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Turk: “Late Friday the Federal Reserve released the audit for its annual accounts as of December 31, 2013, Eric.  This report is raising eyebrows over here in London, and rightly so....

Continue reading the James Turk interview below...


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“The Financial Times reported this past weekend that ‘The US Federal Reserve has unrealized losses of $53.2 billion on its securities portfolio,’ which as of December 31st had grown to a gargantuan $3,952.4 billion as a result of the Fed’s QE program.  This marked-to-market loss renders the Fed virtually insolvent considering that its net worth is only $55.0 billion.

The $1.8 billion difference is more than eliminated if one prudently applies even a small haircut against the Fed’s $71.7 billion of remaining assets - including those it still owns from the 2008 financial crisis - to allow for a fair market value of the illiquid, intangible and doubtful assets of questionable value that the Fed owns.

What this means, Eric, is that with a negative net worth, the Fed’s debts are greater than its assets.  In this regard, the Fed’s true financial condition is not much different from many of the large banks around the world when eliminating the accounting gimmicks that enable banks to sidestep the true market value of the assets they hold.

These banks keep their doors open for business because they have sufficient liquid assets to provide the illusion of solvency, but they are essentially the ‘walking dead.’  In essence, the Fed is bankrupt.  What’s worse, they will become even more bankrupt if interest rates continue to rise because the true market price of any fixed rate assets they own - like bonds and mortgages - will decline as interest rates rise.

But KWN readers won’t be surprised to learn that the Federal Reserve is insolvent by any prudent accounting measure.  You and I already discussed this point last year CLICK HERE.  And now the Fed’s own report of its financial condition confirms it.  As I said back then: 

“The Federal Reserve is already insolvent, but like all banks, they get around this reality with accounting gimmicks.”

The gimmicks are still there, Eric.  It requires some digging to determine the Fed’s true financial picture.  You have to dig to Page 29 of the Fed’s financial report to find the true market value of its securities portfolio.

The banks get away with this sleight of hand because they mark assets to market value only when the asset is in a bank's “trading” portfolio.  If the bank claims it will hold the asset to maturity, the asset is put into its “investment” portfolio and does not need to be marked to market, thereby avoiding the resulting impact on the bank’s net worth.  This accounting gimmick masks the true value of the asset, enabling banks to make their balance sheet look better.  It’s called “window dressing.”

But even when presented in the best light, the Fed is still showing a leverage of 73-to-1.  In other words, its liabilities are 73 times greater than its assets, which is a level of debt that would make even the most aggressive hedge funds blush.  All of this raises a critical question, Eric:  Who is going to bail out the Fed?  If anyone thinks the U.S. government will do it, think again.  Here’s another shocker:  Even the US government is wiped out.

The U.S. government recently released the annual audit of its accounts as of September 30, 2013.  By its own reckoning, the U.S. government’s negative net worth is $16.9 trillion.  That “trillion” with a “t”, and that doesn’t even include all the other liabilities for which it is on the hook and not reported in its annual accounts.

Here’s the bottom line as I see it, Eric:  We are nearing the end of the era of fiat currencies that are backed by nothing but hot air from the promises of politicians.  We still use these national currencies, but the risks are growing as the level of debts grows.

Sadly, most people are blind to these risks because it has been 41 years since the dollar was last backed by gold.  Over this time people have lost sight of what money really is, and what I call the Money Bubble has been created as a result.  But we know from monetary history that when this bubble pops and fiat currencies are destroyed, gold and silver will be the last things standing.”

James Turk: Founder & Chairman of GoldMoney

and the author of “The Money Bubble”

To order from Amazon CLICK HERE.

© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

IMPORTANT - KWN has many more interviews being released today.

The audio interviews with Michael Pento, Gerald Celente, Bill Fleckenstein, Egon von Greyerz, Dr. Paul Craig Roberts, Grant Williams, Andrew Huszar, Art Cashin, Rick Rule, David Stockman, John Mauldin and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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