The Federal Reserve began a sustained and important reversal in Policy on December 17, 2015. The Federal Funds Rate was increased 25 Basis Points from 0.25-0.50bps.
Since they began raising rates, 3 subsequent increases have followed.
December 15, 2016 – when the FFR was increased from 0.50-0.75
March 16, 2017 & June 15, 2017 the FFR was increased 25 basis points at each meeting. from 0.50 to 0.75bps and then again to 1.00%.
The FFR’s actual target rate is 4.00%.
For going on 2 years we’ve heard a great many touts “predict” the Fed will stand pat and that it’s all a bluff. Clearly the Federal Reserve was serious and is growing increasingly so.
During the “policy normalization process” that commenced in December 2015, the Federal Reserve informed us it will use overnight reverse repurchase agreements as a supplementary policy tool.
“RRP’s” would be employed to help control the federal funds rate and keep it in the target range set by the FOMC.
Two interesting items of note from their consolidated financials:
Gold Certificates decreased & Repurchases actually declined. In fact so did US Treasury Securities , Mortgage Backed Securities, Enterprise Debt Securities – albeit slowly.
The real eye-open was this – year over year – Net Income after providing for remittances to the United States Treasury…
Well, those flipped by a large amount.
In 2015 a loss was incurred of $5.8 Billion, 2016 showed Net Income of $328 Million.
The reduction in Gold Certificates is interesting, as it seems to correlate to longer term movements in the Price of Gold and not inversely as many seem to suggest.
The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks. Upon authorization, the Reserve Banks acquire gold certificates by crediting equivalent amounts in dollars to the account established for the Treasury.
The gold certificates held by the Reserve Banks are required to be backed by the gold owned by the Treasury. The Treasury may re-acquire the gold certificates at any time, and the Reserve Banks must deliver them to the Treasury. At such time, the Treasury’s account is charged, and the Reserve Banks’ gold certificate accounts are reduced. The value of gold for purposes of backing the gold certificates is set by law at $42.22 per fine troy ounce.
Gold certificates are recorded by the Reserve Banks at original cost. The Board of Governors allocates the gold certificates among the Reserve Banks once a year based on each Reserve Bank’s average Federal Reserve notes outstanding during the preceding 12 months.
This may appear insignificant – it is not.
The Gold held by the United States Treasury at $42.22 is valued at $11.04 Billion. Whether or not these official reserves actually exist is irrelevant.
They do exist, it is the real ownership which is of concern. Who holds title to the Gold.
Given the Federal Reserve reports $3.588 Billion in Gold Certificates held by the Federal Reserve, back by United States Treasury Gold. Gold remains a Tier 1 Asset on their Balance Sheet.
The Federal Reserve holds close to 30% of the Treasuries Gold Reserves in Certificate Claim.
It is important to note:
“All of the Department of the Treasury’s certificates issued are payable to the Federal Reserve banks.”
Being gold certificates issued by the Treasury, the word “payable” means payable in gold.
If the Federal Reserve had ever redeemed the Gold Certificates issued and took possession of the gold – the Treasury would not have had the ability to profit off the Gold Certificate Swaps.
The US Treasury would no longer have the gold in their possession to do so – leaving the US Treasury without a Tier 1 Asset.
Gold is an Asset Eastern Nations have been adding to their Treasuries over the past decade at a precipitous pace.
The Dollar’s demise will be closely linked to these Certificates held by the Federal Reserve. The Federal Reserve Bank of New York is the custodian of the United States Treasury Gold.
Possession is 10/10ths.
Seismic shifts are ahead for Treasury Gold & Certificates, the US dollar will provide all the intelligence needed, should it begin to break down and breach the 93 level… we could witness a repricing of Gold by the Treasury, but only after redemption by the Fed.
Federal Reserve Consolidated Annual Report – KPMG
*Of Note – The New York Federal Reserve is the Face of the Exchange Stabilization Fund (Fund) and acts on the behalf of the ESF & US Treasury.
In the Future I will refer to the real lever Puller that controls the IMF, World Bank and Federal Reserve System.