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Can the Fed Become Insolvent?by Robert P. MurphyNov. 30, 2010 |
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  In light of Bernanke's plans to purchase $600 billion of longer-term government debt, many academic economists are beginning to worry: Could the Federal Reserve itself become insolvent? In this article I'll explain these fears and I'll argue that the Fed, with its printing press, cannot really go bankrupt the way other corporations can.However, if the Fed should become insolvent from an accounting standpoint, more of the public would begin to realize just how nihilistic our central-bank, fiat-currency system really is. In that sense, further rounds of "quantitative easing"[1] are risky indeed for the Fed. A Central Bank's Balance Sheet To understand what's happening with the Federal Reserve in real life, it's easiest to work through a simplified example. Suppose that the following is a central bank's balance sheet... Read More |
