If I subtract assets from liability I get: 45,304 million dollars. Which is roughly what is in the above table. As for the capital requirements. Remember that banks are only required to capitalize against their risk based assets under biss.
http://wfhummel.cnchost.com/capitalrequirements.h...

Since most of the feds capital is government securities (e.g. treasuries) which is considered to be zero risk they are not required to capitalize against it under BIS.

See my post on the Fed’s Balance Sheet to see what I mean.

Ostensibly, the Fed could soon sell the dodgy assets they are now about to buy in order to reduce liquidity. In a short period of time, they should have lots of these assets to sell.

I do not think they will be successful. However, if they are, consumer price inflation will certainly be an issue.

But, your question has to do with why Jen thinks removing QE will be easy. I will have to look at the article he referenced from Minneapolis Fed Chairman Stern and see what is in there. I sense you are skeptical. I am as well. If the Fed restarts the economy through massive quantitative easing, they will need to buy all that money back up by selling treasuries before inflation gets embedded in the system. We saw this past year with commodity prices how quickly inflation can become a problem. Given the massive amount of liquidity they have unleashed, it is reasonable to think inflation could take off if they reflate the economy.

As for the shortage of capital at the Fed, the crux of it is that the Fed has ballooned their balance sheet without a commensurate increase in their underlying capital base. And given they have much riskier assets on their balance sheet, this makes more capital all the more necessary. To get back to the 1997 capital to asset ratios, the Fed would need an additional $48 billion in capital. This demonstrates how many assets they have bought.

I will let you know what I find out about the Minnesota Fed Chairman’s comments and see if this helps us understand Jen any more.

Whilst I don’t understand this $48 billion shortage-of-capital business (surely a drop in the ocean. Someone somewhere – the Treasury, the Chinese? – can just give ‘em the money or something, can’t they…?!), the end game from the above quote is the 64,000 dollar (how quaint that now seems!) question.

For me, there are some really interesting comments from Rebecca Wilder that have helped my understanding of this inflation/deflation/quantitative easing issue: http://www.newsneconomics.com/2008/11/monetization-sterilization-whats-going.html

Also comments from Stephen Jen yesterday at
http://www.morganstanley.com/views/gef/index.html#anchor7238

where he says amongst a lot of other things:
“Our guess is that, while dealing with a liquidity trap is difficult, removing stimulus when macro conditions normalise should not be a major problem for the Fed. ”

I am a bit amazed by this as no reason is given why removal shouldn’t be a problem, apparently regardless of the type/size of stimulus or rate of any eventual pick-up in velocity. Any thoughts Ed?