Pension Relief, Reforms and the Federal Reserve (Part 2)

In part 1 I looked at common myths, such as does the Federal Reserve print money?  NO, Treasury does.

I find an alarming ignorance of American government and we do not solve problems hiding behind ignorance.  In the Constitution, Article II, Section II, the cabinet is to advise the President.  Currently, the Cabinet includes the Vice President and the heads of 15 executive departments.  The departments are run by a political appointee referred to as “Secretary”, as with the Secretary of the Treasury.  The Federal Reserve is also run by an appointee.  This person is not a Secretary but the “Chairperson of the Board of Governors of the Federal Reserve”.  This person is not part of the Cabinet.  Such was a deliberate construction of the Federal Reserve to allow actions beyond political influence.

The Federal Reserve is rather independent.  The Federal Reserve is not taxpayer funded. It generates its own funds.  This is another truth that flies in the face of common belief.

The Fed is audited several times a year.  If any reader doubts this do what I do and read the audits.  After reading many audits, including General Accountability Office (GAO) commentary, I conclude the audits are not complete, but something is better than nothing.

Consider the Federal Reserve Banks Combined Financial Statements As of and for the Years Ended December 31, 2016 and 2015 and Independent Auditors’ Report.  The Fed is not a public company and not subject to Generally Acceptable Accounting Principles (GAAP).  Neither is the Fed a governmental agency and therefore not subject to Governmental Accounting Standards Board (GASB) rules.  Reflect on the KPMG Audit statements on page seven of the report, (3) SIGNIFICANT ACCOUNTING POLICIES: “Accounting principles for entities with the unique powers and responsibilities of the nation’s central bank have not been formulated by accounting standard-setting bodies…”  Rather hard to claim an independent audit when you write your own accounting rules.

Many commenters are misinformed. They say the Fed does not have assets for sale.  Around December 2008 the Federal Reserve launched a Large-Scale Asset Purchase Program.  By 2016 the Fed has about $4.5 Trillion, based on audits.  The Fed has stated publicly a desire to sell these assets; look at this, or this.

Misinformed commenterss say I advocate a taxpayer bailout, untrue.  The Fed is self-funded.  I am equally criticized calling the assets false; again no!  Just read the Fed balance sheets.

What should be done with the trillions in proceeds of the sale?  Do we rebuild Flint MI water system, repave every road in America?  I say pension relief, as this is the largest crisis I see.  What is the result of reducing three quarters of retiree’s pension by 50% or more each month?  We break our consumer economy.  This type of reduction is where we are heading.

By law, the Fed transfers surpluses to the Treasury.

A commenter called me and we spoke at length.  But he also had a death-grip on his own ignorance and preconceptions.  I tried patiently for an hour to finish a single sentence.  “In one, single sense I am indifferent to the type of pension, public, private, ME, etc., because…”.  It took an hour of patient repetition to finish my sentence; In one, single sense, I am indifferent to the type of pension, public, private, ME, etc., because all are equally underfunded.  How are the problems of CA or NJ teachers different from problems at the PBGC?  With every publication I am blessed to achieve I say pensions need new capital and reforms.  I am asked about reforms and will write on that later

We have a once in a lifetime pot of gold available. If we do not stake a claim now for pension reform it will be gone. Then what?  What elected official would not want to be remembered as the savior of Social Security?  There is sufficient money to replace what Congress borrowed with no loss of benefits and no new taxes.  This is not a myth.

If you wait and vote as before nothing will change.  Tell elected officials to “Restore our Retirement”, now!  Before and not after the next election!

Tim Alexander
Triune
tim@triuneGFS.com
805-402-4943

26 responses to this post.

