they'll have to cover the losses & that's why wiping out Fed-held debt isn't that easy; such a "default" would be pointless in essence because it's the money that government owes to itself, the only thing it will accomplish is to probably throw the markets & the economy into a turmoil

You just blew off a fairly significant question that would go some ways on your part in understanding what truly I've been talking about all along. HOW would you account for the government defaulting on t-bills owed to the Fed? Ledger entries and all?

 

[Exiled_LFOD]

The fed does not create money. The fed does not own the dollar. The history and origin of the dollar precedes the united States of America which technically makes the dollar foreign coin. Congress has been delegated the power to Coin Money, regulate the Value therof, and of Foreign Coin. Clearly, Congress should have never been delegated the power to regulate the value of anything only power to regulate the production of government competing Coined Money.

The fed issues private credit, specifically a private credit currency. The transaction the user making the counterfeiter argument is referring to, is the act of converting private credit to dollars which occurs before dollars are deposited or something is paid for in dollars by the fed. Just because two transactions occur simultaneously or instantaneously does not mean there is no order. It is self evident because if we observe these two transactions it is impossible to reverse the order. Private credit must be converted into dollars before a dollar can be deposited or credited to an account.

If I create private credit which I happen to have an unlimited supply like all individuals if it is fiat, there is nothing to record in the books as there is no transaction. However my private credit notes are not allowed to be fiat and do not look like dollars with a legal tender declaration.

If I issue my own private credit to someone this is a sample transaction:

The Note
LFoD agrees to issue private credit in the form of a negotiable instrument denominated in X units of Y so that undersigned can benefit today. Undersigned agrees to repay LFoD X units of Y plus I% interest in Z term so that LFoD can benefit in the future.

The Negotiable Instrument
Pay to bearer, on demand from LFoD, X units of Y.

The accounting is as follows:
Assets
Note
X units of Y
(if applicable, borrower collateral)
Liabilities
Negotiable Instrument
Owner equity capital loan to company in the form of X units of Y
{if applicable, return of borrower collateral)

A more accurate accounting would be:
Assets
X units of Y
Potential Assets
Note
Liabilities
Negotiable Instrument
Owner equity capital loan to company in the form of X units of Y
{if applicable, return of borrower collateral)

Fed buys one trillion dollars of assets from bank A.
Assets
Bank A assets.
Note (this is the magical part of the fed that is not accounted for because the Treasury incurs a 1T liability as every dollar is backed by the full faith and credit of the United States not the fed.)
Liabilities
Bank A deposits
(there is no owner equity capital loan to offset the note in the form of X units of Y except anything that was initially outlined at fed formation or subsequently amended in the federal reserve act. hence, fractional reserve.)

P.S. Josh & Bryan can still ____ __ ___.

 

[Paul Or Nothing II]

In orders for dollars to be a liability, the dollars would have to be loaned from the banks to the Fed. The banks didn't create those dollars, so they can't loan them to the fed. Yes...the accounting 'adds up' with the status quo...but it is incorrect because dollars are credited to liabilities instead of equity.

Again, it goes on the liability side because Fed PAID for it & all banks holds an account with Fed; - just like YOUR DEPOSITS are a liability to YOUR BANK - as a bankers' bank, all the banks' deposits held with the Fed are Fed's liability



Anyways, let's see how things would work your way again
I don't know how you see the structure of the B/S with respect to banks' reserves & currency, etc so I'll leave that alone for the moment

Ok, Fed creates 1 trillion

Liabilities                                  Assets
Equity - 1 trillion                           US dollars - 1 trillion

Bought silver by paying the seller 1 trillion

Liabilities                                   Assets
Equity - 1 trillion                           Silver - 1 trillion

Profits?

Liabilities                                    Assets
Profits/Treasury A/c - 1 trillion         Silver - 1 trillion

So now, MB is 2 trillion, a trillion handed to Treasury as "profit" & another trillion paid to seller of silver, which would have accounted for as "Currency in Circulation" or "All banks' reserves".
You essentially want to give 1 trillion to Treasury by calling it "equity" or "profit" or whatever, Fed usually does that by buying their Treasuries & then both sides would balance on 2 trillion, in effect you have changed nothing with respect to "actual profits"

Now, let's see how the ACTUAL accounting will work

Bought Silver at 1 trillion & PAID to the seller

Liabilities                                                  Assets
All banks' reserves - 1 trillion                            Silver - 1 trillion

And that's it, MB is 1 trillion, a trillion created & PAID for the silver, there's no "profit"

If you want to give "equity" or "profit" or whatever to Treasury then you'll just have to create another trillion & buy their Treasuries; if you buy it directly from Treasury then the new money will go to Treasury A/c, & I've already demonstrated here how the process works with PDs involved where PDs first PAY Treasury then Fed PAYS PDs later, just an indirect process of Fed financing Treasury with new money

 

[Paul Or Nothing II]

You just blew off a fairly significant question that would go some ways on your part in understanding what truly I've been talking about all along. HOW would you account for the government defaulting on t-bills owed to the Fed? Ledger entries and all?

