“Do We need A Dodd-Frank Rule For Central Banks? – I was paging through my friend, John Hussman’s latest report and came across this rather astounding paragraph:
A brief update on the bloated condition of the Federal Reserve’s balance sheet. At present, the Fed holds $3.84 trillion in assets, with capital of just $54.86 billion, putting the Fed at 70-to-1 leverage against its stated capital. Given the relatively long maturity of Fed asset holdings, even a 20 basis point increase in interest rates effectively wipes out the Fed’s capital. With the present 10-year Treasury yield already above the weighted average yield at which the Fed established its holdings, this is not a negligible consideration.
That becomes even more astounding when you add in this little tidbit from a recent Peter Tchir analysis:
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