3 votes

Bernanke Claims Fed Bankruptcy Is Irrelevant

"The Fed's balance sheet at present is precariously standing on a very low capital level (assets minus liabilities). While the Fed has massively expanded their asset holdings, from a few hundred billion before the crisis to now over $3 trillion, the Fed's capital has failed to grow. This is partly because the Fed remits its excess earnings back to the Treasury and pays a dividend to the private banks who hold shares in the Fed. An added reason for the Fed's low capital is due to the fact the Fed is frequently front run on its purchases as announcements predate action. The failure of the capital in the Fed to grow while outstanding assets rise leads to an increasing leverage within the Federal Reserve system."