It's not "my" accounting system, that's how the accounting ACTUALLY works

Premise

Liabilities                                Assets
Currency in circulation - 1 trillion        Treasuries/US debt - 3 trillion
All banks' reserves - 1 trillion
Profits/Treasury A/c - 1 trillion

Treasury "defaults"

Liabilities                                Assets
Currency in circulation - 1 trillion        Losses/Treasury A/c - 2 trillion
All banks' reserves - 1 trillion

So Treasury's 1 trillion in green got wiped out & they'll have to put up the other 2 trillion in losses from somewhere since they are the owners of Fed, they receive Fed's profits & bear Fed's losses; not to mention, by buying 3 trillion worth of Treasuries earlier, Fed had directly or indirectly handed 3 trillion to Treasury

 

[rpwi]

Again, it goes on the liability side because Fed PAID for it & all banks holds an account with Fed; -

When you purchase something you don't do so out of liabilities. You just swap assets. If you acquire an asset with a liability, you are obtaining financing. The Fed is not being financed by private banks...they are financing themselves. They create their own money...and then pretend they never had it and that external banks created it and loaned it to the Fed. Therein lies the accounting error.

just like YOUR DEPOSITS are a liability to YOUR BANK

Now THAT is a different story. A private bank deposit is convertible into dollars (MB). A Fed deposit (MB) is just convertible into dollars...which is circular...which means it is not convertible at all. It is quite accurate to say that you the checkholder are financing a private bank. It is not accurate to say a bank that holds reserves in the Fed is financing the Fed.

 

[rpwi]

It's not "my" accounting system, that's how the accounting ACTUALLY works

Premise

Liabilities                                Assets
Currency in circulation - 1 trillion        Treasuries/US debt - 3 trillion
All banks' reserves - 1 trillion
Profits/Treasury A/c - 1 trillion

Treasury "defaults"

Liabilities                                Assets
Currency in circulation - 1 trillion        Losses/Treasury A/c - 2 trillion
All banks' reserves - 1 trillion

So Treasury's 1 trillion in green got wiped out & they'll have to put up the other 2 trillion in losses from somewhere since they are the owners of Fed, they receive Fed's profits & bear Fed's losses; not to mention, by buying 3 trillion worth of Treasuries earlier, Fed had directly or indirectly handed 3 trillion to Treasury

If the US government were to default on its debt to the Federal Reserve (~1.6 trillion) then the Fed has quite the accounting dilemma. The proper way to account for bad loans, to issue a 'charge-off' which subtracts from equity using the label 'bad debt expense'. Because of the irresponsible way in which the Fed has swapped liabilities and equity, this means there would be a deficit equity, and as equity (aka capital) is only 54 billion. Would the Fed then be 'bankrupt'? It's an absurd accounting situation... Does the Fed go into receivership of the private banks?! Does the Fed liquidate remaining assets and issue a game-ending liquidation-dividend...thus wiping the books clean (as well as the money supply!). These are the maddening conclusions your logic leads to. All this ruckuss for really a non-issue. Big deal...Congress pays X less in interest each year to the Fed...but then the Fed accumulates X-less intererest which hurts it remittances back to congress completing the circle. It's an absurd situation that we have would have an accounting meltdown when you cancel debt to yourself (which is what you suggest as you believe MB creation should not be credited to equity/capital).

This is logical...you just have to think about it. If the assets purchased with MB were accounted for with equity instead...and US government defaults on its Fed portion of the debt...the Fed never goes into deficit equity using my system which makes so much sense.

 

[Exiled_LFOD]

All this ruckuss for really a non-issue.

I wonder what short term capital gains tax would be on a 1T private fed note exchanged in kind for dollars...

 

[rpwi]

I wonder what short term capital gains tax would be on a 1T private fed note exchanged in kind for dollars...

Not familiar with that terminology... What is a '1T private fed note'?

 

[Paul Or Nothing II]

It is not accurate to say a bank that holds reserves in the Fed is financing the Fed.

