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🦧 a special balance sheet
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what’s a balance sheet?
a balance sheet is a type of financial statement that records an organization's assets, liabilities, and shareholders’ equity. the document keeps track of how much belongs to the company, the shareholders, or how much the company owes to other entities
the accounting equation
assets = liabilities + shareholders’ equity
assets: cash, marketable securities (i.e. equity, debt securities, anything that can be sold on to the market for cash), accounts receivable (revenue the company will soon receive for service it already provided to customers), inventory ("stuff" left in storage that they have yet to sell), land, etc.
liabilities: short-term debt, long-term debt, interest owed, salaries payable (to employees), accounts payable, pension fund liabilities (required amount for a company to pay into employees' retirement accounts), etc.
shareholders’ equity: "net assets", or total assets minus all liabilities.
how is the fed’s balance sheet different?
it’s rather simple. it does not include shareholders’ equity – only assets and liabilities
the fed virtually has an "unlimited" supply of currency for puchasing assets, as it is capable of printing money
assets are primarily treasury securities and mortgage-backed securities
liabilities are bank reserves (because the fed should be able to give back banks their reserves) and currency in circulation
currently, the fed’s balance sheet is weakening
released weekly, the fed owns $196b less in treasury securities from peak in early june and $62b less in mortgage-backed securities from peak
the fed is intentionally shrinking its balance sheet, making borrowing more costly which helps the fed aggressively raise interest rates
here’s an interesting video on why the fed is currently in the red:
💡 something im thinking about
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