CAN CENTRAL BANKS GO BANKRUPT?
A TDV subscriber forwarded us an article that said the Federal Reserve was dangerously close to going “bankrupt,” stating, “In direct figures, the Fed has $4.485 trillion in assets, but a whopping $4.428 trillion in liabilities, leaving only $57 billion, or about 1.28%”.
The article stated that, “if the value of the Fed’s assets drops by more than 1.28%, the Fed will be bankrupt.” It went on to paint a conundrum wherein if the government relies on the Fed, and the Fed goes bankrupt, who will bail whom out?
Before we begin to show the trouble with this circular logic let us first preface that central banks are intentionally set-up to be incredibly confusing. Hardly anyone really understands how they work and Alan Greenspan even coined the term “Fed Speak” where he said that he would talk to Congress in plain gibberish because their goal was for no one to really understand what they do. Because, if they really did understand what they do, as Henry Ford said, “there would be a revolution tomorrow”.
Analysts who understand what they do in detail are few and far between and include people like Jim Grant, Robert Murphy and TDV’s Senior Analyst, Ed Bugos.
Murray Rothbard (1926-95), a Misesian successor in the Austrian School, speech writer for many Libertarian presidential candidates, author of many books about the Federal Reserve System (and the evils of fractional reserve banking), and inspiration to Ron Paul, said this in his 1994 book, “The Case Against the Fed,”
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