Ok, let's see, a few people work to produce silver, then Fed wants to buy it so Fed creates new money & pays them into their bank account, which resides on the Liabilities side of Fed's B/S because..........they're holding that money for them
Look, it's not "banks" that are "financing" the Fed, it's the people & their labor which they use to produce goods & services, they are financing the Fed, they are essentially giving up their REAL goods & services which they worked for in exchange for newly created money

Liabilities                                            Assets
All banks' reserves - 1 trillion                    Silver - 1 trillion

If the US government were to default on its debt to the Federal Reserve (~1.6 trillion) then the Fed has quite the accounting dilemma. The proper way to account for bad loans, to issue a 'charge-off' which subtracts from equity using the label 'bad debt expense'. Because of the irresponsible way in which the Fed has swapped liabilities and equity, this means there would be a deficit equity, and as equity (aka capital) is only 54 billion. Would the Fed then be 'bankrupt'? It's an absurd accounting situation... Does the Fed go into receivership of the private banks?! Does the Fed liquidate remaining assets and issue a game-ending liquidation-dividend...thus wiping the books clean (as well as the money supply!). These are the maddening conclusions your logic leads to. All this ruckuss for really a non-issue. Big deal...Congress pays X less in interest each year to the Fed...but then the Fed accumulates X-less intererest which hurts it remittances back to congress completing the circle. It's an absurd situation that we have would have an accounting meltdown when you cancel debt to yourself (which is what you suggest as you believe MB creation should not be credited to equity/capital).

This is logical...you just have to think about it. If the assets purchased with MB were accounted for with equity instead...and US government defaults on its Fed portion of the debt...the Fed never goes into deficit equity using my system which makes so much sense.

No, it doesn't work like that, Treasury will simply create new Treasuries to the extent that they have "defaulted" on so as I've said, it's a pointless scenario where one defaults on oneself
All it will accomplish is to create a turmoil in the markets & the economy

Congress pays X less in interest each year to the Fed...but then the Fed accumulates X-less intererest which hurts it remittances back to congress completing the circle.

Hmm what does it even mean? Could you possibly demonstrate, firstly, how it occurs right now & then show it "your way"; & please do a PROPER B/S like I have been doing

 

[Paul Or Nothing II]

This is logical...you just have to think about it. If the assets purchased with MB were accounted for with equity instead...and US government defaults on its Fed portion of the debt...the Fed never goes into deficit equity using my system which makes so much sense.

Here's "your system" again

Ok, Fed creates 1 trillion

Liabilities                                  Assets
Equity - 1 trillion                           US dollars - 1 trillion

Bought silver by paying the seller 1 trillion

Liabilities                                   Assets
Equity - 1 trillion                           Silver - 1 trillion

Profits?

Liabilities                                    Assets
Profits/Treasury A/c - 1 trillion         Silver - 1 trillion

Guess what Treasury does? It SPENDS that money so it will form the part of "Currency in Circulation" or "All banks' reserves", which you don't want to record on B/S

Liabilities                                    Assets
-                                                Silver - 1 trillion

All you get is an unbalanced B/S again

So now there are 2 trillion as Monetary Base completely unrecorded on the B/S; first trillion given to Treasury as "equity" or "profit" (instead of buying their Treasuries as Fed ACTUALLY does) which Treasury spent into the economy & the other trillion given to seller(s) of silver & again, none of this is on the B/S

Implementing "Your system" would be as good as not having any systematic accounting at all; if you don't want Fed to record things like MB on its B/S then there's no point in having a B/S in the first place

 

[rpwi]

Ok, let's see, a few people work to produce silver, then Fed wants to buy it so Fed creates new money & pays them into their bank account, which resides on the Liabilities side of Fed's B/S because..........they're holding that money for them

...for the day in which they'll return the money for silver? If the dollar was exchangeable...you might have a point. But it is not. And it is growing constantly so it is much more accurate to account for it like you would for a counterfeiter.

Look, it's not "banks" that are "financing" the Fed, it's the people & their labor which they use to produce goods & services, they are financing the Fed, they are essentially giving up their REAL goods & services which they worked for in exchange for newly created money

This is odd logic. So if I counterfeit 100 dollars...and I buy 100 dollars worth of groceries from the grocer...the grocer is financing my operations? I should list those groceries as assets and their value as liabilities?

No, it doesn't work like that, Treasury will simply create new Treasuries to the extent that they have "defaulted" on so as I've said, it's a pointless scenario where one defaults on oneself

Why would the the treasury create new liabilities? Say they owed 1000 dollars to the Fed. If they cancel the debt...why would they issue 1000 more in debt?

If congress continues to run deficits...yeah they will continue to add to the debt...but the cancellation doesn't mean the treasury would re-issue those t-bills they used to owe to the Fed.

All it will accomplish is to create a turmoil in the markets & the economy

Why? This was money owed from government to government (itself). If canceled...the only real result would be that the Fed would have less 'tools' to play with and manipulate. All in all, a great thing. Why would the market care? They're not getting more or less?

