The Federal Reserve is Going Bankrupt | Complete Collapse.

holy smokes the Federal Reserve some say

is going bankrupt they are literally

spending more money than they're taking

in here's a quick glance of what I'm

talking about this just happened see how

there's a line in the middle and there's

a zero above my head well on the far

right side you see September 28th we

just got info that the FED is now upside

down that's right the Federal Reserve

can't even balance its income and

expenses anymore I feel like every day

as normal individuals we have normal

Financial wisdom that says we should

spend less than we uh you know we take

in right well the Federal Reserve the

most powerful Central Bank in the world

our Federal Reserve is now officially

upside down it's almost kind of like the

people who have the most power in the

world can literally go to us hike our

interest rates hike rates on our cars

homes credit cards and tank our stock

portfolio and at the same time they can

make sure they got out right before the

stock market crashed oh because that's

exactly what they did at the end of 2021

the board members of the FED sold their

stock portfolios because they wanted to

make sure to avoid any conflicts of

interest right and then they proceeded

to crash markets so what is happening

and how does this work why all of a

sudden is the Fed negative and is this a

big deal like is this bad what does this

mean for us well let's talk about this

because some are now saying because of

this the fed's bankrupt and quite

frankly it's renewing calls to End the

Fed

so without further Ado let's talk about

exactly what's happening this video by

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first every single day the Federal

Reserve pays money to institutions who

deposit money with the FED into either

overnight Reserve balances so sort of

regular Reserve balances or via reverse

repo commitments now this is a little

complicated we're not going to go into

all of the details of exactly what the

reverse repo facility is this is the St

Louis Fred website I happen to be

wearing a sweater from them that's

because well I thought CPI day it's

probably appropriate to wear this I

don't work for the fan

uh but anyway this is the reverse repo

facility and ever since about March 31st

2021 there there were some rule changes

at the fed and with banks regarding

their reserves and essentially the usage

of this reverse repo facility has

exploded it's basically an opportunity

for banks to take excess cash that they

have so extra savings that we've

deposited with banks and that they have

sitting around as cash they are able to

put them into basically the federal

reserve's coffers overnight and it goes

back and forth every day except when

they get the money back they get a

little bit of Interest

that makes sense

the Federal Reserve currently pays

interest not only on this repo facility

but also the other overnight reserves

and in total there are about 5.2

trillion dollars in reserves the FED has

to pay interest on well that interest

rate used to be zero to a quarter of a

percent so basically it cost the FED

like nothing the total payment now

though has changed now they're paying

about 469 million dollars per day every

single day and that'll go up to about

570 million dollars when they raise

rates to four percent they'll have to

pay that every single day 570 million

dollars every day is worth like worth

doing the math here it's almost 24

million dollars every single hour of

every single day or 369 thousand dollars

every single minute or 6.6

000 every single second

yeah that's like a new definition of

making it rain every second six and a

half thousand dollars or six point six K

six point six K six point six K yeah

that's what they're paying and so you

might wonder okay who's getting that

money because that's crazy and again

it's mostly institutions parking your

cash now these Reserve balances are a

lot but the FED also makes money most of

the money they make is from the Soma

okay Soma is a little tricky but it's a

basically the system open market account

it's just a fancy way of saying it's

where they Park their treasury bonds

mostly some other bonds and

mortgage-backed securities and those pay

interest even back two years ago you

still had treasury bonds paying interest

they were paying closer to one and a

half two percent instead of like the

four to four and a half percent we're

seeing now and mortgage-backed

securities pay some money as well a lot

less uh in the past than they than they

do now usually they'd make so much money

on their Soma just by basically printing

free money buying Securities right

because that's quantitative easing right

you print a bunch of funny money you

digitally print it they don't actually

print it like the treasury Department

actually prints money but the Federal

Reserve can digitally create money by on

a spreadsheet like adding a zero or so

to speak then they spend money on things

like mortgage-backed Securities and

treasury bonds that cash then goes into

the market because they can buy that

money those those bonds so to speak from

either the government the treasury

Department or from institutions like

Banks so either Banks get the cash

that's created or the government gets

the cash that's created and in the

meantime the FED has these Securities

that pay interest again treasuries and

mortgage-backed securities well usually

that makes a profit for the fed and the

profit makes maybe somewhere around a

billion bucks every single week or so

that they end up having to send over to

the treasury Department sometimes it

goes up to 2 billion a week sometimes uh

it's like 900 million dollars something

like that so it fluctuates what we can

see over here is it's apps absolutely

plummeted in other words the FED is no

longer sending money to the treasury

Department this means that as long as

the Federal Reserve continues to having

to pay so much money on their Reserve

balances they're not going to be sending

money to the treasury Department in fact

the treasury Department really isn't

expecting to get money anymore in 2022

that just started here's sort of an

annualized picture of this 2022 that's

now negative and they expect to be

negative in 2023 and 2024 as well now

how does that work over at the treasury

well basically the treasury Department

has to borrow more money which just

increases the United States government's

debt because the treasury is now no

longer getting a stream of income from

the FED now they do some magic math in

terms of how they account for this

between the two but the Practical matter

is the less money that goes from the FED

to the treasury and the treasury's got

to pay tax or you know has to pay things

like so Social Security right Cola just

went up the cost of living adjustment

was just 8.7 so they got to pay uh

Social Security they're gonna send their

stimi checks whatever they got to do

all of that comes from the treasury

Department if they don't have money for

it they just borrow more money and since

they're getting less money they have to

offset what the FED used to send them by

borrowing more money so basically what

happens here is the treasury issues more

debt while the FED is negative and so

we've looked at this chart that shows us

that maybe by 2025 and six the FED will

be able to actually start paying the

treasury again when those Reserve

balances go down and see the FED thinks

that those Reserve balances should go

down because they think as they continue

their process of quantitative tightening

more banks are going to take their cash

and they're going to buy treasuries and

mortgage-backed securities themselves

money will then leave markets right this

is sort of the vacuum cleaner of

quantitative tightening and when the FED

has less reserves on the book even while

rates are higher the FED has to pay

lower interest rates in this section

here they talk about how they're

expecting the overnight repurchase

payments facility to see a decline in

the outstanding levels they say that

could happen in the next coming quarters

so far it hasn't actually happened yet

if anything has been slightly increasing

but we'll see so the FED is hopeful they

won't be negative for too long as those

numbers go down but for now they're

negative so what does that mean for us

well let's get in a message from short

form and then talk about the impacts of

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so the next thing that happens when the

