Tag Archives: Bankruptcy

Why the Fed Is Bankrupt and Why That Means More Inflation, by Ryan McMaken

How can an institution that manufacturers money go bankrupt? From Ryan McMaken at mises.org:

In 2011, the Federal Reserve invented new accounting methods for itself so that it could never legally go bankrupt. As explained by Robert Murphy, the Federal Reserve redefined its losses so as to ensure its balance sheet never shows insolvency. As Bank of America’s Priya Misra put it at the time:

As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible.

That was twelve years ago, and it was all academic at the time. But in 2023, the Fed really is insolvent, although its fake post-2011 account doesn’t show this. Nevertheless, the reality is that the Fed’s assets are losing value at the same time that the Fed is paying out more in interest than it is making in interest income.

This became clear last week, when the Fed released a new report showing that its interest payments on bank reserves skyrocketed in 2022. The press release states:

Total interest expense of $102.4 billion increased $96.6 billion from 2021 total interest expense of $5.7 billion; of the increase in interest expense, $55.1 billion pertained to interest expense on Reserve Balances held by depository institutions and $41.5 billion related to interest on securities sold under agreements to repurchase.

As this graphic from the Fed shows, the cost of operations also exceeded earnings in 2022 because remittances have fallen from 2021:

remittances

For the year overall, the Fed still managed to achieve a positive net income, thanks to positive inflows in the first half of the year. But since September, as Reuters notes, the Fed began recording what’s called a deferred asset, which tallies up the Fed’s loss; the deferred asset stood at $18.8 billion at the end of the year.

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Big solar goes Big Bust: Largest solar plant in the world dies before it can be built, by Jo Nova

This green technological wonder bled so much red that it never got off the ground. From Jo Nova at joannenova.com:

This was the glorious green future that just collapsed today.

Sun Cable, solar farm.

But it’s a win for the rare Typhonium plant, and possibly also for millions of crabs around Indonesia who might have been hypnotized by undersea cables like the ones near the UK are. And who knows what that cable would have done electromagnetically for turtles, dugongs, whales and dolphins? Where are the Greens when giant experimental industrial parks span 5,000km of wilderness?

Today the massive Sun Cable project collapsed into voluntary administration four years after promising to build the world’s largest solar power plant in the Northern Territory. Sun Cable was a $35 billion project supposedly to collect those sacred green electrons on a 12,000 hectare “farm” in Australia (120 square kilometers) and send them to Singapore via an 800 km land cable and then a 4,200km undersea cable. It was theoretically going to be nine times bigger than the largest solar plant in the world, and use a cable 6 times longer than the longest one ever built.

So this was ambition-on-steroids, and had economies of scale up the kazoo, and possibly as much sunlight as any place on Earth, but it was still obscenely uneconomic and expensive. Allegedly, environmentally, it would have achieved the equivalent of taking 2.5 million cars off the road each year, in other words, virtually nothing or even less. For $30b they were reducing the small Australian car fleet by… 12%.

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COVID-19: A Global Financial Operation, by Michael Bryant

Was Covid-19 launched to divert attention away from the global financial system blowing up? From Michael Bryant at off-guardian.org:

The COVID phenomenon cannot be understood without understanding the un-televised 2019-2020 unprecedented financial collapse threatening the entire global financial system.

The Covid-19 Pandemic story makes little sense when viewed through the lens of health, safety and science. Viewed through the lens of money, power, control, and wealth transfer, however, then all of it makes perfect sense.

The lockdowns, mandatory muzzles, anti-social distancing and the plethora of additional measures did nothing to protect or improve public health- they were never designed to do so.

The numerous mandates birthed by the onset of the Covid-19 scenario were all designed to deliberately break the global economy and crush small businesses as well as break people’s minds, will and the social fabric, in order to “build back a better society” that conforms to the dystopian visions of the psychopaths waging this class war.

The desired result is a billionaire’s utopia, in which they will own and control the planet in the form of a techno-feudal fiefdom where digitally branded humanity is regulated like cattle in a super-surveilled technocracy.

What this manufactured crisis conveniently camouflages is that we are in the midst of a planned total economic collapse- a collapse which was inevitable.

The timing of the COVID fraud became necessary as world markets were faced with an emergency debt crisis in Fall of 2019 which popped up in formerly mostly liquid markets: Repo Markets, Money Markets and Foreign Exchange Markets.

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“This Is Unprecedented”: Enron Liquidator Overseeing FTX Bankruptcy Speechless: “I Have Never Seen Anything Like This”, by Tyler Durden

FTX looks like it may take the prize for the most convoluted mess of a company to ever grace a bankruptcy court. From Tyler Durden at zerohedge.com:

A few days ago we asked how much longer do we have to wait for the “first-day affidavit” in the FTX bankruptcy, traditionally the most detailed and comprehensive summary of how any given company collapsed into Chapter 11 (and in FTX’s case, Chapter 7 soon, as this will soon become a full-blown liquidation)…

… and this morning we finally got our answer when it hit the docket (22-11068, U.S. Bankruptcy Court for the District of Delaware), almost a full week after FTX filed on Nov 11… and boy is it a doozy.

