Fed's Balance Sheet Summary

  1. Total Balance Sheet: $7.093 Trillion
  2. Treasuries Owned Outright: $4.431 Trillion
  3. Mortgage Backed Securities Owned Outright: $2.025 Trillion
  4. Treasuries Plus Mortgages: $6.456 Trillion
  5. Gold: $11 Billion

Gold Comments 

The gold certificate account reflects the receipts issued to the Reserve Banks by the Treasury against its gold holdings. In return, the Reserve Banks issue an equal value of credits to the general account of the Treasury, computed at the statutory price of $42.22 per troy ounce. Because nearly all of the gold held by the Treasury has been monetized in this fashion, the Federal Reserve Banks' gold certificate account of $11 billion represents the nation's entire official gold stock.

If the Fed valued gold at $2,000 per ounce instead of $42.22 per ounce it would be worth about $0.5 trillion. 

What's in the Gap Between Treasuries + Mortgages and the Total?

The Fed publishes balance sheet details every Thursday in a Federal Reserve Statistical Release, affectionately known as H.4.1.

Note: Fred has the Fed's Balance Sheet Total (Less Eliminations from Consolidation) Wednesday Level at $7,093,161. 

The Fed's H.4.1 shows $7,053,440. In the detail below, I show the main assets on the detail chart below adding the final category of Other to make it balance.

Balance Sheet Details

Fed's Balance Sheet Details 2020-09-24

Explaining the Gap

  • Primary Dealer Credit Facility
  • Money Market Liquidity Facility
  • Paycheck Protection Liquidity Facility
  • Commercial Paper Funding Facility II
  • Corporate Credit Facilities
  • TALF II
  • Central Bank Liquidity Swaps
  • Foreign Currency Assets 
  • IMF Special Drawing Rights
  • Currency

When liquidity gets messy, the Fed steps up to the plate with massive amounts Repos (temporary funding, sometimes with very long durations), but the current value of repos is zero.

Illegal Facilities

Many of the Fed facilities violate its charter and are thus illegal.  

John Hussman explains in Fundamentally Unsound.

If you are primarily interested in Fed illegal activities and not Hussman's comments on valuations, start reading at the following subtitle.

On the illegal abuse of public funds by the Federal Reserve

Let’s begin with a simple observation: instead of using CARES funds in the manner that Congress intended – to make secured loans to States, municipalities and corporations suffering actual damage from the COVID-19 epidemic – the Fed is using Congressionally-approved crisis funds to buy corporate bonds from investors in order to boost valuations and protect bondholders from losses, with neither sufficient collateral nor evidence of inability to secure bank credit (both of which are legally required). Worse, the Fed is also creating base money to “leverage” these purchases. Let’s walk through why all of this is an illegal abuse of public funds.

Read the top line of a dollar bill. Then read the current provisions of Sections 14 and 13 of the Federal Reserve Act. Every dollar created by the Federal Reserve must be backed by a) gold; b) a government-backed IOU, typically Treasury securities, but also including securities guaranteed by foreign governments, or c) obligations arising out of commercial transactions or Section 13 emergency lending, both which must be explicitly backed by collateral “sufficient to protect taxpayers from losses.” 

The reason for those provisions is simple. Under the U.S. Constitution, Congress is the only branch of government with spending authority. So the Federal Reserve Act is carefully written to prevent actions by the Federal Reserve that would amount to fiscal policy.

The Fed has announced the intention to “leverage” the funds approved by Congress with additional money creation, in an amount ranging between 3-10 times what Congress actually allocated, in order to buy unsecured corporate bonds from private investors. Aside from the violations of law involved here, and the shift of private risk onto the public balance sheet, it’s important to understand is that the financial effect is to amplify speculation and the issuance of low-grade debt.

The moment those securities lose value, the Fed will have effectively created money without taking enough legally-required collateral to protect the public from losses. This is quite literally a crime, akin to counterfeiting billions of dollars.

Hussman also pounds the Fed on wealth disparities blasting Fed Chair Jerome Powell's lie "Fed policies absolutely do not contribute to wealth disparities."

Of course they do. Monetary inflation benefits those with first access to money, the banks and the already wealthy. 

The Fed's illegal maneuvers are even worse.  

Hussman also has lots of comments on Covid and masks. His full report is lengthy, but please give his article a read, especially if you believe masks don't work.  

Mish

Fed is Rethinking Its Balance Sheet Unwind: Expect Lower LT Rates, Higher Gold

The Fed is unlikely to keep its balance sheet reduction plan on target. There are significant consequences.

Fed Launches SOFR: Alleged Replacement for $350 Trillion LIBOR Market

The Fed hopes to move contracts to SOFR, away from the volatile, yet massive LIBOR market.

Nothing is Working Now: What's Next for America?

Eventually, the coronavirus depression will subside. But what will America look like when it does?

Spotlight on Fed’s Balance Sheet Plans

The Fed has had ample time to reduce its massive $4.5 trillion balance sheet.

Plunge in Interbank Lending: The Straw that Broke the Fed's Back

Interbank lending took a historic dive. Readers ask "What's happening?" Let's investigate.