  1. Posted by skip3house on December 12, 2017 at 10:10 am

    “….Having such a big balance sheet already makes it difficult for the Fed to use this tactic again if a recession were to hit soon. The Fed is trying to get back higher interest rates and a lower balance sheet so it can deal with any future crises or downturns with a full set of tools…..” from blog link to , or this. https://www.washingtonpost.com/news/wonk/wp/2017/09/20/the-fed-is-about-to-do-something-it-has-never-done-before/?utm_term=.a37eb118022e

    Reply

  2. Posted by dentss dunnigan on December 12, 2017 at 12:23 pm

    In NJ our government looks for money to throw down the sewer …literal NJ Facilities Improvement Program is part of the Authority’s overall $7 billion Capital Improvements Program …These are the new salt shelters they built to replace the perfectly fine salt igloos that worked just fine .NJ New shelter 57million ..NY shelter 10K

    https://tinyurl.com/NJ-shelter

    This is what the rest of the country uses.

    https://tinyurl.com/NY-shelter

    The rest of the world puts a tarp over the salt pile and secures it with old tires and ropes.

    Reply

  3. Posted by George on December 12, 2017 at 12:26 pm

    Some problems with your proposal are:
    1) Why is the bailout out of multi employer pension plans a national priority over anything else. I guess Social Security is not a crisis yet, but Puerto Rico is.
    2) Who will authorize this, is Yellen going skim funds off the asset sales that are supposed to be turned over to the treasury and member banks and cut a check, or does she need authorization? Authorization from whom?
    3) Do member banks have a say?

    The proposal for a pension rehabilitation agency run by the treasury is more in line with current practice at Treasury and the Fed.

    Reply

  4. Posted by Mike on December 13, 2017 at 1:02 pm

    Again…the proceeds of asset sales will NOT be turned over to Treasury. Fed Rsrv profits arising from interest income is turned over to Treasury, but sale of assets is not profit.

    You could and should do what TL suggests, and read more about the operation of Fed Rsrv.

    As a short cut, consider this. No one in Congress has mentioned or is spending time figuring out how to spend the $4.5 trillion that you believe is headed their way. Are they that uninformed? Or that unconcerned. No newspaper mentions the coming money. Come on. You are the only person in the USA who believes Fed Rsrv asset sales will deliver $4.5 trillion to Treasury, to be spent by Congress.

    Reply

    • Posted by Tough Love on December 13, 2017 at 1:40 pm

      If there is any “profit” or “loss” on the sale of the $4,5 Trillion of Fed assets (much of it acquired via the 4 QEs), it is certainly a very small % of the $4.5 Trillion.

      Keep in mind that the Fed BOUGHT those securities from member banks by simply crediting the bank’s reserve accounts. No money was printed and no Treasury bonds were sold to raise the $.5 Trillion that the FED used to BUY those securities.

      Essentially the Fed “created” those funds (by snapping it’s fingers) as it is legally allowed to do.

      THEREFORE, it is patently absurd to assume that upon sale, there will REMAIN $4.5 Trillion to spend on other things. The $4.5 will will vaporize in the same manner that it was “created”.

      Reply

      • Posted by Mike on December 13, 2017 at 1:52 pm

        exactly right

        Reply

        • Posted by NJ2AZ on December 13, 2017 at 4:58 pm

          seriously. I’m still trying to figure out how Mr Alexander has arrived at his position. The federal reserve NOT remitting $4.5T to the treasury is as certain as death, taxes, and disappointing Pirates of the Caribbean sequels

          Reply

          • Posted by Tough Love on December 13, 2017 at 10:22 pm

            Quoting ………….

            “I’m still trying to figure out how Mr Alexander has arrived at his position.”

            What “position” ? He appears to be the owner and ONLY employee (and “Managing Director”…. nice touch !) of Triune, a business with marginal income (per Google search), and with an address that appears to be his residence.

