Not as leveraged as I thought. (UPDATE: But maybe so. See #3 below.) From the Gold Antitrust Action Committee:

Interviewed Monday this week on the "Trading Day" program of Business News Network in Canada, former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed's attempt to rescue the U.S. economy.

The program's guest host, Niall Ferguson, an author and history professor at Harvard, asked Gramley, now senior adviser at Stanford Group in Houston, about the seemingly grotesque expansion of the Fed's balance sheet in recent months.

Ferguson asked: "I've heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed's reputation?"

Gramley replied: "I think you have to reckon with the fact that one of the Fed's assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed's leverage would look a lot less than it is now."

Three comments:

(1) I don't know where Ferguson heard it, but I made exactly such a remark at the Cato Monetary Conference last month.

(2) Gramley has a point. According to the Fed's latest H.4.1 balance sheet release, current Fed gold @$42.22/oz = $11b. Multiplying by 822/42.22 makes it approx. $215b. That would raise the book value of the Fed's capital by the difference of approx. $204b, from $43b (2% of its $2262b assets) to $247b (11%). So if we mark the gold to market, the Fed's balance-sheet leveraging falls from 50:1 down to only 9:1.

(3) For accuracy's sake, we should also mark the Fed's exotic loans to market. But there is no market for such loans. (UPDATE: If we use fair value accounting, Ed Kane suggests by email, the writedowns would swamp the $204b selective writeup on the gold account.)

HT: Walker Todd