Central Banks Worldwide Are On Brink of Capital Insolvency

P. Gardner Goldsmith | December 5, 2022
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For the central-planners of each generation, the general rule has been that human beings are a scourge on the planet, only useful when we are a source for government power. To them, we are not the creative drivers of increasingly abundant resources in a free world. And to them, markets must be controlled by enlightened politicians, not by the people who earn their own keep.

To the collectivists, the only things that can grow – and, in their eyes, SHOULD grow -- in what they falsely call an “economic system” are government, and the fiat, government-forced, money supply that feeds the ever-metastasizing state, and its corporate and welfare cronies.

Such a command-and-control system is unsustainable, because it’s not based on free will, does not allow competition, and has no tie to any monetary unit that free people can select as valuable.

Mises Institute Senior Fellow and former U.S. Treasury Department official Alex J. Pollock and American Enterprise Institute Senior Fellow Paul H. Kupiec have penned a stark warning about the unbalanced “balance sheets” -- or “capital ratios” -- of most of the worlds central banks, and it tells us that this fiat money problem is reaching a cliff.

First, they discuss the untenable position of the Swiss bank:

“The Swiss National Bank’s (SNB) financial statements for the nine months ending September 30, 2022, show a bottom-line loss of US$150 billion. A number to get your attention!”

But that’s just an appetizer:

“From having capital of $221 billion at the end of 2021, the SNB’s capital has been reduced by 73% to $59 billion on September 30 due to falling market prices. Still, the SNB has a capital ratio—a bank’s equity to its total assets—over 6%.”

They’re being sarcastic. Still that’s more than the US Federal Reserve.

“In contrast, the Federal Reserve’s reported capital ratio, which does not reflect the Fed’s massive mark-to-market losses, is 0.5%. The Federal Reserve Bank of New York, by far the largest of the Federal Reserve Banks, has a reported capital ratio of 0.3%—again not counting its market value losses.”

And the US Fed isn’t alone.

“The Reserve Bank of Australia announced in September that losses on its investments caused its capital to drop to a negative $8 billion on June 30. Its Deputy Governor admitted that ‘If any commercial entity had negative equity… [it] would not be a going concern,’”

In other words, it would not be IN BUSINESS.

But, of course, government-banks or government-imposed banks are not businesses at all. They are traps, imprisoning us inside their fiat (mandated by government) fractional “reserve” system.

And if you noticed that the idea of a “fractional reserve” of some hard asset, like gold, is not a RESERVE at all, but a lie, claiming that people can redeem their paper money for gold at a certain ratio, but not owning the hard metal to fulfill real demands – then you’re in good company.

That’s why many foreigners started to redeem their “Federal Reserve Notes” for the little gold the US Fed owned back in the late 1960s, because they knew that if they held onto their “Dollars” the ever-increasing number of them could not be covered by the increasingly smaller ratio of gold reserves.

That, of course, led Richard Nixon to take the US off the already fraudulent “gold standard” in 1971, and to work with the Saudi’s to create the so-called “PetroDollar” arrangement, whereby the OPEC nations would only accept the Dollar for the sales of their oil. This, we were told, would tie the dollar to the value of oil. But, of course, the Fed kept inflating the supply of “dollars,” further weakening the buying power that we might have.

Like most economics students who study this fraudulent system, if you’re beginning to see that any tie between government and money is unsound and immoral, you understand the immorality of central banking.

Continue the authors:

“The Bank of England joined ‘the club of major central banks showing negative net worth’ if its investments are marked-to-market, Grant’s Interest Rate Observer reported. Thus far, the Bank has lost $230 billion on its bond investments, 33 times the Bank’s capital of $7 billion as of February 2022, its fiscal year-end. Fortunately for the Bank, it has an indemnity from His Majesty’s Treasury—that is, the taxpayers—to cover the losses. ‘I am happy to reaffirm…that any future losses incurred by the Asset Purchase Fund will be met in full by the Government,’ wrote a Chancellor of the Exchequer. In July 2022 the Financial Times summed it up: ‘With an indemnity provided by HM (Her Majesty’s) Treasury, the Bank of England need not fret.’ But should the taxpayers who bear the loss fret?”

For central banks, caring about actual assets in the form of proper investments, 100 percent stores of gold, that kind of thing? Those aren’t problems. In the end, their assets, the things to which the governments grant their pet banks claims…?

Related: Crypto Crosscut? Federal Reserve Points Itself Towards Digital 'Money' | MRCTV

Those are people.

Like cattle for ranchers. Like batteries for wretched EV cars, human beings and their toil are the assets that the bankers and their government cronies claim as theirs, and we’d better realize this, quickly.

As the authors note, the central bank of Canada in November reported market value losses of $26 billion, meaning that its investments in everything from private companies to government bonds were that far in the red. But…

“The Bank carries an asset called ‘Derivatives: Indemnity agreements with the Government of Canada.’ This asset is the amount that the government is on the hook for—in other words, it equals $26 billion in mark-to-market losses. Since the Bank’s total reported capital is only about $0.5 billion, the real capital of the Bank is its claim on Canadian taxpayers to reimburse its losses.”

Which brings us back to the US Fed, and one of the most important reminders/warnings I can offer any reader.

Recall that in the spring of 2020, Donald Trump and the RINO GOP joined the Dems to push the Constitution-insulting “CARES Act.” In that pork-filled legislation they slid a provision allowing the Federal Reserve to buy the bonds of any corporation the Fed desires – without telling anyone.

Is it any wonder why the Ron Pauls of the world are repeatedly rebuffed when suggesting that the Fed either be open to competition or to an audit?

If people had a choice of currency, would they pick money issued by a REAL bank that openly allowed people to see what it had in reserve gold/silver (in case folks wanted to redeem their money), or money from a bank that is forced on them by statute, (running contrary to the US Constitution’s mandate of COINAGE, not paper money, or Fed digital cash?)

Does anyone else think that this disaster in the balance sheets of central banks could be a driver of the politician-bankster push for Central Bank Digital Currency (CBDC)? After all, their imbalances are unsupportable; inflation of their money supplies has caused price inflation, galore. What better way to “reset” than by creating a digital money that we all have to use, controlling our purchases, possibly putting expiration dates on the money, or “incentivizing” us to use it on certain things for a better “buy”?

This ought to drive home the immediacy of the threat:

“Coming to the world’s leading central bank, the mark-to-market loss on the Federal Reserve’s investments, as we have previously written, is huge—estimated at a remarkable $1.3 trillion loss as of October 2022. This is 30 times the Fed’s total capital of $42 billion. More immediately pressing, the Fed is now running operating losses that it does recognize in its profit and loss statement of $1 billion or more a week, or annualized losses of $50 to $60 billion. Not counting the mark-to-market losses on its investments, the Fed’s operating losses at this rate will exceed its capital in less than a year.”

Enough said.

Related: Federal Reserve Ready To Buy Corporate Bonds, Thanks To New 'Super-Power' From CARES Act | MRCTV