I would agree with the commenter linjoco on the site: >This can't work for the simple reason that most of the Fed's holdings of Treasury securities are pledged

I would agree with the commenter linjoco on the site: >This can't work for the simple reason that most of the Fed's holdings of Treasury securities are pledged to secure its note issues. If you look at one of the bills in your wallet, you'll notice it says "Federal Reserve Note." The face value of each of these notes is a liability of the issuing Reserve Bank, which by law must be fully collateralized by Bank assets. According tho the Fed's annual report, at the end of 2010 the 12 Federal Reserve Banks together held $1.066 trillion in Treasury securities, of which $925 billion was pledged to secure their note issues. So for the Fed to return these securities to the Treasury for cancellation would require the Fed to recall 98% of the U.S. currency in circulation. Of course, Congress could amend the Federal Reserve Act to remove the collatel requirement, turning Federal Reserve notes into unsecured liabilities, but then you run into a different problem. Taking a trillion dollars off the asset side of the Reserve Banks' collective balance sheet would require a corresponding debit to the other side. Their biggest liability is deposits (i.e., reserves held at the Fed by the nation's banks, $968 billion), followed closely by Federal Reserve notes in circulation ($941 billion), then funds held for the U.S. Treasury ($239 billion); you couldn't reduce any of these liabilities. That means the Fed would have to take a charge against capital, but the Reserve Banks collectively have only $53 billion in capital, so writing off their Treasury holdings would put them over a trillion dollars in the hole. What do you think of an insolvent central bank? Me neither. Paul, of course, is a crackpot and may actually want to have to Fed declared insolvent as a way of getting rid of it, but that doesn't mean that we should buy his schemes.