November 16, 2012 | Access and use are subject to your User Service Agreement.

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NOT SO FAST, JOHN F. PRUSIECKI The Federal Reserve may appear to be highly, even dangerously, leveraged, but that seeming risk is nothing more than an accounting illusion, asserts the writer of a letter to the editor of The Wall Street Journal on Nov. 9. On the balance sheet of America's central bank reposes "$11.037 billion of gold" carried at the arbitrary and obsolete value of $42.22 an ounce, observes John F. Prusiecki of Chicago. "If it carried the gold at close to its current value (i.e., $1,710), its balance sheet would show about $447 billion of gold with a corresponding increase in equity resulting in leverage of less than 6 to 1. Before going to the taxpayers," the Journal's correspondent concludes, "the Fed should first write up its gold to current value." If only it could. The truth is that the Fed owns not one ounce of gold. Once upon a time it did. Member banks paid for their Federal Reserve stock in gold--this was just after the Fed came into the world, in 1914, when the Gold standard was in flower. Then, too, the authorities leaned on the banks during World War I to bring their gold to the Fed in exchange for crisp, new Federal Reserve notes. "Federal Reserve officials," writes Lester Chandler in his biography of the famous governor of the New York Fed, Benjamin Strong (1872-1928), "pleaded with commercial banks and clearing houses to give up their gold and gold certificates in exchange for Federal ...

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