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How is that recorded on the balance sheet?
You tell me, you're the one who wants to make a one-sided entry.
What? You just said that liabilities are unchanged. So you are the one making a one-sided entry.
When the Fed brings assets onto its balance sheet, liabilities must go up. Likewise, when assets fall, liabilities must go down. They must balance. Liabilities of the Fed - primarily currency and bank reserves - are part of the money supply. So when any asset is removed from the balance sheet of the Fed for any reason, liabilities - the money supply - falls.
This is one reason why Paul's proposal is DOA.
You tell me, you're the one who wants to make a one-sided entry.
What? You just said that liabilities are unchanged. So you are the one making a one-sided entry.
When the Fed brings assets onto its balance sheet, liabilities must go up. Likewise, when assets fall, liabilities must go down. They must balance. Liabilities of the Fed - primarily currency and bank reserves - are part of the money supply. So when any asset is removed from the balance sheet of the Fed for any reason, liabilities - the money supply - falls.
This is one reason why Paul's proposal is DOA.
Audit the Federal Reserve
The Federal Reserve is the chief culprit behind the economic crisis. Its unchecked power to create endless amounts of money out of thin air brought us the boom and bust cycle and causes one financial bubble after another. Since the Feds creation in 1913 the dollar has lost more than 96% of its value, and by recklessly inflating the money supply the Fed continues to distort interest rates and intentionally erodes the value of the dollar.
Audit the Federal Reserve
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You tell me, you're the one who wants to make a one-sided entry.
What? You just said that liabilities are unchanged. So you are the one making a one-sided entry.
When the Fed brings assets onto its balance sheet, liabilities must go up. Likewise, when assets fall, liabilities must go down. They must balance. Liabilities of the Fed - primarily currency and bank reserves - are part of the money supply. So when any asset is removed from the balance sheet of the Fed for any reason, liabilities - the money supply - falls.
This is one reason why Paul's proposal is DOA.
I said liabilities are unchanged because "canceling" assets doesn't change liabilities.
Yes, when the Fed expands their balance sheet by "printing money" (liabilities) they use the money to buy assets. The only way you remove liabilities (cash or bank reserves) is by selling assets for cash or bank reserves.
Giving assets away doesn't remove cash or bank reserves from the money supply.
What? You just said that liabilities are unchanged. So you are the one making a one-sided entry.
When the Fed brings assets onto its balance sheet, liabilities must go up. Likewise, when assets fall, liabilities must go down. They must balance. Liabilities of the Fed - primarily currency and bank reserves - are part of the money supply. So when any asset is removed from the balance sheet of the Fed for any reason, liabilities - the money supply - falls.
This is one reason why Paul's proposal is DOA.
I said liabilities are unchanged because "canceling" assets doesn't change liabilities.
Yes, when the Fed expands their balance sheet by "printing money" (liabilities) they use the money to buy assets. The only way you remove liabilities (cash or bank reserves) is by selling assets for cash or bank reserves.
Giving assets away doesn't remove cash or bank reserves from the money supply.
Then there MUST be an offsetting change in liabilities. That is how banks work. Every bank, including the banks in the Federal Reserve system, MUST offset all assets with liabilities. That is not debatable. That's why I asked you what changed on the liabilities side of the balance sheet. Perhaps there was something I am not aware of.
Here are the most recent financial statements from the Fed.
http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2010.pdf
Assets: $2,427,844,000,000
Liabilities and equity: $2,427,844,000,000
Those two are equal. That is not a happy coincidence.
Treasuries were $1,066,922,000,000 at the end of the year. That is higher today. But nonetheless, if we were to extinguish all our Treasury debt, we MUST have a decline in liabilities. Most of those liabilities are held as reserves by banks at the Fed, which totaled $968,052,000,000 at the end of the year. Reserves are part of the monetary base. As you can see, the monetary base exploded during quantitative easing.
If we were to cancel the Treasuries outstanding as you are advocating, both the left hand side and the right hand sides of the Fed's balance sheets would collapse. That MUST happen. And it would occur in the reserves held by the depository banks because credit would be withdrawn from banking system. The money that has been printed by the Fed has been transferred to the depository banks, and that money would be withdrawn from the system if Treasuries are canceled. That would be deflationary.
If we were to cancel the Treasuries outstanding as you are advocating, both the left hand side and the right hand sides of the Fed's balance sheets would collapse. That MUST happen. And it would occur in the reserves held by the depository banks because credit would be withdrawn from banking system. The money that has been printed by the Fed has been transferred to the depository banks, and that money would be withdrawn from the system if Treasuries are canceled. That would be deflationary.
Total Central bank capital is $51.6 billion.
After "canceling" the $1.635 trillion in Treasury securities, capital would be a negative $1.584 trillion.
FRB: H.4.1 Release--Factors Affecting Reserve Balances--July 28, 2011
Money supply (Fed liabilities) would remain unchanged.
Total Central bank capital is $51.6 billion.
After "canceling" the $1.635 trillion in Treasury securities, capital would be a negative $1.584 trillion.
FRB: H.4.1 Release--Factors Affecting Reserve Balances--July 28, 2011
Money supply (Fed liabilities) would remain unchanged.
I don't think that's how it works. I don't believe that the cancellation would be run through the equity account.
But if so, then the Federal Reserve would be insolvent, hardly a recipe to instill confidence in a nation's currency. If the Fed is insolvent, by law, it would have to be recapitalized by the Treasury, which would then have to issue $1.5 trillion to transfer to the Fed. And we are right back to where we started, right? Remember, the point of all this was to have the Fed cancel the debt and get us well under the debt ceiling. But recapitalizing the Fed would mean issuing debt to offset the losses from the cancellation of the debt. All we would be doing is moving debt from the Fed to the Treasury while destroying our dollar to boot.
So how would it work? You're not taking FRNs out of circulation and you're not stealing excess bank reserves, so what is the offset?
Hicksian theory makes two assertions that are very much at odds with what conventional wisdom suggests:
1. It says that once adverse demand shocks have pushed the economy into a liquidity trap, even very large increases in the monetary base — the sum of currency and bank reserves, which is what the Fed controls — will be basically sterile, leading neither to a boom nor to inflation.
2. It also says that under these conditions even large government borrowing will not crowd out private investment, and will not drive up interest rates.
Yes, the offset of Fed purchases is bank reserves.So how would it work? You're not taking FRNs out of circulation and you're not stealing excess bank reserves, so what is the offset?
The offset are the reserves deposited by banks at the Fed. That's why bank reserves exploded during QE.
Yes, the offset of Fed purchases is bank reserves.So how would it work? You're not taking FRNs out of circulation and you're not stealing excess bank reserves, so what is the offset?
The offset are the reserves deposited by banks at the Fed. That's why bank reserves exploded during QE.
What is the offset to the Fed "canceling" Treasuries?
Yes, the offset of Fed purchases is bank reserves.The offset are the reserves deposited by banks at the Fed. That's why bank reserves exploded during QE.
What is the offset to the Fed "canceling" Treasuries?
This graph would plummet back to zero.
