What happens if the fed loses money?

[hugolp]

Ah ok, so its an interest free loan that simply keeps growing and it would be temporary inflation if the fed stopped rolling over purchases of bonds? Do you have a long term graph of fed government holdings by chance?

If the Fed stopped renewing the bonds it would remove currency from circulation.

Through google image: http://benbittrolff.blogspot.com/2008/11/federal-reserve-balance-sheet-explodes.html The graph shows how the Fed keeps increasing its balance sheet constantly through the 2000's. Btw, the Treasuries that were sold during 2008 to sterilize the injection of money to the banks has already been repurchased and increased. The Cleveland Fed has a good simplified graph of the Fed balance sheet to follow what its going on: http://www.clevelandfed.org/research/data/credit_easing/index.cfm

 

[AceNZ]

Can you or anyone else explain to me this; if the fed has never lost money, then why are there so much more dollars now in circulation compared to 1913. It is simply because the fed's balance sheet keeps moving higher and higher?

As hugolp said, yes -- but only in part.

However, it turns out that banks actually create (much) more money than the Fed, through Fractional Reserve Banking -- although the money the banks create is enabled by the Fed.

 

[hugolp]

As hugolp said, yes -- but only in part.

However, it turns out that banks actually create (much) more money than the Fed, through Fractional Reserve Banking -- although the money the banks create is enabled by the Fed.

Just for the record (and because you probably did not read the whole thing) I said the same thing already:

Yes.

The Fed has two basic ways of expanding the money supply. One, lending money to banks (discount rate, manipulating federal fund rate, etc...) and, two, monetizing government debt. The first way, it creates debt so its only "temporary" (it helps banks expand credit), the second way, its definitive and it consolidates the expansion of the money supply. The fact that the Fed buys treasuries, which is a debt, confuses a lot of people, but because the Fed will keep renewing the debt and returning the interest payments to the Treasury its not real debt. When the Fed monetezices government debt its roughly equivalent to the government printing money.

 

[VBRonPaulFan]

profit/loss calculation
sale amount - basis = profit/loss

if your basis is ZERO (created debt from thin air), then you can never have a loss, since you'd never get a negative result.

 

[cubical]

profit/loss calculation
sale amount - basis = profit/loss

if your basis is ZERO (created debt from thin air), then you can never have a loss, since you'd never get a negative result.

No, they still have liabilities if they print up dollars. They aim to meet those liabilities and so far always have(other than the outstanding credit now)

 

[Thomas86]

Hmmm... they buy bonds on the market... this would be an exchange... asset for asset on a regular balance sheet... in the liabilities it would exist under stockholder equity.

I'm pretty sure 'losses' at the fed just means they are unable to draw all the money that they created out of thin air back out of the economy... So if that's correct losses simply equal additional inflation.

 

[VBRonPaulFan]

No, they still have liabilities if they print up dollars. They aim to meet those liabilities and so far always have(other than the outstanding credit now)

yeah, you can 'fine tune' it and include basic overhead... but that's the general concept. if you're creating money from nothing, and getting stuff back in return - you've got a pretty damn good deal

 

[ssantoro]

How could the Fed lose money if they never put any up? When they give it out they use the magic checkbook. When they bring in the interest it comes from the taxpayer. They never lose because they have the goose that lays the golden eggs. Thet profit infinitly more than the measly 17 to 18 billion they claim to give back to the treasury. By the way, who owns their stock?