A full-fledge analysis of the balance sheet of the Federal Reserve would prove boring.
And so I thought a Thug Notes version of it would suffice and make more sense to regular people.
But before we delve into the details we need to understand two things:
1. Some basics about the Fed
2. and the economic backdrop
This will allow us to see the points I'm trying to make and hopefully we can all walk away with some important economic lessons.
First, the Fed.
The Fed is not a government entity, but rather a privately owned "non-profit" that was originally created to "back up" or "insure" the US' banking system. Banks deposit money with the Fed for "safe keeping," and the Fed in turn "guarantees" them against bank failures, panics, and the like. The stated intention of this is to make the banking system sound so panics or runs on the banks do not grind our financial system to a halt, thus preventing an even more severe recession from occurring.
To ultimately back up the financial system, however, the Fed must be in charge of monetary policy. Specifically, it must have the ability to print as much money as needed to make good on its promise in case an a financial "Armageddon"occurs. Economists at the Fed presumably (and I even question that) know they cannot just "print off more money" so they do not resort to this unless they absolutely have to. And so the majority of Federal Reserve action hovers around changing the "interest rate," the sale or purchase of US Treasuries, the reserve requirement ratio and other "tools" is uses as a means to PRIMARILY CONTROL INFLATION.
This is how it's "supposed to work."
Second, the economic backdrop.
That "financial Armageddon" I told you about? Yeah, well that was more of less what happened in 2007-2009. So drastic and so large were the mistakes made by our banks and financial institutions that we entered (and in my opinion, have yet to leave) the largest recession since The Great Depression. Because the economic crisis revolved around our financial system, this then tested the effectiveness of the Federal Reserve as the ultimate guarantor of our banking system. However, so severe were the financial problems of our financial system, the demands for borrowing money from the Fed outstripped what it had available to lend.
This created a unique situation for the Federal Reserve. Instead of merely being the guardian against inflation and a insurer of the banking system, it ended up having to literally bail out the financial system. You can see the trillion dollar "TARP" bailout in the "mortgage backed securities" account of the Federal Reserve in 2008-2009
This is an important point to make, because the Fed was no longer just a "central bank" that was there to play the traditional role of "lender of last resort," but was now an entity or "fund" by which to shore up and bail out the entire banking system. And the changing "assets" the Fed listed on its balance sheet proves it.
But after 2009 things "settled down." And despite the US being the primary instigator of the world wide financial crisis, most other countries were doing the exact same thing. Property bubbles, excessive lending, ginormous government debts, etc. And therefore, because everybody else was doing it, the US looked better in RELATIVE TERMS. All countries were going to hell in a handbasket, but the US was "the best looking horse in the glue factory."
This bought us some time. China, Europe, Japan, and the Middle East all wanted to buy US treasuries because of the presumed "safety" those investments provided. THe US was "the US" after all! And just like Superman, we never fail, because we're Americans! We always win! Why? Because we're Americans! And the US never fails! (just ask Sean Hannity).
This "perceived safety" allowed one Barack Hussein Obama, a democratic senate, and a balless, spineless, pussified republican house to run MASSIVE federal deficits to pursue a Keynesian wet dream of fiscal stimulus spending. Obama phones, free money, extended unemployment, Obamacare, you name it, it was approved. However, economic growth did not "obey" like it should have and has since remained stagnant hurting the feelings of Paul Krugman and the like.
Without economic growth, however, debts cannot be repaid, and our creditors took note of this, namely China and Japan. These foreign creditors stopped lending us money which now foisted a third role on the Federal Reserve -
Financier for the US federal government.
And thus my concern for the FYE of 2013.
From 2012 to 2013 you can see that the Federal Reserve now had to essentially bail out the US government. It lent the Federal government an additional $514 billion dollars that the Chinese wouldn't. Worse still, the Fed purchased another $564 billion in mortgage backed securities.
But what makes matters worse is that this is just the change from 2012 to 2013. Since 2010 the federal government debt the Federal Reserve has purchased has gone from $1.1 trillion to the $2.23 trillion it is today.
So what does this mean in every day normal person's language?
It means the Federal Reserve is the modern day financial incarnation of Jesus Christ.
Oh, laugh if you will but hear me out.
Listen or read through the lyrics "Christ the Lamb of God." I know it by heart because it was jammed down my throat by Nazi's using a church called "The Wisconsin Synod" as a front:
Oh Christ the Lamb of God, you taketh away the sins of the world, have mercy upon us.
Oh Christ the Lamb of God, you who take away the sins of the world, have mercy upon us.
Oh Christ the Lamb of God, you who take away the sins of the world, grant us peace.
How precisely is that any different than what the Fed does for the American people? All you have to do is tweak some words:
Oh Greenspan the Chair of the Fed, you bail out the scumbag bankers of the world. Giiiiive them more mooooonnnneeeeey.
Oh Bernanke the Chair of the Fed, you make sure people don't have to pay for their mortgage. We can't do maaaaaaath.
Oh Yellen the Chair of the Fed, continue to finance Obama's bribery of the voters. Give us Obaaaaaaama phones.
And you know it's true because of the forever changing balancesheet of the Fed that is outside of what it was originally chartered to do.
Bailing out the financial sins of bankers.
Bailing out the financial sins of people who spent more than they could afford.
Bailing out the financial sins of the parasitic classes that rely on government spending.
And does anybody want to bet me on whether or not student loans will make it to the asset side of the Fed's balancesheet within 5 years?
In short, since we can't get those Chinese and Japanese
And it will.
Just pay close attention to the "liabilities" side of the balancesheet in coming years to see how it does that.
And then don't complain when the Fed finally says, "It is finished" when hyperinflation sets in.