Comment: Well, from the auditing, we

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In reply to comment: you mean they surrendered (see in situ)

Well, from the auditing, we

Well, from the auditing, we know that many of the assets were US treasury bonds; basically, the federal reserve is buying those bonds back to try and lower long-term interest rates by altering the yield curve (always very difficult to do), plus, they are assuring the banks that their government bonds are as good as money.

Imagine, for a second, if banks didn't have enough reserves. Then, they'll try and destroy credit, which is what they've wanted to do since 2008 (and why we had deflation in 2009). If they destroy credit, that means that they will need dollars. So they sell of bonds. The value of the dollar goes up (deflation), the value of real assets goes down, the value of government debt goes down (rates as a % shoot up since banks will have to accept less value in order to get that short-term liquidity). You have the potential for a deflationary spiral. Of course, it will eventually work itself out, but not without a lot of damage.

Basically, if the balance sheets are in such a bad state, universally, that the demand for reserves/banknotes goes up, the value of treasury notes, which have always been as-good-as-reserves, goes down (because they aren't LITERALLY as-good-as-reserves.

The other assets the fed has includes mortgage-backed securities, corporate bonds, etc. Private estimates are that the MBSs held by the federal reserve have lost about 12% of their value since purchased by the Fed. However, that is only the market value. The federal reserve can simply hold the bonds until maturity; they would obviously get full value that way.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a