Because how else would one describe it when FTX’s new CEO and liquidator, John Ray III,  who also oversaw the unwinding and liquidation of Enron, admits that “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”

And just in case his shock at FTX’s fraud of epic proportions was not quite clear enough, he adds that “from compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

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Two Easy Predictions: Wealth Tax and Windfall Tax, by Charles Hugh Smith

Governments are broke and rapacious. From Charles Hugh Smith at oftwominds.com:

Looks like we need another $500 billion or so. Hum baby!

Predictions are hard, especially about the future, but two predictions are easy: 1) governments that do not yet impose wealth taxes will do so within the next five years and 2) governments will impose windfall taxes on all outsized unearned gains, from any source, anywhere on the planet.

Glancing at the chart of federal tax revenues, we note a steep increase–hum baby! Governments have financial commitments, and these never seem to decrease, they only increase.

It’s nothing personal, we just need more money. We have responsibilities and we made promises.

A few nations already have wealth taxes: for example, Norway, Spain and Switzerland. In Switzerland, the wealth to be taxed is self-reported, and the top rate is 1%. The Swiss wealth taxes account for 3.6% of tax revenue. It doesn’t sound like much but every little bit helps, right?

That 3.6% of tax revenues applied to the U.S. tax revenues equals a cool $108 billion. That’s a useful sum.

Self-reporting isn’t going to cut it once tax revenues are viewed as inadequate. Third-party reporting will be required so wealth can’t be under-reported, and the Foreign Account Tax Compliance Act (FATCA) already requires foreign entities to report U.S. account holders’ data.

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Gradually, Then Suddenly, by Jim Quinn

The U.S. has been circling the drain for some time, but now it’s caught in the vortex of the whirlpool. From Jim Quinn at theburningplatform.com:

“How did you go bankrupt?” Two ways. Gradually, then suddenly.”
― Ernest Hemingway, The Sun Also Rises

Gradually, then suddenly”: How the Protecting Our Democracy Act addresses institutional decay | ACS

“I do not say that democracy has been more pernicious on the whole, and in the long run, than monarchy or aristocracy. Democracy has never been and never can be so durable as aristocracy or monarchy; but while it lasts, it is more bloody than either. Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide. It is in vain to say that democracy is less vain, less proud, less selfish, less ambitious, or less avaricious than aristocracy or monarchy. It is not true, in fact, and nowhere appears in history. Those passions are the same in all men, under all forms of simple government, and when unchecked, produce the same effects of fraud, violence, and cruelty.” – John Adams

Hemingway’s famous quote about going bankrupt connects with so many because it is true on a personal basis and a civilization basis. It applies to individuals and empires in decline – like the American democracy. John Adams realized two centuries ago democracy was no better than monarchy or aristocracy over the long haul. We were handed a Republic by Franklin and his fellow revolutionaries, but we failed to keep it almost from the very birth of this nation.

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Are You Vulnerable to Physical Violence? by MN Gordon

Make no mistake, the US government is on the road to ruin, and the consequences will ripple far beyond finance and economics. From MN Gordon at economicprism.com:

The U.S. government’s 2021 fiscal year came and went like Dow 36,000.

With respect to the latter, authors James Glassman and Kevin Hassett were only off by 17 years in their 1999 forecast of Dow 36,000 by 2005.  At this point, the attainment of their prediction is a giant letdown.

With respect to the former, we have a question: Does President Biden have any idea that the government he pretends to oversee is skirting the edge of insolvency?

Most Americans, like Biden, could care less about how the fiscal year’s final ledger tallied.  Three generations of budget deficits without pain have spread complacency about the ability of Americans to consume without paying.  Deficits don’t matter to voters.

Presently, only conspiracy theorists and wackos still place any importance on the archaic practice of government accounting.  Why bother, when you can buy shares of Tesla and hold on for the end of the world?

In case you missed it – and actually care – here are a couple of the high points and low points…

Receipts for the full 2021 fiscal year, which ran from October 1 through September 30, totaled $4.046 trillion.  This marked an 18.3 percent increase of $626 billion from fiscal year 2020.

However, 2021 fiscal year spending jumped by 4.1 percent, or by $266 billion, from fiscal year 2020 to $6.818 trillion.  So, while receipts went up, spending went up too.  The difference between the two, known as the budget deficit, totaled $2.772 trillion.

Quite frankly, a $2.772 trillion budget deficit is a disgrace.  It represents an extreme failure of government.  But it is a slight improvement over the $3.132 trillion budget deficit that was racked up in fiscal year 2020.  Regardless, the U.S. government is spending like a banana republic.

