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Current time:0:00Total duration:9:57

Video transcript

I think you'll find this video exciting because until now we've just been talking about the Federal Reserve in the abstract and I was drawing little boxes to represent balance sheets but this is the actual Federal Reserve balance sheet and I took a date that was before all of this silliness started happening in the banking sector just so we could kind of see what it happened what a Federal Reserve balance sheet would have looked like in a normal environment and then we can actually in future videos compare what they've done since then and then what can get a better insight into all of the different machination x' that the Federal Reserve has done to kind of try to keep banks liquid and solvent and to keep everything going and we can debate whether they've been good or bad or they're just keeping banks in kind of zombie mode but anyway this is this is the Federal Reserve's balance sheet as of February 14 2007 so before all of the craziness happened although a little bit started this was before the Fed started taking really aggressive action to to provide liquidity for the markets but here are the assets so first of all we have the total assets number and that's just interesting to look at 870 these are all in millions so this is 871 billion dollars of assets so let's just get the big picture there's 871 billion in assets let me draw that here in our traditional box diagram so if I were to draw the assets this is the assets the sum of all the assets over here is 871 billion dollars and we know that the liabilities plus equity better add up to 871 billion let's see what's the total liabilities total liabilities is 839 billion so they'll give or take 840 so the liabilities I'll do it in a different color the liabilities are 840 billion give or take a little bit shade should be they should have the same with not if the width matters that much but they should be look so the liability should be eight hundred and forty eight hundred forty billion and then whatever is left over should be equity right assets minus liabilities what you have minus what you owe is is what you what you're left with or the owners and of course owners of the Federal Reserve you kinda have to take with a grain of salt they really don't have the upside of traditional owners they're really just kind of stakeholders what's left over is the equity it should be roughly thirty 1 billion 31 billion of equity and let's confirm that by looking at the actual balance sheet and here we have it total capital is 31 billion so a big picture it's so far it's kind of meeting up with how we've envisioned a Federal Reserve balance sheet but let's dig a little deeper and see if we can find interesting things and things we've talked about and and hopefully at this point we should actually understand all of it all of the lines of the Federal Reserve event so let's focus on the assets for now so the assets are just this part of it ok so it has this is what this is 11 billion of gold certificate accounts and that's some type of writes on gold see gold certificate accounts let see if they have any other gold anywhere coin 1 billion this is all small potatoes right I don't know what Special Drawing right certificate account is but it's very small relative to the big pie right there's 871 billion of assets this is just kind of almost rounding off error here we have a big chunk of something actually I think this 11 billion is actual gold because I don't see it anywhere else on their assets so I think but if you combine roughly I don't know if what this this thing here is but if you combine this and this it's saying that the Federal Reserve is because I don't see gold anywhere else here that it's holding roughly twelve billion dollars worth of gold which really isn't a lot of gold when you consider the total size of its balance sheet the big piece right here let me pick a different color I'll do it in the purple the bit has securities repurchase agreements and loans eight hundred and eight billion so almost eight hundred and nine billion so this is a big piece of the Fed's balance sheet you know out of the hole out of the hole eight hundred seventy-one 808 so pretty much it's like you know it's almost like that much of it actually maybe a little bit less of that there are these securities and things like that and we'll see what kind of securities they have and they break them down so this eight hundred eight billion is made up of these things right here the bulk of them are US Treasury loans right so these are going to be bills notes and bonds in okay so just explain a Treasury bill and I've done videos on this this is essentially a US alone to the government for a year or less so it's just a loan to the government that matures in a year or in three months notes and bonds these are loans to the US Treasury that have longer maturities notes are up to ten years bonds are more than 10 years and then inflation index bonds I'll do a whole video on that in the future but these are essentially Treasuries that are indexed to inflation so you can kind of hedge out a little bit of your inflation risk but needless to say the big picture is is that 780 billion of the feds assets are Treasury's loans to the