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The Fed Balance Sheet: What Is Uncle Sam's Largest Asset?

March 13, 2015

by Doug Short

Note from dshort: I've updated the quiz based on yesterday's Q4 Financial Accounts of the United States (previously referred to as the Flow of Funds Accounts). Hint: The correct answer is the same as it was for the last quiz.

Pop Quiz! Without recourse to your text, your notes or a Google search, what line item is the largest asset on Uncle Sam's balance sheet?
A) U.S. Official Reserve Assets
B) Total Mortgages
C) Taxes Receivable
D) Student Loans

The correct answer, as of the latest quarterly data, is ... Student Loans.

The rapid growth in student debt has been an ongoing topic in the financial press. One stunning chart that continues to haunt me illustrates the rapid growth in federal loans to students since the onset of the great recession. Here is a chart based on data from the Financial Accounts Table L.105, which shows the Federal Government's assets and liabilities. I've used a log-scale vertical axis.

For a more dramatic look at the same data, here it is with a standard linear axis.

As I point out on the chart, the two callouts are for Q4 2007, the quarter in which the Great Recession began (December 2007) the most recent quarter on record, Q3 2014. The loan balance has risen and astonishing 614 percent over that timeframe, most of which dates from after the recession.

This chart only includes federal loans to students. Private loans make up an even larger amount. See this Bloomberg article published last year that highlights the larger problem:

But back to our quiz. Student loans may be a liability on the consumer balance sheet, but they constitute an asset for Uncle Sam. Just how big? It's 44.2 percent of the total federal assets. This is about 7.2 times larger than the 6.4 percent for the Total Mortgages outstanding and 4.8 times the size of Taxes Receivable.

Of course, assets are, sadly, the trivial side of Uncle Sam's Financial Accounts balance sheet -- about 1.90 Trillion. The liability side totaled 16.92 Trillion at the end of Q4.

As I type this, the S&P 500 is 2.4% off its all-time high. However, the student loan bubble, the biggest slice in Uncle Sam's asset pie, will haunt us for many years to come.

Closing note: For a fascinating slide set on student debt, see this presentation (PDF format) by Donghoon Lee, a Senior Economist at the Federal Reserve Bank of New York.