Congress pays X less in interest each year to the Fed...but then the Fed accumulates X-less intererest which hurts it remittances back to congress completing the circle.

Hmm what does it even mean? Could you possibly demonstrate, firstly, how it occurs right now & then show it "your way"; & please do a PROPER B/S like I have been doing

Sure...

The big default:

Assets -= treasuries owed from government to the Fed
Liabilities = Unchanged (loan losses always come out of capital/equity)
Equity -= book value of treasuries owed from government to the Fed (which results in negative capital...and leads to interesting questions in its own right)

Now when the government cancels X amount of debt to the Fed paying y interest...that means, the congress will be paying y-less in interest each year. On the flip side...this also means the Fed will be earning y-less in interest each year which will decrease profits, and the remittances to congress as misc revenue...so it all kind of balances out. Now the Fed skims asset income...so by taking them out of the picture as a superfluous middleman...congress would actually get more money.

 

[rpwi]

Guess what Treasury does? It SPENDS that money so it will form the part of "Currency in Circulation" or "All banks' reserves", which you don't want to record on B/S

That doesn't make sense. First, even if the Fed earns a profit...this doesn't mean the treasury has to spend it. It would go into retained earnings and properly accounted the US government could tap this balance as needed with dividends. Secondly...you already missed the boat. Back in the second transaction, the money was already introduced into the economy. You have this erroneous belief that money can only circulate in an economy if it resides as somebody's liability. This is false. So when the early prospectors mined gold and spent this for food and lodging...where were the liabilities recorded? WHY does the Fed HAVE to record dollars as liabilities? Does it burn up in a puff of smoke if it doesn't? You have yet to answer this question. What are the negative consequences of not recording dollars as liabilities? Keep in mind that the Fed doesn't necessarily have to keep track of dollars as liabilities to justify the dollar's existence per say...but rather the book value of the assets the dollars were exchanged for. Different matters. Where it counts...banks and individual's list dollars as assets.

All you get is an unbalanced B/S again

It is properly balanced.

Implementing "Your system" would be as good as not having any systematic accounting at all; if you don't want Fed to record things like MB on its B/S then there's no point in having a B/S in the first place

The balance-sheet is there to provide an idea of what finances operations...what assets there are, what debts...and what claims on assets belong to the owners. This is a good thing. Pretending that dollars are a loan to the Fed distorts what should be a good thing and makes a mess of the balance sheet and income statement.

 

[Paul Or Nothing II]

...for the day in which they'll return the money for silver? If the dollar was exchangeable...you might have a point. But it is not. And it is growing constantly so it is much more accurate to account for it like you would for a counterfeiter.

What is this supposed to mean? What has "dollar-exchangeability" has to do with it?

No, Fed holds the Monetary Base because they're supposed to manage moneysupply & therefore they must hold the reserves of all banks so that they can increase/decrease moneysupply as they deem fit

"Counterfeiter" isn't necessarily a central-bank, so he wouldn't have all the banks' reserves with him so he wouldn't need to account for anything

This is odd logic. So if I counterfeit 100 dollars...and I buy 100 dollars worth of groceries from the grocer...the grocer is financing my operations? I should list those groceries as assets and their value as liabilities?

Well, if you're a central-bank trying to manage moneysupply by buying & selling things then YES, you should account for everything otherwise your B/S wouldn't reflect the full nature of your transactions

Why would the the treasury create new liabilities? Say they owed 1000 dollars to the Fed. If they cancel the debt...why would they issue 1000 more in debt?

If congress continues to run deficits...yeah they will continue to add to the debt...but the cancellation doesn't mean the treasury would re-issue those t-bills they used to owe to the Fed.

Because Fed is owned by government, it receives Fed's profits & bears Fed's losses so they will have to pay for it & since Treasury/government wouldn't have that much money at once, they'll have to issue Treasuries to that extent & that's why the whole exercise is futile

Why? This was money owed from government to government (itself). If canceled...the only real result would be that the Fed would have less 'tools' to play with and manipulate. All in all, a great thing. Why would the market care? They're not getting more or less?

Because there are nations & people holding US debt & they aren't all exactly big on Austrian Economics nor are they on-board with End The Fed agenda so they'll perceive repudiation of debt as a sign that US government is in even more financial trouble & if it defaults on Fed then they'll fear it might default on them too, so some of them will start selling Treasuries, which then Fed will have to buy & you know what happens when Fed buys something, right? It creates more money & inflation while other debt-holders will demand higher interest to compensate the heightened perceived risks, which will eat into government's revenues & it will have even harder time to pay for all their stuff & the deficits & debt will grow in self-perpetuating cycle like that, which will be extremely difficult to reign in without massive cuts, which may possibly cause civil unrest, if entitlements aren't paid by the government during these harsh economic times

Sure...

