The world must replace the dollar to avoid world-wide hyperinflation

[Jeromie]

On the contrary it will  greatly illuminate. In  August 2007, the  money deposited at the fed was taken down to zero virtually every night beyond Reserve Minimum Deposit Required calculated daily.  No bank left a dime more than required in the FRB at the close of business.   The average reserve  account balances  were rarely more than between $5 and $10 bn for decades on end and tending even lower.   One way the balances were lowered was by  banks taking  currency and having their Reserve Account Charged. In fact currency was a major part of account fluctuations back then.


There is only one normal legal answer to my question given the time frame of settling by 4:30 PM NY Time.   That answer itself would be physically impossible based on data in the FRB Balance Sheet.  That answer would settle up only $187.985 bn of the say $950.000 bn taken out of the FRB.    But I said wire it out!  

[Jeromie]

Seahorse, the wire would bounce  because no asset sales took place to cover the transfer. That is the heart of the Central Banking System  now in universal use on Planet Earth.   The only  thing that might be done is to issue $ 187.985 bn of currency, everything they have, and put it on armored trucks to be sent to the banks.    Thus they could settle up to $187.985 bn by bank closing time. If they did that  the legal Currency outstanding account would increase to $1.064105 trn  and reserve deposits would decrease to $ 778.552 bn.     Assets owned would not change. 
   

 OK, they must sell $778.552 bn in  assets by 4:30 PM. How? Who would buy them thus reducing money supply by lowering their Reserve Balances.   Lets see, they need to back the currency liability account which means they cannot sell much of the Treasuries as a practical matter.   That means they must dump $692.291 bn of mortgage backed securities to others outside member banks. All in one day. After all, for all but the last year Reserve accounts were always taken down to minimums and in total for all banks were between $5 and $10 bn at the end of any given day. Now what would be the losses from selling those Mortgage Backed Securities?     Then they would not a have Federal Reserve Note in house  and they would still bounce the wire transfers to the extent losses did not cover them. 


 So how do they legally hyperinflate   funds in circulation including currency.

 It can be done , but it takes a law change. I doubt the law change would easily pass Congress.


To hyperinflate  funds including currency must radically inflate. A law allowing putting electronic funds into permanent circulation in addition to currency would allow  hyperinflation to take place. It would take a very long time though in current circumstances.

For example, such a law change would allow the FRB's to buy every mortgage at Fannie and Freddie and credit their Reserve Account at the bank. I assume Congress would make them banks.  Now F&F could lend all they want and take down their Reserve Account as they wire funds to the Mortgage Closing.    But that happens only with a law change.


If foreigners think the infusion of their money will inflate prices as opposed to currency in the US with $1 trn of currency outstanding, stop buying US Treasury paper.

 

 

[paland]

Nixon is never credited with being a smart man, but the more I learn about what he did, the man was a freaking crazy assed genius.... And it makes perfect sense that the USD system is starting to falter 18 to 24 months after the peaking of oil.

Actually, we always knew Nixon was very smart, just paranoid. His IQ was reported to be above 150.

[Seahorse]

Well, foreigners are slowing purchases of Treasuries.

[lynnie]

seahorse, I join with feelingweird to say that I find your posts about the oil-gold standard to be eyeopeningly brilliant.


Jeromie, nice to see you back.

[Seahorse]

Thanks Lynnie.  It's been swimming in my thoughts for years now.  I never heard back from any of the gold bug sites, so I kind of dismissed it as being off base.  Time will tell.

[Jeromie]

Seahorse, now for the kicker of kickers on those Mortgage Backed Securities.   Just the note alone should have told all those thousands of guru's  blogging their asses off something about the bank profits in 2009!

 Here is the Financial  Statement Note on this  the October 8 , 2009 Balance Sheet I used.   The New one came out a 20 minutes ago.