Let’s take a closer look…

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Unreal Coin of the Realm, by Tim Hartnett

If you just keep borrowing, you never have to pay it back. That’s probably the opening sentence on Economics PhD dissertation somewhere. From Tim Harnett at lewrockwell.com:

There’s no need to worry about the US defaulting on its debt – for the moment, at least. People already get handsomely paid to do that. Most of them have an interest in driving it upwards. Reading their ravings doles out some hyped up gallows humor but lenders holding IOUs from the government aren’t quaking in their boots. Something will be worked out. If you don’t toil in the “crisis” exploitation industry don’t get distracted. All the danger to you comes in how this principle and vig will be covered. The possibility it won’t be, is equal to that of billionaires giving up arriving at climate crisis conclaves by private jet.

According to Zachary D. Carter, on the pages the Washington Post’s Outlook section, “We are…captives of a technicality established during WWI – an era when the Bank of England called the tune for the global economy and money was denominated in different weights of gold.” You can sense the man’s shudder recalling a day when the money supply had more constraints than the speed of a printing press or the flip of an electronic switch. After explaining how war conveniently forced Washington to borrow like a drunken gambler with unlimited credit, he goes on:

“A formal limit on the amount of debt Treasury could sell was imposed to prevent bureaucrats from running wild with their new responsibilities.

So the debt ceiling was not designed to be an important instrument of economic policy: Congress retained the power to set all spending and tax terms, as it does today. Congress also must vote every now and then to raise the limit on the Treasury’s authority to borrow. Failing to do so means the government can’t meet the obligations it has already approved.”

Did we get that right? Legislation to prevent debt towering into the stratosphere “was not designed to be an important instrument of economic policy”? Has the word “bankruptcy” been purged from college textbooks by social justice censors?

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The Trillion-Dollar Lie, by Matt Taibbi

Who says student loans can’t be discharged in bankruptcy? It’s not easy, but it happens. From Matt Taibbi at taibbi.substack.com:

Universities built palaces and financiers made fortunes in part through a lie: that student loans can’t be discharged in bankruptcy. But a series of court cases is helping unravel the scam

Stefanie Gray explains why, as a teenager, she was so anxious to leave her home state of Florida to go to college.

“I went to garbage schools and I’m from a garbage low-income suburb where everyone sucks Oxycontin all day,” she says. “I needed to get out.”

She got into Hunter College in New York, but both her parents had died and she had nowhere near enough to pay tuition, so she borrowed. “I just had nothing and was poor as hell, so I took out loans,” she says.

This being 2006, just a year after the infamous Bankruptcy Bill of 2005 was passed, she believed news stories about student loans being non-dischargeable in bankruptcy. She believed they would be with her for life, or until they were paid off.

“My understanding was, it’s better to purchase 55 big-screen TVs on a credit card, and discharge that in a court of law, then be a student who’s getting an education,” she says.

Still, she asked for financial aid: “I was like, ‘My parents are dead, I’m a literal fucking orphan, I have no siblings. I’m just taking out this money to put my ass through school.”

Instead of a denial, she got plenty of credit, including a slice of what were called “direct-to-consumer” loans, that came with a whopping 14% interest rate. One of her loans also came from a company called MyRichUncle that, before going bankrupt in 2009, would briefly become famous for running an ad disclosing a kickback system that existed between student lenders and college financial aid offices.

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When the Money Supply Dries Up, by Jeff Thomas

The most ostensibly rich and powerful empires have gone bankrupt and collapsed. From Jeff Thomas at internationalman.com:

Money Supply Dries Up

In 1944, the US had been the primary supplier for arms for the allies during World War II and, as such, exited the war with more wealth than any of the other nations that had entered the war earlier, draining their treasuries of money. Since payment was largely demanded in gold, the US held three-quarters of the world’s gold and therefore was in a position to call the shots with regard to the free world’s economic future.

At Bretton Woods, the US took advantage of this situation, setting up the World Bank and the IMF and declaring the dollar to be the default currency for all countries concerned. From that point on, the US was in the catbird seat, able to dictate economic terms to other countries and even to behave irresponsibly, eventually creating previously unheard-of levels of debt, thereby inspiring other nations to do their best to create their own debt in order to keep pace as best they could.

Eventually, of course, such irresponsible economics will cause any country, no matter how powerful, to collapse economically, no matter how many Keynesian economists such as Thomas Piketty, Paul Krugman, and Larry Summers declare otherwise.

Beginning in 1944, the US became the world’s foremost empire, for the strongest of reasons—it held the world’s wealth. This advantage led to a period of great power and, in the latter years, as the empire began to stumble economically under its own great weight, led to the creation of organisations and legislation designed to bring in new revenue, as the old forms of revenue declined.

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