The big default:

Assets -= treasuries owed from government to the Fed
Liabilities = Unchanged (loan losses always come out of capital/equity)
Equity -= book value of treasuries owed from government to the Fed (which results in negative capital...and leads to interesting questions in its own right)

Yes, Treasuries will be subtracted first from Assets & then new Treasuries re-instituted as Assets again, hence pointless exercise
No, losses mayn't come out of equity because the member-banks aren't getting all the profits so they aren't going to be bearing the losses, Treasury gets the profits so it will have to bear the losses & since it won't have the money, it will simply have to issue new Treasuries, which makes the whole exercise pointless

Now when the government cancels X amount of debt to the Fed paying y interest...that means, the congress will be paying y-less in interest each year. On the flip side...this also means the Fed will be earning y-less in interest each year which will decrease profits, and the remittances to congress as misc revenue...so it all kind of balances out. Now the Fed skims asset income...so by taking them out of the picture as a superfluous middleman...congress would actually get more money.

Whatever interest Fed actually receives from Treasury is interest SAVED for the government because if that debt were to be held by private entities then Treasury will have to pay them but with Fed, the money is returned back to Treasury so it's more or less an accounting procedure & nothing else

http://www.gao.gov/products/GAO-04-283

The earnings from issuing both coins and currency reduce government borrowing costs; however, how these earnings are budgeted and accounted for differs. Production costs of coins and currency are generally treated the same in the budget and accounting statements. The difference between the face value of coins and the costs of minting them results in earnings, called seigniorage, which is shown in the budget as a reduction in needed borrowing for the government, after the deficit or surplus for the year is calculated. The budgetary impact of seigniorage is interest avoided from the borrowing it displaces and is not visible because it is neither quantified nor shown in the budget. The government also generates earnings by issuing currency, but it is handled differently. The difference between the face value of currency issued and its production cost goes to the Fed. The Fed buys collateral, usually Treasury securities, to back up the currency issued. The interest collected on those Treasury securities is used to pay for Fed costs, and the remainder is returned to Treasury.

 

[Paul Or Nothing II]

That doesn't make sense. First, even if the Fed earns a profit...this doesn't mean the treasury has to spend it. It would go into retained earnings and properly accounted the US government could tap this balance as needed with dividends.

Fed hands over its profits to the Treasury & Treasury is always eager to spend anyway so that money will be spent & your B/S will become unbalanced

You have this erroneous belief that money can only circulate in an economy if it resides as somebody's liability.

I've NEVER said this, I've said that that's how central-banks must account to offer a full picture of their transactions on their B/S

So when the early prospectors mined gold and spent this for food and lodging...where were the liabilities recorded?

That depends on whether a central-bank existed & whether the central-bank bought from them with a view to manage moneysupply

WHY does the Fed HAVE to record dollars as liabilities?

Otherwise their B/S wouldn't reflect the full nature of their transactions

You have yet to answer this question. What are the negative consequences of not recording dollars as liabilities? Keep in mind that the Fed doesn't necessarily have to keep track of dollars as liabilities to justify the dollar's existence per say...but rather the book value of the assets the dollars were exchanged for. Different matters. Where it counts...banks and individual's list dollars as assets.

If they don't then there's no point in accounting or making a B/S at all because they manage moneysupply by buying & selling things so if they want to provide the most accurate picture of their transactions then they will be recording those things on their B/S

It is properly balanced.

The balance-sheet is there to provide an idea of what finances operations...what assets there are, what debts...and what claims on assets belong to the owners. This is a good thing. Pretending that dollars are a loan to the Fed distorts what should be a good thing and makes a mess of the balance sheet and income statement.

That's the whole crux of your argument, it isn't a theoretical argument, it isn't a practical argument but it's an EMOTIONAL argument; you feel troubled by the fact that they are recorded on "liabilities" & that's all there is to it, which is really as good as no argument
You claimed earlier that they were hiding "actual profits" & I showed here that they aren't, when they buy Treasuries, it's akin to Treasury receiving "profits" (or "equity" if you will) so now you're only left with "liabilities" argument, despite the fact that it doesn't really change the nature of their transactions

 

[Exiled_LFOD]

Not familiar with that terminology... What is a '1T private fed note'?

One trillion units of federal reserve private credit valued at par with dollars denominated in negotiable legal tender instruments or demand deposits.

