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**JennyStewarta** · 01-18-2011, 06:44 AM

Is the Fed Broke?

Robert Wenzel
Economic Policy Journal
January 17, 2011

Bob McTeer, former President of the Federal Reserve Bank of Dallas, argues that the Federal Reserve has no reason to mark to market its securities holdings:

First, there is no need for the Fed to mark to market since its assets are not held for trading and can easily be held to maturity or recovery if necessary

Curiously, he does not discuss what happens to his theory if it turns out some Fed assets are total junk and worthless. This could very well be the case. The Fed has still not told us all the collateral it loaned money out against during the financial crisis.

I hasten to add that this somewhat of an academic question, though, since the most important reason you need to know the value of assets on a balance sheet is to determine if they are greater than liabilities, to evaluate whether an organization will have the means to meet its obligations. This is not a problem with the Fed, since even if all its assets were worthless, it could still simply print new money to payoff its obligations.

01-18-2011, 06:44 AM	#1
JennyStewarta Join Date Oct 2005 Posts 426 Senior Member	Is the Fed Broke? Is the Fed Broke? Robert Wenzel Economic Policy Journal January 17, 2011 Bob McTeer, former President of the Federal Reserve Bank of Dallas, argues that the Federal Reserve has no reason to mark to market its securities holdings: First, there is no need for the Fed to mark to market since its assets are not held for trading and can easily be held to maturity or recovery if necessary Curiously, he does not discuss what happens to his theory if it turns out some Fed assets are total junk and worthless. This could very well be the case. The Fed has still not told us all the collateral it loaned money out against during the financial crisis. I hasten to add that this somewhat of an academic question, though, since the most important reason you need to know the value of assets on a balance sheet is to determine if they are greater than liabilities, to evaluate whether an organization will have the means to meet its obligations. This is not a problem with the Fed, since even if all its assets were worthless, it could still simply print new money to payoff its obligations.
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