classical economics
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One Fed Two Debts

ONE FED – TWO DEBTS
U. S. Owes Fed. Fed Owes Us!

By Wayne Jett © June 10, 2019

     Most Americans think of the Federal Reserve – if at all – as owning much of the debt owed by the federal government, managing interest rates and setting monetary policy. As recently detailed here, the Fed actually owes much more debt than it owns. Who are the creditors to whom the Fed owes its debt? Those creditors are you and everyone in the world who hold dollars accepted as payment for labor, a product or a debt. You see, the dollar is a promissory note – not real money – although the promise inferred is hard to find in writing and may be hopeless to enforce in any court of law.

Debt Owned By The Fed

     As of March 31, 2019, the Fed reported total assets of $3.958 trillion, consisting in part of Treasury securities (federal debt) valued at $2.252 trillion and mortgage-backed securities of $1.638 trillion. This is the debt owned by the Fed, as contrasted with liabilities in the nature of debt owed by the Fed to be discussed below.

     With interest rates at this time near historic lows due to the Fed’s own actions plus hidden manipulations, any jump in rates towards normality would have significant negative effects on market value both of government debt and mortgage debt. This is a risk the Fed temporarily has reduced somewhat recently by backing off its stated plans to raise the controlled interest rate charged to banks for borrowing overnight funds at the Fed.

     The other primary risk to which the Fed exposes itself in owning these debts is the standard one for lenders: will the borrowers repay their debts on time with interest? As to the U. S. Treasury bonds owned by the Fed, Treasury will probably continue to borrow more dollars to repay old loans and to pay for new deficit spending.

     As to the Fed’s risks in owning mortgage-backed securities (MBS), these are more difficult to assess because MBS often have margins of extra safety built into the security to protect the investor even when individual borrowers default more frequently than normal. Again, if interest rates rise, unemployment would likely rise, leading to higher mortgage defaults. Nevertheless, these risks may be fairly remote if the Fed has selected its assets carefully.

Debts Owed By The Fed

     In the same Fed report cited above, the Fed shows total liabilities of $3.919 trillion consisting primarily of $1.676 trillion for Fed “notes outstanding, net” and $1.581 trillion in deposits owed to depository institutions.

     Footnote 4 of the Fed’s report just mentioned describes “notes outstanding, net” as follows:

Federal Reserve notes are the circulating currency of the United States. These notes, which are identified as issued to a specific Reserve Bank, must be fully collateralized. All of the Reserve Banks' assets are eligible to be pledged as collateral. At March 31, 2019, and December 31, 2018, all Federal Reserve notes, net, were fully collateralized.” (Emphasis added.)

The good news in this very significant information is that the Fed actually acknowledges a liability on its financial statements arising from its issuance of “notes” to serve as the circulating currency of the US. The bad news is the Fed’s statement that this liability is required to be collateralized only by the regional banks of the Fed system – not by the Fed itself. The shocking news is that the total liability of $1.676 trillion acknowledged for “notes outstanding, net” is only about 51% of the total monetary base of $3.245 trillion created directly by the Fed as of May, 2019!

      Now we must focus upon this essential point: the monetary base created by the Fed is only the starting point of currency creation – not the totality of it. Each banking institution, in accord with “fractional banking practices,” makes loans which often multiply the face amount of Fed notes by ten times, and sometimes closer to 100 times. All of those dollars are “notes outstanding” in the sense they exist in the economy and are used to pay for assets, goods and services – each under the name of Federal Reserve Note.

      A moment’s reflection on this information produces both a question and a shout. How is showing a Fed liability of only $1.676 trillion for the “circulating currency” of the US reasonably adequate when the face amount of circulating currency must be in the neighborhood of $30 trillion, if not more?!!

      This encapsulates the treacherous nature of the financial relationship between the Federal Reserve and the people, governments and organizations of America and the world. The Fed reports its net worth as equal to about five per cent of its undisclosed liabilities to those of us who have accepted its “notes” in exchange for assets, goods and services. Consider this together with the fact that no audit of the Federal Reserve's records has ever been made by an independent professional accounting firm and disclosed to the public.

      The Fed report states that the $1.676 trillion in “notes” issued are fully collateralized by the regional banks of the Fed. What is the collateral? Dollar deposits, perhaps? If so, then what of value will be available to repay people holding dollars if the dollar’s value falls to zero or near it? The answer, according to their plan, is nothing.

      The dilemma with this financial house of debt instruments is that the perpetrators of fiat currency fraud will wish to pay their victims with more of the same worthless currency. Meanwhile, aware of the planned outcome of the Fed’s fiat currency scheme, the global cabal who own and control the Federal Reserve will have spent their “notes” to buy lasting value: labor, real estate, gold, silver, food and technology.

Our Dilemma and Our Challenge

       Astute opponents of the Federal Reserve’s creation in 1913 knew the history that private central banks always seek a fiat currency that has value only because a statute commands that it be so. The fiat currency is then managed so its value drops to zero over time, while the central bank owners issue currency to themselves and exchange it for hard assets. This danger became more obvious when FDR upon taking office as president in 1933 promptly terminated the statutory right of Americans to exchange dollars for gold at $20.67/oz.

      The value path of the dollar has been downward especially since 1971. That is when President Nixon, advised by former Chase Manhattan (Rockefeller) banker Paul Volcker as Undersecretary of the Treasury, stopped selling gold to foreign banks at $35/oz., then, in 1972, “floated” the dollar’s value under the Fed’s management. Today a Fed dollar buys about 1.5% of the amount of gold it would purchase before FDR’s inauguration in 1933. And even that small percentage is artificially higher than it should be due to the gold price being manipulated lower than market.

Confrontation Is At Hand

      In 1901, an elitist manifesto written by H. G. Wells described a planned network of privately owned central banks as a powerful tool in the global cabal’s comprehensive plan to destroy the world’s middle class (meaning all productive people able to support themselves at any level). Wells was promptly honored at the White House of President Theodore Roosevelt, as well as in the palaces of Europe, and years later by FDR and Stalin.

      Americans and the world have paid dearly in blood, sweat and tears for more than a century due to those well-laid plans of the global cabal. The perpetrators are nearing the time to close out their plans. America has arrived in the breach – unexpectedly and against all odds – with leadership, capability and intent to deal with them.

      President Donald Trump and the American military who support and defend the president and the Constitution are acting to protect and preserve these important interests of all Americans. Other nations are watching and acting cooperatively, so our outlook is considerably brighter than otherwise would be the case.