I think you’ll find this video exciting because until now we’re just been talking about the federal reserve in the abstract and I was drawing little boxes just to represent balance sheet. But this is the actual Federal Reserve balance sheet and I took a date that was before all of this silliness started to happening in the banking sector. Just so we can kind of see what had happened, what a Federal Reserve balance sheet would have looked like in a normal environment. And then we can actually infuse your videos, compare what they’ve done and then looking at a better insight to all of the different machinations of the federal reserve has done to kind of try to keep banks liquid and solving and to keep everything going. And we could 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 balance sheet as of February 14, 2007 before all of the craziness happened although a little bit started. This is before the fed start taking really aggressive action to provide liquidating for the markets. But here are the assets. So first of all, we have the total assets number. That’s just interesting to look at. 870s, these are all in millions, so this is $871 billion of assets. So let’s just get the big picture. There's $871 billion assets. Let me draw that here in our traditional box diagram. So if I were to draw our assets, this is the assets. The sum of all the assets over here is $841 billion and we know that the liability plus equity better add up to $871 billion. So what's the total liabilities? Total liabilities is $839 billion, so give and take 840. So the liabilities I’ll do in 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 but it should be look, so the liabilities should be 840 billion. And then whatever leftover should be equity, right. Assets minus liabilities, what you have minus what you owe is what you’re left with or the owner’s. And of course owners of the Federal Reserve, you kind of have to take with the grain of salt. They really don’t have the upside of traditional owners. They really just kind of stake holders. What's left over is the equity, it should be roughly 31 billion of equity. And let’s confirm that by looking at the actual balance sheet. And here you have the total capital is 31 billion. So big picture and so far it’s kind of meeting up with how we’ve envisioned a Federal Reserve balance sheet.

But let’s take a little deeper and see if we can find interesting things and things we’ve talked about. And hopefully at this part we should actually understand all of it, all of the lines the Federal Reserve has. So let’s focus on the assets for now. So the assets are just this part of it. Okay so it has, this is 11 billion gold certificate accounts so that’s some type rights on gold, the gold certificate account. Let’s see if they have any other gold anywhere. Coin 1 billion but this is small potatoes right. I don’t know what's 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. Here we have a big chunk of something. Actually I think this 11 billion is actually gold because I don’t see it anywhere else on their assets. So I think of you combine roughly I don’t what this thing here is but you combine this and this. It’s saying that the Federal Reserve is counting gold anywhere else here. There's holding roughly $12 billion with the gold which really isn’t a lot of gold when you consider the total size of this balance sheet.

The big piece right here, let me pick a different color, I’ll do it in purple. Securities, repurchase agreements and loans 808 billion, so 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 like, its almost like that much of it. Actually maybe a little bit less of that, 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 US Treasury loans. So these are going to be bills, notes, and bonds, in okay lets just explain. A treasury bill, I’ve done videos on this, this is essentially a US, a loan to the government for a year or less. So it’s just a loan to government that matures in a year or in 3 months. Notes and bonds, these are loans to US Treasury that had longer maturity. These notes are up to 10 years. Bonds are more than 10 years. And then inflation-indexed bond, I’ll do a whole video of 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 inflation risks. But needless to say, the big picture is that 780 billion of the fed's assets are treasuries, loans to the federal government. Let me just 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 accounts for everything up to here. And then what's interesting, well we just talked about repurchase agreements, 30 billion repurchased agreements. And I don’t know 100% but I'm guessing that these are, someone catered the discount window and essentially borrowed $30 billion from the fed. Its not just someone, its probably multiple people came in borrowed $30 billion from the fed and they gave treasuries as collateral but as we know just the way repurchased agreements work, they actually kind of sold the treasuries to the fed and the fed agreed to buy it later. But it’s such a collateral. So these repurchased agreements, they're included in the securities because they're not just agreements right, they're actually are the probably treasuries or they maybe other types of hiding in securities. And we’ll learn it future videos that the fed has lower standards for the last year as in terms of what type of collateral or what type of security is willing to trade and these repurchased agreements. But in this situation, looks like about $30 billion. And you give a clue of what repurchased agreements are because here they say securities held outright. So there's nothing, there's no repurchased agreement, there's not some contract when they say they're going to sell this to someone else at another price but these are repurchased agreements. So these are kind of more collateral for loans.

And then they have outright loans 49 million, that’s pretty much peanuts in the Federal Reserve world. So the bulk is treasuries, a little bit of repurchased agreements, and then there's other assets if you 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 of collection, I don’t what these things are. But these are all small potatoes. The big thing is the Federal Reserve assets are predominantly US treasuries, at least 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. Federal Reserve notes. So federal has $769 billion. So when I talked about note 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 so they're liabilities now because someone can come back at other 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 these are notes outstanding. This is money that the Federal Reserve had printed.

And then there's some reverse purchase agreement which essentially for some reason that Federal Reserve used repurchased agreements to borrow from someone else. It has a little bit of deposits. And these deposits are actually grown dramatically in the past years, $22 billion of deposits. So these are actually deposits that banks are keeping with the Federal Reserve, that US treasury actually keeps some money there. Depository institutions have $17 billion and actually that’s have a federal reserve traditionally has paid its expenses is that people put deposits with the federal reserves. Let’s say that these are deposits from banks. It’s a very small piece. It’s like 17 billion. This 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 buy treasuries or other securities and get interest on them. So they're essentially getting free interest. And that’s what they use to actually fund their operations. And any excess after funding the operation goes back to the US treasury. So stuff like Bembernaky can fly around or drive a Bentley or something. And I don’t what this is foreign official, these are small, nothing items.

So the bulk of it is money that have been printed and that’s a liability of the Federal Reserve now. And then there's a little bit of deposits from the 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. You can actually look at what the Federal Reserve balance sheet is right now. You can actually web search for it. You’ll find a bunch of different sources and you can actually analyze it. And you now have the tools to look at that and make sense of it. And what's even more interesting is that actually 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.