Originally Posted By Mr X Okay, NOT trying to start this topic to scare anyone, or say anything even negative about it because I really don't even understand it...it's just something I read. So, if Jon or SuperDry or another of our financial pros on here follow finances and the banking system, I read this info a poster on a finance website got from a report from the Federal Reserve Bank this month... AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND THE MONETARY BASE Not adjusted for changes in reserve requirements(1) Not seasonally adjusted Millions of dollars Date______________2008-Jan._16 total______39989 nonborrowed_________-1387 required ________38278 The poster goes on to say... **Yes, that's a minus sign. Total reserves now appear to consist of loans from the Fed. No similar event appears to exist within the range of online records, which go back to 1959. (Weekly data available through 1975.)** So, what am I missing here? Is this just something normal that I (and the contributor) just wasn't aware of? I would certainly love to learn more! Anyone?
Originally Posted By Mr X The O.P. also later commented... **That number going outright negative kind of implies that they're borrowing even from the borrowed reserves for operating funds, doesn't it? And that implies (and this should come as no huge shock, but it's still skeery to see it in the actual numbers) that there are possibly (probably?) multiple majors currently outright insolvent. To have that kind of situation so bad that the system-wide net is negative... yikes.** Sorry to not provide a link here, but that forum definitely contains material that goes against the community standards here (foul language, mostly)...if anyone is interested in checking out the entire thread, I'd be happy to send you a link. Just email me at jammindave@hotmail.com
Originally Posted By SuperDry This sort of thing is extremely complex, and I don't think lends itself very well for individual numbers to be plucked out of context and a conclusion drawn. For example, we're all generally aware of what inflation and unemployment numbers mean - if one of them were to get to 10%, we'd all know what that would mean to the economy. But the "AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND THE MONETARY BASE" ? It may be true that some number has gone negative that hasn't before, but I would be careful to not make a broad conclusion based on this without really understanding what the number means and what the context is. For example, take a hypothetical situation of a particular number that is considered healthy in the range -1000 through 10000, and that it recently went slightly negative for the first time. It could be true that a range of -1001 through -9999 is neutral, and that -10000 or below is dangerous. So, the fact that there's now a reading of -10 could mean very little. It may be on the low end of healthy, but is still 10% from the bottom of the range. More to the point, the fact that "it's negative for the first time in history" may be arbitrary and mean absolutely nothing just based on the way that particular number is calculated. An analogy might be with temperature: a reading in Celsius degrees that just went negative means a lot, since 0 is the freezing point of water and lots of things will happen when water freezes (pipes break, roads ice over, etc). But a reading in Fahrenheit that just went negative doesn't really mean much other than as a headline-grabber: water has long been frozen, and there's nothing particular that happens when it goes from 1 to -1 Fahrenheit. I would guess that the number reported is indicative of the problems the banking system is having in relation to the mortgage credit problems of late, but I would be very careful not to draw some marco conclusion that the end is near just because it went negative. It may very well say that the end is near - what do I know? I don't really know what to make of it, other than at least for me, I choose not to panic just because I'm told that a particular number that I don't ordinarily follow and don't really understand the context of has gone negative for the first time.
Originally Posted By Mr X Well, THAT was helpful! <--rolls eyes. just kidding! thanks for putting it into perspective, that was EXACTLY what I was looking for! Now I feel better! In fact, I think I'll buy S&P anytime it dips below the mid 1450 level! j/k
Originally Posted By Sport Goofy The banks are suffering right now. I expect a couple of major banks to fail before the end of the year. Citi would have already failed if not for intervention from Saudi Arabia, China, and the U.S. government. The whole debt bubble that the banks orchestrated over the past decade was, in reality, a massive Ponzi scheme that had no way of ending in an organized manner. Without the ability to package up bad debt and sell it to investors anymore, the banks cannot continue the scheme of piling on more and more bad loans while collecting the fees that were keeping them solvent.
Originally Posted By RoadTrip Reserves are just that: reserves. Banks are supposed to maintain a certain percentage of total deposits in reserve. I’m not sure what the percentage is, but let’s say that’s 10%. If total deposits are 100 million, then the required reserve is 10 million. Now a bunch of loans go bad and they don’t have the funds coming in to match reserve percentage of deposits that have been made. So they have to borrow 11 million from the Fed. What does their balance sheet now look like (massively simplified)? Numbers are in millions Assets Real Estate Owned......................20 Equipment & Fixtures...................10 Accounts Receivable...................120 (Outstanding Loans) Other Receivables (Operating)...........5 Securities & Other Investments.........50 Reserves...............................10 Other Liquid Assets.....................5 Total Assets......................220 Liabilities Deposits from Customers...............100 Accounts Payable (Operating)............4 Reserve Requirement loan from Fed......11 Long Term Debt (Building loans, etc)...10 Total Liabilities...................125 Net Worth..............................95 So, is this bank going bankrupt? Heck no... it has a net worth of 95 million. Are they a little short liquid assets to cover the reserves requirement? Yes they are. But this is very probably a short term position and certainly not an indication that the bank is bankrupt.
