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.