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Politics : The Obama - Clinton Disaster
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To: DuckTapeSunroof who wrote (10033)3/27/2009 1:46:09 PM
From: Wayners  Read Replies (1) of 103300
 
That was a really good answer. Yes in theory dollars are a liability on the Federal Reserve's balance sheet. These liabilities are offset by assets on the balance sheet, which are mostly outstanding loans denominated in dollars but as you pointed out also includes some hard assets, some gold, and dubious other financial paper instruments as well like Govt bonds. If the Federal Reserve somehow managed to fail as a bank, theoretically as you pointed out, it's assets would have to be distributed to it's shareholders, namely all it's creditors listed on the liabilities side of it's balance sheet including all holders of dollars. But what would a dollar holder really get? They would have claims on outstanding loans and their interest payments mostly, Govt paper and Gold that I don't think they have leased out, unlike European Banks. What would the Federal Reserve Balance sheet look like if the dollar is nearly worthless and Govt bonds are worthless? The liabilities far outstrip the real hard assets on the balance sheet, like you said. The Gold would be infinitely valuable in a conversion with dollars, so they'd have to probably hand out 1 ounce of gold for every trillion dollars or something ludicrous like that.
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