treasury Department has to issue more

debt because the Federal Reserve can't

make money anymore because they're

upside down and now they're costing the

government more money remember the FED

is technically separate from the

government you're going to see calls

re-emerge to quote End the Fed Ron Paul

of Texas actually wrote a best-selling

New York Times book on exactly this Ron

Paul is a believer that the FED is

corrupt unconstitutional and immoral in

fact in his book he says that the entire

idea of the FED arguing that they

control interest rates and basically by

controlling interest rates they can

somehow impact markets is almost the

same as just having a centrally planned

economy he kind of calls the FED a

centrally planned institution kind of

like the government of communist China

where the government controls wages and

prices in this case it's the FED again

technically separate from the government

and he believes that is Ron Paul

believes that a centrally planned

economy is always failed and that any

intervention by a centrally planned

economy just ends up creating a bigger

hole now this is a big slap in the face

to what Keynesian economics really is

which is what the Federal Reserve is

essentially based on Keynesian economics

is basically what our federal reserve

and our current government is based on

it stands in pretty stark contrast to

the Austrian economics who don't love

what the FED does they think the FED

creates more problems than it solves

this is kind of like Ron Paul but

basically the idea is that an ordinary

business cycle looks like this prices go

up prices come down prices go up prices

come down and the problem with the

business cycle in the opinion of

Keynesian economists is that this

creates too much Euphoria and this

creates too much pain so in the euphoric

area people take too much risk and they

go Looney during the pain periods too

many people lose their homes their jobs

and their businesses close so the idea

of Keynesian economists is okay well why

don't we try to soften these crazy times

in Market Cycles by having a Federal

Reserve that comes in and increases

interest rates when the market is hot

and decreases interest rates when the

market is low and the gold is to really

soften the economic cycle so that way we

could have a more steady Prosperity

rather than these crazy boom and bust

Cycles now somebody like Ron Paul argues

this is insane the fed by stepping in

like this just creates more problems and

to some extent this experiment we're

going through right now in 2022 kinda

makes you feel that way because after

all after covid we didn't save the

economy from a hole we way over

stimulated the economy leading to an

insanely euphoric boom and now we have

to we have way over stimulated the

economy and so we have to go in reverse

and so now we're really crushing the

economy that shouldn't be crushed so if

you look at the pandemic and now you're

like the FED hasn't smoothed anything

they just made everything worse now

obviously hindsight is always 20 20. so

it's you know now what we could do is

make fun of them but going back you know

if they knew what was going to happen

they probably wouldn't have done as much

stimulus and hopefully they relax with

their crazy crushing of our economy into

a depression but this is going to bring

a lot of attention to people like Ron

Paul who say screw the FED if businesses

fail let them fail let businesses

implode and stop bailing out companies

because the ultimately the idea is hey

if businesses realize they're not going

to get bailed out and boom in bus Cycles

guess what they'll end up doing they'll

end up saving more money and they'll end

up making themselves more resilient in

the case of an economic collapse so

basically if you think the markets are

going to fall and somebody's gonna bail

you out then who cares if you have a

bunch of debt but if markets are going

to fall and you know I ain't getting

bailed out then you may as well make

sure you have enough savings to get

through the down cycle sure other people

are going to get hurt more but the idea

is companies and people save more money

to survive through the bad times and so

that way they don't have to go bankrupt

because they know they're not getting

bailed out that means less spending

during the euphoric times and so

psychologically it might make sense that

we actually have smaller boom and bus

Cycles without the Federal Reserve

basically trying to bail stuff out when

it looks like things are going bad but

then blowing up the economic cycle worse

to where now they have to go in the

opposite extreme which is basically kind

of what's been happening the last two

years so it's kind of interesting to

revisit this whole idea of and the FED

when at the same time we are seeing the

FED now go negative and leading to more

debt piled on to the United States

Treasury Department right now there are

plenty of people like Princeton

Economist Alan Blinder who say that

there are quote mountains of empirical

evidence supporting the proposition that

Central Bank Independence produces not

only less inflation but Superior

macroeconomic performance that's a quote

from him

great so there's a lot of research that

says no no keep the fat around but I

hate to say it when you look at the last

couple years you're like

really so what's next well here's

basically what this means when the

treasury Department has to essentially

take on more debt because the FED is

upside down

it becomes a political issue that's it

we don't actually think that the FED

being negative has any real implications

to us it practically for now doesn't it

just means the treasury Department has

to borrow more money and it's nice to

know that there's not some kind of

extreme result right now but what will

likely happen is a lot of political

pressure like what I just explained with

Ron Paul and then the FED you're more

likely to see more of that kind of

pressure and more limitations

potentially put on the fed from Congress

remember the FED is authorized to do its

job as an entity that's separate from

the government by Congress so Congress

has the power to regulate the fed and

you could see a lot more political

pressure on the FED if we don't actually

start seeing their policies working but

in the meantime the FED is upside down

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