 "4. Guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.   Current face value of the securities, which is the remaining principle balance of the of the underlying losses. "

I have been waiting for Guru comment for  eight months   now on that footnote. The banks marked all this to market at December 31, 2008 and the FRB's bought the  Mortgage  Backed Securities at PAR. Thus, a bank carrying these securities marked down to say 80 got paid 100 by direct credit to their Reserve Account at their Federal Reserve Bank.   The bank picked up the profit of 20 in the first or second quarters or avoided booking more mark to market reserves. The FRB's paid  par!


Since the Mortgage Backed Securities were bought by crediting a Reserve Demand Deposit Account , they could only be bought  from holders of a Reserve Account!

[greenstatistician]

Jeromie, for me that sounds like if the FRB's is taking a credit risk  - what do you think? Is the toxic debt in fact healthy?

[Candace66]

...  If I were the Chinese, I would be openly throwing my dollar reserves into third world countries, buying their resources and companies (which they are doing).  That way, when the dollar crashes, it is the poor third world that is holding the worthless dollars. 

Very cold-blooded, but definitely in the best interest of the Chinese!  Who can blame them...they obviously are genuinely concerned about the notes they're already holding, who would expect them to buy more US debt?!

Excellent discussion you started here, Seahorse!  I do think you are on to something with the "oil standard" theory.  And there have been lots of interesting ideas and points throughout the thread.   

[Doomerific]

Those in charge don't benefit from hyperinflation, afterall it destroys the vehicle they're using to exert control and extract wealth.  However they can benefit from getting everyone to believe that hyperinflation is on the way just like the 70's.

This time they'll have to back the dollar with gold at a few grand an ounce, what's to stop them from doing so?

[maurice]

The Confederate States of America backed up its currency with warehouses
packed with bales of cotton. The stalinist Soviet Union backed up its currency
with grain confiscated from its breadbasket, the Ukraine. What is to stop TPTB
from seizing this nation's grain reserves to back up a grain-backed greenback?
After all, privately owned gold was confiscated during the Depression.

[Jeromie]

Green Statistician, the footnote says it all.  They own Mortgage  Backed Securities  guaranteed by Fannie,  Freddie and Ginny that they paid par for since they are carrying the assets at cost.  The FRB's use a modified GAAP adapted to central banks according to the opinion for the FRB NY.
 
 The salient policy point is that the are paid by Fannie , Freddie and Ginnie for defaults so as to exclude loss. Consequently, no realistic loss on a going concern basis which seems to be a political football among the ignorati.

But go back to the FRB website I linked and check back to various times in the  time frame these MBS's were acquired.  At no time  was the total balance of Member  Reserve Accounts LESS than even the cumulative totals of MBS's  bought!!!!   That means they were never actually paid for by the Members of the FRB's taking down their Reserve Accounts and actually using the funds. They cannot do that legally unless the  FRB's sell assets or swap Federal Reserve Notes to cover the account reduction.

This is the point  everyone is missing in this massive change over the Balance Sheets  before September 2008.


In the trade the purchase of the MBS's were never " funded" as would be the case of my checking account being credited for a car loan and the funding taking place when I write the check to the car dealership.

These loans are couched as absolute purchases but the sellers never claimed funding the payment to them!  If they did, the FRB's could not legally settle but would be forced to sell the MBS's back to the  banks they bought them from.   In other words this was all a way to dress up the bank's balance sheet and relieve them from mark to market problems. Nothing more to the extent  of FRB  MBS purchases.

Add.  Carry this forward to the point the FRB's sell the MBS's back at Par.   That happens when mark to market changes.  The banks bought them back for 100 % from their Federal Reserve  Bank.   Not marked to market ever again unless held for sale. these buybacks will be held for investment and are thus carried at cost.  Mark to Market bullshit solved and I take my hat off to Ben Bernanke. A genius simplicity few can see from the simplicity. 

These securities were originally designated held for sale so they could be marked up to market by the banks.   The banks repurchased securities are NEW when that happens. Problem solved in the best of grifter  mindsets.