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Not everyone agrees with you.

Former Atlanta Fed President William Ford says, technically, yes, the Fed can go bankrupt. He argues that the Fed’s balance sheet is highly leveraged as a result of quantitative easing expanding its balance sheet.

The result is that the Federal Reserve is thinly capitalized despite its having just transferred a record $80 billion in profit to the US Treasury.

I’ll leave it at that, no sense arguing about it any further.

https://dailyreckoning.com/central-bank-can-never-run-money/

Why a Central Bank Can Never Run Out of Money

“We can’t run out of money,” economist L. Randall Wray said. The U.S. government spends through keystrokes that credit bank accounts, he continued. The money comes from nowhere. The government doesn’t need to finance itself with taxes. And it doesn’t borrow its own currency. It can afford all that is for sale in dollars.

Despite laying out an incontrovertible set of facts, Wray’s audience often is aghast. He says he gets four reactions when he tells people about how the government spends:

Incredulity: “That’s crazy!”
Fear: “Zimbabwe! Weimar!”
Moral indignation: “You’d destroy our economy!”
Anger: “You’re a dirty pinko commie fascist!”

Wray is one of the architects of Modern Monetary Theory, or MMT. In essence, it is a description of how our monetary system works. The implications are profound. And Wray is very good at explaining it simply. Below are some notes from a talk he gave at the Post Keynesian Conference in Kansas City, which I attended.

To begin, I like how Wray emphasized he’s not really saying anything people at the Federal Reserve Bank don’t already understand. First, there is a great quote from Ben Bernanke when, as Fed chief, he was on 60 Minutes:

Scott Pelley: Is that tax money that the Fed is spending?

Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.

Bernanke gets it. “The Fed can’t run out of money,” Wray said. “As long as someone at the Fed has a finger and they have a key to stroke, they can’t possibly run out of money.”

Second, there is this statement from the St. Louis Fed:

“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”

And yet it is not uncommon to hear people say the U.S. is bankrupt or that the Fed itself is somehow in trouble. People on the inside know differently. As Wray emphasized:

Government can never run out of dollars. It can never be forced to default. It can never be forced to miss a payment. It is never subject to whims of “bond vigilantes.”

Money… is simply the way we keep score in a modern economy. Banks are the scorekeepers.

Thus, there is no need to balance the budget, heresy of heresies! As Wray says, “The necessity of balancing the budget is a myth, a superstition, the equivalent of old-time religion.”

“Whoa!” I hear you say. Let’s back up.

To understand how modern money works, it may be best to start with the banking system. Wray began with a simple model of a bank, a firm and a household. “So a firm approaches a bank and says it would like a loan,” Wray says. “Where does the bank get the money?”

It creates it out of thin air, out of nothing. It keystrokes it into existence. It creates a loan (an asset for the bank) and offsets it with a deposit (a liability for the bank). The firm gets a credit (an asset) and an offsetting debit (the loan). No prior deposits needed. As Wray says: “Loans create deposits. The bank lends its own IOUs. Can they run out?

“Of course not. They can’t run out of their own IOUs.”

This is important. If you don’t get this, banking will forever remain a mystery to you....