The Fed is getting destroyed...massive bond losses

[Maverick74]

http://www.etfguide.com/commentary/1095/Bond-Losses-at-Federal-Reserve-Top-$192-Billion/

It looks like we may not have to end the Fed after all. They might just self terminate. Interesting how nature just runs it's course regardless of man's desire to control it.

 

[Martinghoul]

Huh? What losses? This is very disappointing, Maverick...

It's, quite obviously, impossible for the Fed to actually lose money, unless they specifically decide to do so. Even then, such losses would be irrelevant.

 

[Maverick74]

Quote from Martinghoul:

Huh? What losses? This is very disappointing, Maverick...

It's, quite obviously, impossible for the Fed to actually lose money, unless they specifically decide to do so. Even then, such losses would be irrelevant.

Tell that to the previous two US central banks that blew up.

 

[Martinghoul]

Quote from Maverick74:
Tell that to the previous two US central banks that blew up.

And which ones might those be?

 

[pikachu9]

http://en.wikipedia.org/wiki/First_Bank_of_the_United_States
https://en.wikipedia.org/wiki/Second_Bank_of_the_United_States

One of the strongest concepts in finance is mean reversion. I do think there will be future circumstances where central bankers influence will be diminished compared to their omnipotent regard today. Maybe that time will be related to to huge bond losses that the public is unwilling to bail out? However, politics being what they are, the central bank is a convenient tool to exploit silent seigniorage, which I don't see ever being given up by any government in power.

 

[Martinghoul]

Quote from pikachu9:
http://en.wikipedia.org/wiki/First_Bank_of_the_United_States
https://en.wikipedia.org/wiki/Second_Bank_of_the_United_States

One of the strongest concepts in finance is mean reversion. I do think there will be future circumstances where central bankers influence will be diminished compared to their omnipotent regard today. Maybe that time will be related to to huge bond losses that the public is unwilling to bail out? However, politics being what they are, the central bank is a convenient tool to exploit silent seigniorage, which I don't see ever being given up by any government in power.

First of all, those early versions of a US central bank didn't fail because of losses, so not really sure why they're relevant. Secondly, there's no argument that any central bank exists because of a particular political arrangement. If that arrangement goes away, the cb does as well, which is what happened earlier. This, again, is irrelevant to the issue of "losses". Let me reiterate, the Fed, given its current institutional structure, cannot experience losses on its portfolio, unless it specifically wants to.

As to mean reversion in finance, what determines how far back we should be "reverting" to? Is it fair to expect that we're gonna go back to using clay tokens for accounting purposes?

 

[pikachu9]

Quote from Martinghoul:

As to mean reversion in finance, what determines how far back we should be "reverting" to? Is it fair to expect that we're gonna go back to using clay tokens for accounting purposes?

No. We go back to using a second-tier, non-reserve currency with the side effect of a diminished printing press.

 

[nazzdack]

Quote from Martinghoul:
----Let me reiterate, the Fed, given its current institutional structure, cannot experience losses on its portfolio, unless it specifically wants to.

1) ?... The Omnipotent Director's Fallacy? :eek:
2) ?... The Fed's cost basis on all of its positions is "zero"?

 

[justrading]

Quote from pikachu9:

No. We go back to using a second-tier, non-reserve currency with the side effect of a diminished printing press.

Pleased to see this.

I have long held the view that having the USD as the world's reserve currency has allowed self-indulgence to cloud decision making, with all the consequent ills befalling the world economy.

If the powers that be would get together in another 'Bretton Woods' and agree an orderly transition to a basket of currencies as reserves, or some such arrangement, it would help things. Don't ask for details, I'm not an expert on this matter and I'm not going to offer detailed solutions, just my thoughts on this.

 

[joederp]

As if the IMF can't bail out the Fed on a TBTF basis?

No fancy swap trading campaigns to fool foreign funds into thinking the Fed's still solvent and hence worthy of confidence, business goes on as usual while the can is kicked further down the road?

Just remember Barry O's slogan, "YES WE CAN" - the Fed subscribes to the Barry O School of Economics.