All you get is an unbalanced B/S again

B/S are unbalanced because the difference is equity. In any event if the fed were to account for original issue of all federal reserve private credit valued at par with dollars, it should be on the asset side. When it is allocated to assets it properly reflects an increase in equity as the fed incurs no liability for issuing federal reserve credit that is valued at par with dollars. A net positive change in equity is an accurate representation of capital that is created out of thin air. The fed realizes a capital gain whenever it creates new frn's at par with dollars. It is with the capital from this realized gain that is spent intervening in the market to create central planning perfection.

Because Fed is owned by government, it receives Fed's profits & bears Fed's losses

A group of people get to steal from everyone else, pay themselves well, receive other nice benefits such as medical, etc., have information which creates a distinct investing advantage on where trillions of dollars will get allocated in the economy, enjoy several tax exemptions, receive stock dividend kickbacks, benefit from a government enforced monopoly....

and we only call the measly 20+ billion or so returned to the Treasury the profit....

DIVISION OF EABNINGS.
Seo. 7. After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders shall be entitled to receive an annual dividend of six per centum on the paid-in capital stock, which dividend shall be cumulative. After the aforesaid dividend claims have been fully met, all the net earnings shall be paid to the United States as a franchise tax, except that one-half of such net earnings shall be paid into a surplus fund until it shall amount to forty per centum of the paid-in capital stock of such bank.

The net earnings derived by the United States from Federal reserve banks shall, in the discretion of the Secretary, be used to supplement the gold reserve held against outstanding United States notes, or shall be applied to the reduction of the outstanding bonded indebtedness of the United States under regulations to be prescribed by the Secretary of the Treasury. Should a Federal reserve bank be dissolved or go into liquidation, any surplus remaining, after the payment of all debts, dividend requirements as hereinbefore provided, and the par value of the stock shall be paid to and become the property of the Umted States and shall be similarly applied.

Federal reserve banks, including the capital stock and surplus therein and the income derived therefrom shall be exempt from federal state, and local taxation, except taxes upon real estate.

 

[Noble Savage]

if I was Washington or Jackson or Lincoln or Franklin I would consider it a liability to be associated with worthlessness.

 

[rpwi]

What is this supposed to mean? What has "dollar-exchangeability" has to do with it?

How do you define finance or liability? You just don't put anything down on the liability side...you do so for a reason. Why? Not even fed/dollar specific...how do you define liabilities?

No, Fed holds the Monetary Base because they're supposed to manage moneysupply & therefore they must hold the reserves of all banks so that they can increase/decrease moneysupply as they deem fit

One does not require the other. If the Fed stopped reporting how many paper dollars were on their balance-sheet (or the asset claims that came from paper dollars which is more accurate), our dollars wouldn't magically disappear. Same if the electronic dollars were not reported on the liability sheet. Certainly, the Fed could keep track of the aggregates and that is very important to do...but it is not a financial function.

"Counterfeiter" isn't necessarily a central-bank, so he wouldn't have all the banks' reserves with him so he wouldn't need to account for anything

You don't have to account for bank reserves in a financial manner. Let's simplify things. The US economy, could operate on nothing but paper dollars, right? A bank can hold paper-dollars on reserve just as easily as they can fed deposits. In fact, if it weren't the hassle of inter-bank clearing operations...an all paper MB is not too far-fetched. Conceptually, now there is little difference between the Fed holding paper dollars as liabilities or electronic dollars (fed deposits) as liabilities. So what then would be the difference between the fed and a counterfeiter?

Well, if you're a central-bank trying to manage moneysupply by buying & selling things then YES, you should account for everything otherwise your B/S wouldn't reflect the full nature of your transactions

The financial implications yes. Not the exact where-abouts of each and every dollar (akin to an airport reporting airplanes as liabilities).

Because Fed is owned by government, it receives Fed's profits & bears Fed's losses so they will have to pay for it & since Treasury/government wouldn't have that much money at once, they'll have to issue Treasuries to that extent & that's why the whole exercise is futile

No. If the government defaulted on the tbills owed to the Fed there is NO need to reissue bonds. It makes 0 sense. First off, when the Fed finds out a good chunk of their assets have to be written off as being noncollectable...they mark this as bad debt and on the equity side as bad debt expense. There is NO operational reason the Fed would require an a injection of cash or t-bills. Simply put...the government defaulted on debt to itself. You seem to think this is not possible and the government would have to retain to a state in which they owed money to themselves. No logic to this.

Because there are nations & people holding US debt & ...

Maybe this is the source of confusion... Ron Paul and myself are not talking about defaulting on ALL treasury securities...just the ones owed to the Fed (which is a lot).

Yes, Treasuries will be subtracted first from Assets & then new Treasuries re-instituted as Assets again, hence pointless exercise

... Let's try a non-fed example. Say we have a bunch of shell companies owned by ABC inc. Y company and Z company. ABC directs Y to default on its debt to Z...according to you this is impossible because the debt will just magically re-appear? This makes no sense.

