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Old 11-23-2011, 01:11 PM   #1
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Question Rickards: Who will bail out the Fed?

Rickards explains how the Fed works and the nature of the dilema they face:
Quote :
... what if the Fed itself needed to be bailed-out? The Fed may be a central bank, but it is still a bank with a balance sheet and capital. A balance sheet has two sides consisting of assets and liabilities. The Fed’s assets are mostly government securities it buys and its liabilities are mostly the money it prints to buy them. Capital consists of the assets minus the liabilities.

The Fed has capital of about $60 billion and assets approaching $3 trillion. If the Fed’s assets declined in value by just 2 percent, that decline applied to $3 trillion in assets produces a $60 billion loss—enough to wipe out the Fed’s capital. A 2 percent decline is not unusual in today’s volatile markets.

I won't spoil the ending by giving away his end game conclusions. It's worth reading and thinking about.
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Old 11-23-2011, 03:13 PM   #2
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I just ordered his book "Currency Wars", looks pretty good. Also, I order "Vulture's Picnic: In Pursuit of Petroleum Pigs, Power Pirates, and High-Finance Carnivores " by Greg Palast.
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Old 11-23-2011, 03:18 PM   #3
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Sir Alan Greenspan says we don't need a bailout.

"This is not an issue of credit rating, the United States can pay any debt it has because we can always print money to do that. So, there is zero probability of default."

Check out the guy sitting next to Greenspand when he says this, the guy's face is priceless!
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Old 11-23-2011, 03:20 PM   #4
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Reminds me of that credit help commercial... "Simply Debt-Free!"
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Old 11-23-2011, 03:40 PM   #5
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Their servants in government will bail them one way or the other, and we'll get stuck with the bill, one way or another.
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Old 11-23-2011, 05:41 PM   #6
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I just play it out in my mind, with history as my guide.

At its most basic roots, the Fed was created to facilitate fractional reserve lending, in exchange for the ability of government to engage in deficit spending, as both siphon wealth from the same trough.

Bailout is another word for "allow defaults without recourse". So that's really the question, or at least the first part of the question:

What would allow the Fed to default without recourse? The second part make it a complex question, with the qualifier "...while allowing cover for fractional reserve lending and expansion of the debt-based money supply by commerce, while simultaneously allowing government to siphon from the same money supply by borrowing against the productivity of society on the whole?"

The answer becomes as simple as the solution that is always proposed; namely, more of the hair of the dog, only an expanded scale. That means an even more centralized facilitator, one that has the license to revalue and restructure all debts, public and private, while providing badly needed "elasticity" AND "liquidity" (read=counterfeiting by any other name) in "times of crisis" (read=at all times, as a matter of force).

What the Fed did for national banks, a "larger Fed" can do for multiple Feds.

In other words, the very last and ultimate Ponzi scheme treadmill, which could last, in theory, for hundreds of years, before it finally mega-tanks, as all infinitely expanding Ponzi schemes must - after which (and many, many generations after we are all long dead and forgotten) the entire world becomes third world, divided completely into rich and poor with no in-betweens, before it is finally forced to divide, like the Soviet Union, once it was clear that there really is nothing left to siphon.
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