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Karl W. Smith

The Fed’s Job Just Got More Complicated

A negative net worth is not a problem financially, but it could present a political quandary.

Give the guy some sympathy.

Give the guy some sympathy.

Photographer: Bloomberg/Bloomberg

According to its most recent financial report, the U.S. Federal Reserve is insolvent. That is, its net worth is negative: As of last quarter, the Fed had losses of $66.5 billion in its securities holdings, while its capital stands at $39.1 billion.

That may be ironic for an institution tasked with ensuring that major banks have sufficient capital to maintain solvency in a crisis. From a financial perspective, that’s not really a problem for the Fed — it can always print the cash it needs. From a political perspective, however, the Fed could be vulnerable.