Toddsterpatriot
Diamond Member
- According to their story, they are borrowing them. In my initial post on the matter I made it clear that it was a fiction.
Your contention was that the Fed purchased them. You were wrong - if they purchased them, they would ALSO show up as an asset, no?
Accounting between the Fed and the Treasury does not conform to GAAP, btw. Some of that is because GAAP describes private entities, but it doesn't describe entities which can issue money. Another part of it is that the Fed and Treasury are in many ways one entity, and the accounting between them can be very strange.
According to your story.
Your contention was that the Fed purchased them. You were wrong - if they purchased them, they would ALSO show up as an asset, no?
They do purchase them, at the cost of production. Like a post-it note.
When the Fed sells them to a bank, they become a Fed liability.
Just as a CD becomes a bank liability when a bank sells it to you.
Currency
Each year, the Federal Reserve Board projects the likely demand for new currency, and places an order with the Department of the Treasury's Bureau of Engraving and Printing, which produces U.S. currency and charges the Board for the cost of production. The new-currency budget for 2015 is $717.9 million, and reflects the following costs per denomination:
Note Cost of Production
$1 and $2 4.9 cents per note
$5 10.9 cents per note
$10 10.3 cents per note
$20 and $50 10.5 cents per note
$100 12.3 cents per note
Further details about the production costs for Federal Reserve notes are presented in the 2015 Currency Budget.
FRB How much does it cost to produce currency and coin
First, where does it say they purchase them? If they purchase them why do they have to provide collateral and pay interest?
Paying for the cost of production is not a purchase of the notes.
How would they become a liability by selling them to banks if they were purchased as an asset? Walk me through how that works, please.
So the Fed credits an asset and credits a liability as one transaction? I know they don't exactly follow the same rules as everyone else, but geesh - your theory is going to require a pretty fancy explanation here.
So go ahead and tell me what sort of transaction is described by crediting two accounts simultaneously.
I'll wait.
If they purchase them why do they have to provide collateral and pay interest?
What do they do with the FRNs? They sell them to banks in exchange for reserves.
They use the reserves to buy Treasuries and they pledge the Treasuries.
The interest covers the cost of purchasing and distributing new notes and destroying the old worn ones. The earnings they returned last year were about $100 billion.
based on Treasury and MBS holdings, mostly, not on imaginary interest on FRNs
How would they become a liability by selling them to banks if they were purchased as an asset?
They didn't pay $100 for a $100 FRN. They paid 12.3 cents.
How does a check I write become a $5000 liability if I buy the check for 12.3 cents?
So the Fed credits an asset and credits a liability as one transaction?
Creates an asset...creates a liability.
Seriously, it's accounting. Works that way for everyone.
You deposit a $10 at the bank, you now have a $10 asset (your checking account) the bank now has a $10 liability (your checking account).