  5. Thank you for your comments. I use the word “profit” as a convince, when the correct word is “surplus”. You are incorrect that a sale of assets does not contribute to the annual Federal Reserve surplus. You are also incorrect the annual surplus is not sent to treasury. Please see
    https://www.federalreserve.gov/newsevents/pressreleases/other20160111a.htm
    I disagree that hardamar has any knowledge of the Fed, as cited sources are everywhere but the Fed.
    A final thought, just because the discussion has not yet happened does not mean it will not happen. Following your reasoning we would never have electric lights, airplanes, tofu burgers, or smartphones.
    Please keep the comments coming and you are always welcome to call or write directly.
    Tim Alexander
    Triune
    805-402-4943
    tim@triunegfs.com

    Reply

    • Posted by Tough Love on December 13, 2017 at 1:48 pm

      Ah……………

      Mr. “economist” is challenging my 2 linked sources (on Fed operations) above……….. and simply BECAUSE the are not directly from the Fed. Really, you should be so knowledgeable.

      I guess the fact than one of the 2 was essentially quoting from former Federal Reserve Chairman Ben Bernanke’s lectures doesn’t help either ?????????

      Reply

  6. Posted by T B on December 13, 2017 at 2:18 pm

    I propose a different idea, move everyone to Social Security.

    Here’s my solution:

    https://drive.google.com/file/d/0B90sU3A85q46OE9BZHJFSWEzbGM/view?usp=drivesdk

    Then you could use those profits from the Fed for things such as infrastructure and other public good projects, as opposed to these unrealistic, unsustainable defined benefit pensions.

    Thoughts?

    Reply

  7. The assets from the sale will be used to pay off liabilities.

    Basically, those in the multi-employer pension funds are people in older generations who got pensions and Social Security. Younger generations did not get pensions, will not get all of their Social Security, have been paid less, and are paying higher taxes for less in services.

    The already or even previously privileged do not have the first claim to money that does not actually exist.

    Reply

    • More specifically, the Fed purchased assets to shove more money into the banks, in the hopes of generating investment and growth. It’s assets are balanced by money owed to the banks, which the Fed thus “created” in the banks.

      In any even the money mostly went to higher executive pay, and speculation.

      Ending QE means that as these instruments come due, the Fed lets the expire, reducing both the money it owes to the banks and the assets it has.

      Reply

  8. Thank you for your comments, but you are mistaken. As part of the depression aftermath, it was found banking had many problems including frightfully low capital levels, and an excess of toxic assets. Many rules came out of that regulating bank capital including Basel II and Basel III.
    Remember that banks are required to increase held capital, as loan quality deteriorates. Thus, as loan quality failed, capital evaporated. The primary determination of a bank as “failed”, is capital below statutory minimums.
    The Treasury had several programs to save banks, including TARP, and a sub-component, the Capital Purchase Program.
    While we do not know the constitution of assets purchased by the Federal Reserve’s large-scale asset purchases program, we are told these include, treasuries, MBS, bonds, etc. The Fed could buy from any source, banks, Treasury, Freddie or Fannie, private sources, etc.
    It is incorrect to make a blanket statement; “The Fed shoved money at banks!”
    What are we to do with the assets before they expire?
    If the last significant QE was in the 1930’s, then it is unlikely we will see more QE again any time soon.
    Thank you for your comments
    Tim Alexander
    Triune
    805-402-4943
    tim@triunegfs.com

    Reply

    • Posted by Tough Love on December 13, 2017 at 5:21 pm

      It’s very simple………..

      With VERY few (if any) exceptions, the Fed will sell those assets to member banks and the payments received by the fed will simply be recorded as a reduction in the purchasing bank’s reserve account at the Fed.

      The Fed will not walk away with a pile a cash to spend as it chooses (with or w/o Congress’s approval). If you think it will, you are delusional.
      **************************

      Yeah yeah yeah, I know………… I’m mistaken, I’m a gasbag, I’m a volcano, I’m a troll, and best of all ………..”Stay tuned for Part 3.

      Reply

  9. Of course, what a fantastic blog and enlightening posts, I surely will bookmark your blog.Have an awsome day!

    Reply

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