Originally Posted By fkurucz Probably in agregate they all are, but no doubt there are individual banks that steered clear of the subprime party and are solvent (at least on the books). Of course, there are other issues, such as what happens if the following categories of defaults escalate: Credit cards Auto loans Prime home loans Plus if a solvent bank is heavily invested in Mortgage backed securities they may already be dead, but it just doesn't show up in the books.
Originally Posted By Sport Goofy If we used GAAP standards for analyzing the U.S. government's balance sheet, it would show our country is financially bankrupt as well.
Originally Posted By RoadTrip <<If we used GAAP standards for analyzing the U.S. government's balance sheet, it would show our country is financially bankrupt as well.>> I doubt it, but if it makes you feel good to feel that way go ahead. Sure, the national debt is a trillion dollars or whatever. But what people constantly forget (from a balance sheet point of view) is that is offset on the asset side by the absolutely massive value of all federal property, roads, buildings and equipment in the United States and abroad. That would make the trillion bucks look like nothing.
Originally Posted By Sport Goofy << I doubt it, but if it makes you feel good to feel that way go ahead. Sure, the national debt is a trillion dollars or whatever. But what people constantly forget (from a balance sheet point of view) is that is offset on the asset side by the absolutely massive value of all federal property, roads, buildings and equipment in the United States and abroad. That would make the trillion bucks look like nothing. >> By GAAP standards, the U.S. would be required to account for the liabilities it has committed to in the future -- i.e. Social Security and Medicare. we don't do that accounting in the government's financial statements, and assume that these are commitments that could be severed at any point in time. I suppose it's true that Congress could cancel Social Security and Medicare in the future to keep the country solvent, but if you want to make an honest assessment of the government's financial condition, I think you have to account for the promises you have made to future generations in legislation that is on the books today. That is the primary difference between GAAP standards and the way our government keeps it's books. We require companies to account for future reserves and expenditures related to things like pension plans and health insurance, but our government completely ignores those sorts of liabilities when calculating the federal balance sheet.
Originally Posted By RoadTrip The government may not account for future liabilities, but they also make no mention on the asset side of the items I was talking about... <<all federal property, roads, buildings and equipment in the United States and abroad>> Including these amounts as assets would more than cover the liabilities you are talking about. Also, if you included future commitments on the liability side it would only be fair to include anticipated future tax receipts on the asset side. This type of calculation would create even more number juggling than what occurs at present. Basically government fund accounting is very different from GAAP and there are very good reasons for those differences. <a href="http://allcountries.org/uscensus/540_united_states_government_balance_sheet.html" target="_blank">http://allcountries.org/uscens us/540_united_states_government_balance_sheet.html</a>
Originally Posted By fkurucz << doubt it, but if it makes you feel good to feel that way go ahead. Sure, the national debt is a trillion dollars or whatever. But what people constantly forget (from a balance sheet point of view) is that is offset on the asset side by the absolutely massive value of all federal property, roads, buildings and equipment in the United States and abroad. That would make the trillion bucks look like nothing.>> True, but do those assets have a tangible market value? Can the US gov't sell off those properties? Sure, the interstate highway system is worth a fortune, but would we really want them sold to a foreign power that would charge us tolls to use them? Would we want to sell off our Navy fleet?
Originally Posted By Mr X **Would we want to sell off our Navy fleet?** Maybe we could rent it for parties.
Originally Posted By imadisneygal ^^^Just last Wednesday I was at a party on the USS Midway. Granted, it's decommissioned now and is a museum - but still! It was fun! We got a tour of the ship and saw the place where a Marine guard protected the entrance to the nuclear ordnance. There was a red square of tile on the ground in front of the area and the Marine was authorized to shoot to kill any unauthorized person who stepped foot on the red square. Plus, the food at the party was really yummy! The ship's hospital was interesting even if VERY small. It had 18 beds for over 4000 crew. Parties are not such a bad idea!!
Originally Posted By DVC_dad Really its all a card game, or even a house of cards. The one thing that will always bail out the US Government is it's ability to tax and spend. The paper dollars we use, the electronic dollars we use really have no intrinsic value, merely the perceived value.