No, losses mayn't come out of equity because the member-banks aren't getting all the profits so they aren't going to be bearing the losses,

This does not make sense.

Treasury gets the profits so it will have to bear the losses & since it won't have the money, it will simply have to issue new Treasuries, which makes the whole exercise pointless

Issuing new treasuries is after-the fact. When a firm has bad debt...they take it down as a bad debt expense. You can't get away from this. So the entire amount would be expensed out of equity even if this resulted in negative equity. Now in the corporate world, negative equity is a precursor to bankruptcy. How that would work with the Fed would be a good question. Even if the were to buy t-bills (why I don't know), this would not raise equity back to 0. Even if the treasury department were to issue t-bills this would be irrelevant to equity, as using the current accounting mechanisms...the fed would just lower the private bank deposit that bought the t-bills from the Fed and raise the deposit the fed had. That just rearranges liabilities and does not affect equity with the current system. Only a capital injection or a change in accounting would restore equity to the Fed's balance sheets. There is no logical requirement that the congress would have to inject capital into the Fed to justify their bungled accounting.

Whatever interest Fed actually receives from Treasury is interest SAVED for the government because if that debt were to be held by private entities then Treasury will have to pay them but with Fed, the money is returned back to Treasury so it's more or less an accounting procedure & nothing else

Yes and no. On the face of it...doesn't seem like a big deal. It has the advantage that as Ron Paul as mentioned, that a default or partial internal default would delay the need to raise the debt ceiling. Granted Ron favors a more serious approach to reducing the deficit. Another advantage is that we lose a lot of interest revenue due to overhead...even though these securities are owed to ourselves. Lastly, it gives the congress more flexibility when it comes to liquidity...the rigidity in making the interest payments on schedule...and then receiving them later is not ideal.

 

[rpwi]

Fed hands over its profits to the Treasury & Treasury is always eager to spend anyway so that money will be spent & your B/S will become unbalanced

?? Under my system, the Fed does not set aside a liability for the treasury as it does now.

Using my system...say the federal government wants a distribution.

The most practical way to do this would be to pay the dividend in t-bills. So say the Fed has 1 billion in profits. To pay the 'dividend' of 1 billion, they decrease capital by 1 billion and decrease t-bill assets by 1 billion. All works out perfectly.

I think the biggest source of confusion...is that you believe there needs to be tentacles attached to each dollar that traces back to a specific entry on the balance-sheet. This is false...as the balance sheet if for finance.

Using my system...in theory if the Fed were to completely bungle its investing and waste away all its assets...it would have a B/S of 0 - 0/0. Perfectly acceptable. Dollars are still zipping around in the economy at large. Certainly the Fed is keeping track of electronic dollars (and how many paper dollars are issued). But more so in the sense that the weather channels keeps an eye on where the storms are and how many there are...not in a financial sense. This is because the private banks didn't create the dollars and they didn't loan them to the Fed.

When the Fed was on the gold standard...the current accounting actually wasn't that bad. Gold was an asset to the Fed and dollar bills and fed deposits were claims on this gold. This made sense! When the US went off the gold standard the core financial structure of the Fed became in error. When they replaced gold for dollars to be the new monetary base...they made a HUGE switch. Once that should have been reflected in a massive profit gain for the Fed...and should have continually be defined as profit for all future counterfeiting operations.

If they don't then there's no point in accounting or making a B/S at all because they manage moneysupply by buying & selling things so if they want to provide the most accurate picture of their transactions then they will be recording those things on their B/S

The balance sheet is quite important as it records profits and losses.

You claimed earlier that they were hiding "actual profits" ...

They are. When you counterfeit x dollars...that is profit. If you don't report that as profit/equity, you understate true profit/equity.

When they buy Treasuries, it's akin to Treasury receiving "profits" (or "equity" if you will)

I'm not sure what you mean by this. When any firm buys securities...it is not a financing operation and does not affect liabilities nor equity. It is merely an asset exchange...one debit counters another credit. This is standard accrual accounting. In my system a new transaction would precede the purchase that would raise equity and dollar assets before the purchase happened. By the Fed not doing this, they are not accounting correctly.

