“In light of my recent posts on Morgan Stanley’s analysis of this question–which show that a rise of less than a percentage point across the yield curve would render the Fed ‘bankrupt’–let me direct you to my original Mises.org essay on this question. I walk through various hypothetical Fed balance sheets to show what we mean by saying it could become insolvent. Then, in this article I walk through the January 2011 change in accounting rules that was instituted so that technically, the Fed can’t have negative equity from a fall in its asset prices. It would, however, drive home to more people around the world just how screwy our ‘modern’ monetary system really is.”
http://consultingbyrpm.com/blog/2013/07/can-the-fed-become-insolvent.html
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