The Federal Reserve is Insolvent
According to its latest report, the Federal Reserve now owns over $1 trillion of mortgage-backed securities, which is 45.6% of all assets on its balance sheet. One year ago mortgage-backed securities were only 0.6% of the Federal Reserve’s total assets!
The Federal Reserve is very highly leveraged, much more than most banks. It is carrying $2.15 trillion of debt on $52.8 billion of capital, giving it a leverage of 40.8-times more debt than capital. The Federal Reserve’s mortgage-backed securities alone, represent 19-times its capital, meaning that if the true value of these assets is 5.3% less than their book value, the Federal Reserve’s capital is wiped out, effectively making it another insolvent institution.
As the Sprott Report pointed out earlier, it's not just MBSs that tip the Fed way past insolvency, it's their tricky Treasury problem. As in not being able to stop buying them.
If you did not believe we had a problem before, just stop and think about the consequences of a central bank that is leveraged 40:1 debt to capital with no signs pointing to an exit. Were this but a temporary burp in the financial system I might be inclined to say the Fed is not nearly as doomed as it appears.
But since I know better and am about 99.7% sure they still don't have a solid exit plan, it means they are, in reality, more doomed than it appears.