federal government so let me just draw that here so you know a pretty pretty big piece roughly you know that much is Treasury so most of what the what of what the Federal Reserve owns are Treasuries and that's consistent with everything we've gone over so far and that accounts for everything up to here and then what's interesting what we just talked about repurchase agreements 30 billion repurchase agreements and I don't know 100% but I'm guessing that these are someone came to the discount window and essentially borrowed thirty billion dollars from the Fed it's not just someone it's probably multiple people came and borrowed thirty billion dollars from the Fed and they gave Treasuries as collateral but as we know just the way repurchase agreements work they actually kind of sold the Treasuries to the Fed and then the federal agreed to buy it later but it's essentially collateral so these repurchase agreements they're included in these security in these securities because they're not just agreements right they're actually are they're probably Treasuries or they might be other types of highly rated securities and we'll learn in future videos that the Fed has lowered its standards over the last year as in terms of what type of collateral or what type of securities it's willing to trade in these repurchase agreements but in this situation looks like about thirty billion dollars and you can also you know you give a clue of what repurchase agreements are because here they say securities held out right right so there's nothing there's no repurchase agreement they're not there's not some contract where they say they're gonna sell this to someone else at a another price but these are repurchase agreements so these are kind of more collateral for loans and then they have outright loans 49 million that's pretty much peanuts in the federal reserve world so the bulk is Treasuries a little bit of repurchase agreements and then there's other assets they don't break out what this is maybe there's some gold in that I'm not sure bank premises the buildings of the Federal Reserve are worth two billion dollars I mean they have 12 banks around the country and I'm sure they have a bunch of other things so and then items in process collection I don't know what these things are but these are all small potatoes the big thing is is the Federal Reserve's assets are predominantly US Treasuries at least they're predominantly Treasuries right now now let's look at the liabilities in to some degree this is much more interesting so Federal Reserve notes net of Federal Reserve Bank holdings Federal Reserve notes so Federal Reserve seven hundred and sixty nine billion dollars so when I talked about notes outstanding that's what this is these are Federal Reserve notes that have been printed in their liabilities right because the Federal Reserve Bank printed these notes and then use them as currency and so their liabilities now because someone can come back another time and say hey give me back the you know the value of these things and that's a bit of an abstract concept but roughly I don't know seven hundred something of this our notes outstanding this is money that the Federal Reserve had printed and then the there's some reverse repurchase agreement which essentially for some reason the Federal Reserve use repurchase agreements to borrow from someone else it has a little bit of deposits right and these deposits have actually grown dramatically in this pen in the past year has twenty two billion dollars of deposits so these are actually deposits that banks are keeping with the Federal Reserve the US Treasury actually keeps some money their depository institutions have 17 billion and actually that's how the Federal Reserve traditionally has paid its expenses is that people put deposits with the Federal Reserve so let's say that these are deposits from banks it's not it's a very small piece it's like 17 billion these could be deposits from member banks but the Federal Reserve does not pay interest in deposits they don't pay interest on these deposits and then they can take these deposits and buy Treasuries or other securities and get interest on them so they're essentially getting free interest and that's what they use to actually fund their operations and any excess after funding their operations goes back to the US Treasury so it's not like you know Ben Bernanke can can fly around or drive a Bentley or something and then I don't know what this is foreign official these are small these are nothing items so the bulk of it is money that had been printed and that's a liability of the Federal Reserve now and then there's a little bit of deposits from depository institutions and the Treasury has kept some money with the Federal Reserve as well and then everything left over is the equity anyway I thought that would be pretty neat to see that you can actually look at what the Federal Reserve's balance sheet is right now you could actually just do a web search for it you'll find it in a bunch of different sources and you can actually analyze it you now have the tools to look at that and make sense of it and what's even more interesting is to actually cat is to compare this balance sheet with the current Federal Reserve balance sheet and then you can know everything that they've been up to