 

[Paul Or Nothing II]

Ok, the fundamental issue is that you just don't understand that the very existence of a central-bank is for the purpose of managing moneysupply so not showing moneysupply on the B/S is out of the question, no, it has to be there otherwise there's no point in accounting or making a B/S
A central-bank manages moneysupply by buying & selling things, when it buys, it injects new money into the system, now the asset they buy must go on Assets side & therefore the money paid is accounted as Liabilities because it's been created out of nothing & therefore considered a "loan" from the community for reducing their purchasing-power

I mean it's not even such a complicated issue, it's just basic stuff - 1) central-bank is supposed to manage moneysupply 2) so it's B/S must show moneysupply 3) when it buys assets with new money to increase moneysupply, Assets go on the Assets side & the new money HAS TO go on the Liabilities side; it's just simple to understand if one looks at it objectively but I suppose it gets difficult when one believes in all kinds of conspiracies

Again, there's no question of recording moneysupply separately because the very purpose of central-bank is to manage moneysupply so moneysupply must be shown on the B/S

Comparing a central-bank's B/S with any other corporations is like comparing apples & oranges; they have completely different goals & purposes

Anyways, I don't see this thing going anywhere because the thing is, you have bought into the conspiracy theories too much & therefore you feel troubled by the fact that the new money is recorded as Liability & that's all there is too this whole drama while I choose to look at the issue more objectively so there's a fundamental disconnect between our worldviews, which seems irreconcilable so no point in carrying on with this

P S It's irrelevant what you or Ron Paul or anyone has in mind, if US defaults on ANY debt then that will scare the debt-holders & the markets, as it will be seen as more fiscal instability & heightened risk of more defaults then debt-dumping, inflation & budget-crisis & debt-crisis will only be aggravated; you may disagree that's fine because future is uncertain & markets react in different ways at different times but there's little doubt that the debt-holders aren't going to be very happy about it & a debt-default of any kind could have serious consequences on the US economy

 

[Travlyr]

Ok, the fundamental issue is that you just don't understand that the very existence of a central-bank is for the purpose of managing moneysupply so not showing moneysupply on the B/S is out of the question, no, it has to be there otherwise there's no point in accounting or making a B/S debase the currency and fund the Empire.

A central-bank manages moneysupply by buying & selling things, when it buys, it injects new money into the system, now the asset they buy must go on Assets side & therefore the money paid is accounted as Liabilities because it's been created out of nothing & therefore considered a "loan" from the community for reducing their purchasing-power printing currency out of nothing and making claims on real goods and services.

I mean it's not even such a complicated issue, it's just basic stuff - 1) central-bank is supposed to manage moneysupply By Counterfeiting. 2) so it's B/S must show moneysupply 3) when it buys assets with new money to increase moneysupply, Assets go on the Assets side & the new money HAS TO go on the Liabilities side; it's just simple to understand if one looks at it objectively but I suppose it gets difficult when one believes in all kinds of conspiracies
Which Paul on Nothing II doesn't believe ever exists. According to Paul or Nothing II nobody ever conspires to cheat. Heck, Paul Warburg and Senator Nelson Aldrich never even existed in Paul or Nothing II's world. It is all a myth.

Again, there's no question of recording moneysupply separately because the very purpose of central-bank is to manage moneysupply so moneysupply must be shown on the B/S steal the wealth of the world.
"Our goal is gradually to absorb the wealth of the world." - Cecil Rhodes, "The secret banking cabal"

Do you know who Cecil Rhodes was Paul or Nothing II? Have you ever heard of a Rhodes Scholar? Why do you think HE would say that? Oh maybe he just bought into conspiracy theory... what do you think?

Comparing a central-bank's B/S with any other corporations is like comparing apples & oranges; they have completely different goals & purposes
Yeah, in Paul or Nothing II's world that kind of stealing is just fine. They are just looking at things differently. Counterfeiting is just profiteering.

Anyways, I don't see this thing going anywhere because the thing is, you have bought into the conspiracy theories too much Which never exist and conspiracy should not even be a word & therefore you feel troubled by the fact that they are stealing from you on a daily basis (inflation) the new money is recorded as Liability & that's all there is too this whole drama while I choose to look at the issue more objectively so there's a fundamental disconnect between our worldviews, which seems irreconcilable so no point in carrying on with this

Because shilling for the bankers is exposing Paul or Nothing II's real agenda

P S It's irrelevant what you or Ron Paul or anyone has in mind, if US defaults on ANY debt then that will scare the debt-holders Oh I'm scared that the dollar will bust & the markets, which aren't really controlled... really they're not as it will be seen as more fiscal instability like Argentina in October 01 & heightened risk of more defaults Like Greece then debt-dumping, Like Iceland inflation & budget-crisis & debt-crisis will only be aggravated; Like Zimbabwe you may disagree that's fine because future is uncertain & markets react in different ways at different times but there's little doubt that the debt-holders aren't going to be very happy about it & a debt-default of any kind could have serious consequences on the US economy

Like the people might go back to work and prosper! Those are serious consequences BTW

Emphasis and Strikes all mine!