Can central banks go broke?

I wonder what's going to happen if/when they make a margin call.

You know that is interesting about the Fed. Until very recently (correct me if I'm wrong here) the Fed only lent money to its member banks. Now what the member banks did with the money, I don't know.

This changed with the recent liquidity crisis, in particular the implosion of Bear Stearns, when the Fed opened their lending window to commercial banks (and prime brokers?). Not completely unprecedented, but from what little I know it was last done during the 1930's depression...(gee doesn't that sound encouraging?).

Also I remember seeing a recent article in the WSJ regarding commercial banks and prime brokerages being reluctant to actually borrow from the Fed, for fear of damaging their brand, by being unable to get money elsewhere, indicating that they were less than credit-worthy. Does open the door to ask whether 'good' money is chasing 'bad'.

The other thing about margin calls,I thought the Fed loans were all very short-term collateralized (Repo) loans, about 28 day terms at most? Again I know very little, so more likely than not, I'm wrong.

Makes me want to pull my IRA, 401K, and buy a cow instead, maybe a few chickens (actually we're vegetarians so maybe a plot of farm land would work better.

I think JP Morgan took a short position on Bear and affected a strategic failure to deliver (naked short selling) that was coupled with some media jockeying. They passed rumors that Bear was insolvent and managed a run. The funny thing is, JP Morgan has done this before.

I had heard something along these lines too...not surprised to hear that this is a repeat, JP Morgan is sneaky, from what little I know about them.

The whole way that deal went off with the Fed negotiating the financing in 20 minutes on a Saturday night is just surreal.

This is a great question Nearing. I think the answer is--they can lose all credibility and therefore be or go broke. hyperinflation here we come.

Can central banks go broke?

I don't quite get what the author's trying to imply but, according to my half-done knowledge of "Central Banking System" and its peacetime/wartime tasks for regulating the size of a nation's money supply and the availability/cost of credit, I would say the term "bankrupcy" sounds quite irrelevant when addressing the central bank. Nevertheless, as a fiscal agent and financial adviser to the government, the fiscal and debt management policies of the central bank (amongst the many others) can lead to depression (depending on the wisdom that lies behind it). The way it did back in the 30s. It depends, to a great extent, on its authority, autonomy, and instruments of action. Today, with the growing government influence in its affairs, it seems that central banks, in a great majority of countries worldwide, are less concerned with public welfare and more involved with ensuring that the government's (the wealthy minority) point of view prevails. So, as always the case, it's the nation that's tightly connected to "bankrupcy" or "insolvency" rather than the central bank. Meantime, I feel dutybound to express my deepest regret to my vineoeconomist friends for sounding rather out-of-track. You see, it's the first time I've dared join a monetary issue of such complexity. I'm kind of strange with these systems and prefer to rely on my own unique "spend & earn" policy (based on the "live and let live" doctrine) rather than follow the conventional rules . It's far less complicated and, hence, much more feasible, vulnerable, and above all, stress-free :-)

nearing

Oh that our government would run it's finances like you do, ntq

LOL. But only if it doesn't prove that one man's gravy, is another man's poison :-)

I shoudl think, to change the order and make it "earn & spend".

I warned you I was hopeless. :-) But there's also an aspect to the original order "spend & earn". I'm not sure about the economy in US but over here one of the greatest problems with the policy-makers (and that's been the case for the past 30 years) is that they encourage the masses to "earn and save" rather than "earn & spend". Much of the economy is locked because, apart from a limited range of vital consumer goods/services, no one's inclined towards spending on other things in order to keep the money (cash) circulating. You may say that's because of inflation and/or reduction of purchasing strength and so forth. Nevertheless, never in the past 5000 years, my people have been as well off as they have been in the last 15 years. Yet, that stingy habit still persists. So, what I was trying to imply was that "without spending, there will be no earning". That was the mindset of the wealthy class (richestanis, as Sem puts it) during the good old days. At least, in my country. And perhaps that's why the consumers had more chance to participate in investment activities and feel much more prosperous with the least saving.

sem The last paragraph of my previous remarks shouldn't be in quoted form. Sorry for the inconvinience.