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 a Federal reserve balance would've looked like
in a normal environment. And then we can actually, in
future videos, compare what they've done since then and
then we can get a better insight into all of the
different machinations 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 the Federal
reserve's balance sheet as of February
14th, 2007. So before all the craziness
happened, although a little bit started-- this is before the
Feds started taking really aggressive action to provide
liquidity for the markets. But here the assets. So first of all, we have the
total assets number. That's just interesting
to look at. These are all in millions. So this is $871 billion
of assets. Let's just get the
big picture. Let me draw that here in our
traditional box diagram. So if I were to draw the
assets-- the sum of all the assets over here is $871
billion, 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 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. They should have the same width,
not that the width matters that much. And then whatever's left over
should be equity, right? Assets minus liabilities. What you have minus what you owe
is what you're left with for the owners. And of course, owners of the
Federal reserve, you kind of 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
$31 billion. And let's confirm that
by looking at the actual balance sheet. And here we have it-- total
capital is $31 billion. So big picture, 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 hopefully at this point,
we should actually understand all of it. 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
rights on gold. Let's see. Gold certificate accounts. Let's see if they have any
other gold anywhere. Coin-- $1 billion. But this is all small
potatoes, right? I don't know what special
drawing rights 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 if you combine
roughly-- I don't know what 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 $12 billion 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. It has securities, repurchase
agreements, and loans-- $808 billion-- almost $809 billion. So this is a big piece of
the Fed's balance sheet. Out of the whole $871, $808. So pretty much it's almost
like that much of it. Actually, maybe a little bit
less of that-- are these securities and things
like that. Let's see what kind of
securities they have. And they break them down. So this $808 billion is made up
of these things right here. The bulk of them are U.S.
treasury loans, right? So these are going to be bills,
notes, and bonds-- OK. So just to explain, a treasury
bill-- and I've done videos on this-- this is essentially a
loan 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 U.S. treasury that have longer maturities. Notes are up to 10 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 Fed's assets are
treasuries, loans to the Federal government. Let me draw that here. So a pretty big piece, roughly
that much is treasury. So most of what the Federal
reserve owns are treasuries. And that's consistent with
everything we've gone over so far and that account for
everything up to here. And then what's interesting--
what we just talked about-- repurchase agreements,
$30 billion. And I don't know 100%, but I'm
guessing that these are-- someone came to the discount
window and essentially borrowed $30 billion
from the Fed-- and it's not just someone. It's probably multiple people
came and borrowed $30 billion 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 the Fed agreed to buy it later,
but it's essentially collateral. So these repurchase agreements--
they're included in these securities because
they're not just agreements, right? They 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
in terms of what type of collateral or what type of
securities it's willing to trade in these repurchase
agreements, but in the situation it looks like
about $30 billion. And you can also-- you get
a clue of what repurchase agreements are because here,
they say securities held outright, right? So there's no repurchase
agreement. There's not some contract where
they say they're going to sell this to someone
else at another price. These are repurchase
agreements. These are kind of more
collateral for loans. And then they have outright
loans-- $39 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 $2 billion. I mean, they have 12 banks
around the country and I'm sure they have a bunch
of other things. And then items in process
collection. I don't know what these
things are, but these are all small potatoes. The big thing is that the
Federal reserve's assets are predominantly U.S. treasuries--
at least, they're predominantly treasuries
right now. Now let's look at
the liabilities. And to some degree, this is
much more interesting. So Federal reserve notes,
net of Federal reserve bank holdings. So $769 billion. So when I talked about
notes outstanding, that's what this is. These are Federal reserve notes
that have been printed and they're liabilities,
right? Because the Federal reserve bank
printed these notes and then used them as currency and
so they're liabilities now because someone can come back
another time and say, hey, give me back the value of these
things and that's a bit of an abstract concept, but
roughly $700 something of this are notes outstanding. This is money that the Federal
reserve had printed. And then there's some reverse
repurchase agreements, which essentially-- see for some
reason, the Federal reserve used repurchase agreements to
borrow from someone else. It has a little bit of
deposits, right? And these deposits have actually
grown dramatically in the past year. Has $22 billion of deposits. So these are actually deposits
that banks are keeping with the Federal reserve. The U.S. treasury actually
keeps some money there. Depository institutions have
$17 billion-- and actually, that's how the Federal
reserve traditionally has paid its expenses. People put deposits with the
Federal reserve-- so let's say these are deposits from banks. 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 these deposits. They don't pay interest on these
deposits and then they can take these deposits and by
treasuries or other securities and get interest on them. So they're essentially getting
free interest and that's what they used actually to fund
their operations. Any excess after funding their
operations goes back to the U.S. Treasury so it's not like
Ben Bernanke can fly around or drive a Bentley or something. And then I don't know what this
is-- foreign official-- 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 can 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 compare this balance sheet with the current
Federal reserve balance sheet and then you can know
everything that they've been up to.