In light of the Fed's announcement today that it will be expanding its Term Auction facility by $300 Billion (of a total $630 Billion liquidity injection), we thought we'd take a look at the sack of oranges backing up our money at the Federal Reserve.
First, some basics about our currency. Every piece of US paper currency includes the phrase "FEDERAL RESERVE NOTE":
What does this mean ?
It means that the Federal Reserve stands behind the money. How ? At any time, you may actually redeem your dollar of Federal Reserve currency for... another dollar of Federal Reserve currency !
...which makes the value of the currency entirely dependent on the faith which those using it for exchange have in the Federal Reserve, the US banking system, and the U.S. Government which stands behind them.
Getting back to our oranges - The Federal Reserve supports the money in circulation (its liabilities) by holding certain Assets (its 'bag of Oranges') on its balance sheet.
Over the past year, the Fed's bag of oranges has grown significantly in size, and, one might say that a certain odor is starting to emerge from the bottom of the bag:
The detail is available at the Federal Reserve, here is our summary:
Federal Reserve (Combined) Assets, $Millions
The data can be found at:
http://www.federalreserve.gov/releases/h41/Current/
http://www.federalreserve.gov/releases/h41/20070927/
So where does this leave us? Today, the lack of credit and liquidity which the Fed is desperately fighting is the paramount challenge facing the global financial system.
What seems certain is that, at the end of this process, it will be left holding a much bigger, and much more pungent, bag...
UPDATE - OCTOBER 2, 2008: The Fed's balance sheet has grown massively over the past week, as the institution continues to attempt to provide liquidity to global credit markets -
The total of 'non-standard assets' ("Yuck!", in our table) now exceeds the total size of the Fed's balance sheet a year ago.
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valuate of the acceptance totally reliant on the institution which those using it for change feature in the Northerner Request, the US banking method, and the U.S. Governance which stands behindhand them.
ReplyDeleteGetting stake to our oranges - The Fed Athlete supports the money in circulation (its liabilities) by retentive indisputable Assets (its 'bag of Oranges') on its match artefact.
Over the medieval year, the Fed's bag of oranges has grown significantly in situation, and, one might say that a confident odor is play to grow from the lower of the bag
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