The Situation Worsens

Posted 14 Feb 2008


The Feb 13th H.3 Report has worsened.  Now non-borrowed reserves are at -19.2B.  On Feb. 7th the Fed issued the following statement:  

The H.3 statistical release indicates that nonborrowed reserves of depository institutions have declined substantially since mid-December to a level that is now negative. This development reflects the provision of a large volume of reserves through the Term Auction Facility (TAF) and has no adverse implications for the availability of reserves to the banking system.

By definition, nonborrowed reserves are equal to total reserves minus borrowed reserves. Borrowed reserves are equal to credit extended through the Federal Reserve's regular discount window programs as well as credit extended through the TAF.

To maintain a level of total reserves consistent with the Federal Open Market Committee's target federal funds rate, increases in borrowed reserves must generally be met by a commensurate decrease in nonborrowed reserves, which is accomplished through a reduction in the Federal Reserve's holdings of securities and other assets. The negative level of nonborrowed reserves is an arithmetic result of the fact that TAF borrowings are larger than total reserves.

Ms. Baum of Bloomberg commented on this article on Feb. 8th.  She must be either ignorant or complicit.

Who does the Fed and Ms. Baum think they are kidding?  This most certainly has ‘adverse implications for the availability of [the purchasing power of the] reserves.’  Yes, the Fed is playing its role as lender of last resort.  However, by lending money it has printed out of thin air it does not provide ‘reserves’ of substantive purchasing power.

An arithmetic result showing insolvency and bankruptcy.  In other words, the Federal Reserve system can only write hot checks so long.  Typical Ponzi Scheme that is now unraveling as the Federal Reserve’s holdings are dissipated into black holes on the member bank’s balance sheets.

It appears the Federal Reserve will Cross the Rubicon and begin monetizing the non-performing or illiquid debt instruments.  If that happens then gold will surely and quickly reach $2,000.  The nominal amount of US$ is irrelevant as gold is the standard of purchasing power. 

With gold people can be confident that one ounce is one ounce or 10 barrels of oil and not a third of an ounce, no ounces or no oil as a result of an ‘arithmetic result.’

I hope everyone reading this has taken steps to remove the layers of counter-party risk posed by institutions and instruments (that includes the US$) between them and their purchasing power.  Watch this video to understand why GoldMoney is not subject to these problems.