$8.4 Trillion Hidden Profit For The Federal ReservePolitics / Central Banks Jul 27, 2011 - 11:35 AM GMT
Liberty writes: The public is aware that deficit spending is the government's ability to spend money that it does not have. The image projected is the government borrows from the public, or the Federal Reserve, and the money that can be spent is above and beyond the funds collected in the form of taxes and fees.
It the borrowed amount came from the public as touted, there would be no inflation. The transfer of money would be the same as if taxes or fees had been collected, but the government would additionally be giving a certificate (maybe) and a promise to pay interest on the loan. There is no way that such an imagined borrowing from the public can cause inflation.
The government can only “borrow” money from the Federal Reserve. To guarantee such a loan, the Fed demands collateral. The collateral is a contractual promise from the government to pay back the loan and is in the form of a Treasury security, such as a Bill, Bond, or Note. Upon receiving the collateral, the Fed will make a book-entry credit on a Treasury account in the amount of the collateral. This value is the amount of money that is added to the economy (i.e., off of the printing press). With the completion of this arrangement, the Fed will honor the checks written by the Treasury for government expenses.
Did the Fed put up anything of value for this agreement? No. When the government suppliers deposit the payment checks in the banking system, the Fed debits the government account. The Fed loses nothing. If any depositor insists on cash, the Fed can buy FR notes from the Treasury for four cents per small notes (i.e., a one dollar bill) or up to nine cents for a $100 FRN. Talk about a bargain. Eventually, the Treasury account is depleted and the fiat money is in circulation.
It is the T-security held by the Fed as collateral that falls below the horizon of awareness. When maturity is reached, it must be redeemed. How is that done? Well, the government does not have any money so it gives the Fed another security in the same amount. The Fed can then sell that security and the money from the sale goes into the private coffers of the Fed. The Fed has probably already sold the original but the government must create money to roll-over the security regardless of who holds it so the result is the same. It is assumed the same procedure of creating fiat money with the original security is repeated.
How does the Fed sell the security? Well, the Treasury helps sell them by posing as an auctioneer. The FRBNY handles all of the paperwork and accounting, despite the Bureau of Public Debt website pretending the government is involved. Ref. GAO FINANCIAL REPORT TO SECRETARY OF TREASURY, Nov 2010, page 17; http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2010.pdf ; also ANNUAL REPORT: BUDGET REVIEW 2010, Fed publication MS N-127, p5.
The auction records maintained by the FRBNY are never audited or reported to Congress nor is there any $8.4 trillion value in government accounting records from the auctions of 2010. Where does the money from the auctions go? Nobody knows. Privately held corporations such as the BOG of the FR, even those operating under the guise of an agency, do not have to reveal who holds ownership shares or their accounting records. The ANNUAL REPORT OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE audit is performed in accordance with guidelines established by the BOG; it does not include any records of income or outgo of the auction funds. Ref. http://www.usa-the-republic.com/banks/Federal_Reserve_Ripoff.pdf .for additional details. All of the fiat money from inflation and the auctions has become profit for the Fed.
Does 12 USC section 247 require the BOG to submit a “full report” of the Fed's operation to Congress? Yes. Why is there NO mention of the $8.4 Trillion received by the FRBNY from the auctions in the ANNUAL REPORT or any other accounting record? I don't know. The courts have declared that all profit from the Fed's operation belong to the government. Is it a crime to steal money from its owners by accounting fraud? I believe that is called embezzlement.
You might ask your Congress-critters where the money went. You might also ask how much the banks are counting on increasing the National Debt (current DC conundrum) so the funds will be available from the Fed to continue their rescue.
To put this in perspective, the government only took in $2.1 trillion in taxes last year. The auctions totaled $8.4 trillion. And you wondered how some of these collectivist programs received funding.
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