Then you have Europe’s banking system, which is
leveraged at 26-to-1. Anecdotally, this is borderline Lehman Brothers
(30 to 1). At these levels, even a 4% drop in asset prices wipes out ALL
equity.
Japan’s banks are leveraged at 23 to 1. France’s are 26 to 1. Germany is 32 to 1.
You get the idea.
However, worse than any of these the US Federal Reserve. With $2.8 trillion in assets and only $52 billion in capital, the Fed is leveraged at 53 to 1. Yes, 53 to 1.
I think even most Americans can figure out that means if the notional value of these worthless securities (worthless? Well, why else did the Fed have to buy them?) only moves 2 percent against the Fed, it is notionally wiped out. Broke. Dead busted.
For example, that's like putting up your last 2 dollars to buy one share of stock - that nobody esle wants at any price - for 100 dollars. If the stock goes to 98, you are now broke. Now, of course you might argue that the stock will never go to 98, because in the Land of Make Believe it's worth only what the Fed says it's worth, in other words, it's not really worth anything anyway.
But let's just say that in the Real World the Fed had to raise real money for some purpose.
Say, for example, the Chinese and the Russians launch a gold backed currency that is the only thing they will accept for their goods, services, and commodities - or to settle outstanding debt. So let's just say the Fed really needed to sell some securities on the open market. If the value of their securities is just 2 percent less than they think or claim (in the land of Make Believe) - they're broke. Busted. Dead.
Put that in your Fairyland Pipe and smoke it. And when you're all smoked up take a guess at what the real price of gold will be then. Then add a few zeroes for good measure. Then pinch yourself to see if you still in the Land of Make Believe with all the other central bankers of the world.
I think even most Americans can figure out that means if the notional value of these worthless securities (worthless? Well, why else did the Fed have to buy them?) only moves 2 percent against the Fed, it is notionally wiped out. Broke. Dead busted.
For example, that's like putting up your last 2 dollars to buy one share of stock - that nobody esle wants at any price - for 100 dollars. If the stock goes to 98, you are now broke. Now, of course you might argue that the stock will never go to 98, because in the Land of Make Believe it's worth only what the Fed says it's worth, in other words, it's not really worth anything anyway.
But let's just say that in the Real World the Fed had to raise real money for some purpose.
Say, for example, the Chinese and the Russians launch a gold backed currency that is the only thing they will accept for their goods, services, and commodities - or to settle outstanding debt. So let's just say the Fed really needed to sell some securities on the open market. If the value of their securities is just 2 percent less than they think or claim (in the land of Make Believe) - they're broke. Busted. Dead.
Put that in your Fairyland Pipe and smoke it. And when you're all smoked up take a guess at what the real price of gold will be then. Then add a few zeroes for good measure. Then pinch yourself to see if you still in the Land of Make Believe with all the other central bankers of the world.
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