A little birdie left a link in my inbox today . . .
If the Federal Reserve simply DESTROYED $1.6 Trillion in Government bonds that it currently holds, money the government essentially owes to itself, not only would we be able to stop this farce of a hostage negotiation NOW, we would be able to stave off raising the Debt Ceiling again for almost another 3 years.
And this is the observation of Dean Baker of the Center For Economic Policy and Research, who originally got the idea from Rep. Ron Paul of all places.
So I guess that proves that even a blind nut can find a squirrel once in a while.
But seriously, check this out . . .
Destroying $1.6 trillion in government debt might seem far-fetched, but it actually makes a great deal of sense. The Fed acquired this huge stock of debt through its policy of quantitative easing. This was an effort to try to provide further stimulus to the economy once the short-term lending rate had already been pushed to zero. Since the short-term rate could not go any lower, the Fed bought up several trillion dollars of mortgage-backed securities and government bonds in order to directly lower long-term interest rates.
While the mortgage-backed securities are debt from private parties to the Fed, since the Fed is an agency of the U.S government, the bonds held by the Fed are literally money that the government owes to itself. In fact, each year the Fed refunds back to the Treasury the interest earned on its assets in excess of its operating costs. This means that the interest that this is paid on the bonds held by the Fed is effectively interest that the government is paying itself.
In this context, it is very difficult to see any downside in eliminating a bookkeeping entry. The Fed would lose $1.6 trillion in assets and the government would lose $1.6 trillion in liabilities and suddenly be far below the debt limit.
cepr.net
I strongly advice you to read the whole article by Dean Baker at cepr.net. Baker acknowledges that Ron Paul's ultimate goal is to "End The Fed", but he recognizes that the old coot is onto something here. Baker claims that "Representative Paul’s proposal provides exactly the sort of mechanism that we should want to see in this situation. It allows the government to generate the demand needed to push the economy back toward full employment, without creating a major debt burden for future generations of taxpayers."
A bit more below the fold
The Federal reserve has the power to end this farce RIGHT NOW. The Democratic Party does not have to cave to the GOP's Super Villian, "Do it or I'll explode the sun" style economic terrorism, there are other means to get around the drastic austerity that Corporate Conservatives are demanding. Wiping off the books this debt that the US Government essentially owes itself would not harm the financial institutions or taxpayers at all, as there are other avenues of monetary policy that can be used to offset the effects of just destroying the $.6 trillion in Government Bonds that the Federal reserve is holding, it would be like you owing yourself $5 and deciding to just forget about it. PRESTO! You just eliminated $5 in your total debt, it's so simple a caveman can do it.
Which is probably how someone in the Paul family came up with it first.
Honestly, of all the current GOP candidates for President I despise Ron Paul the least, but sometimes, even if it is a Republican, you have to admit when your opponent is factually correct, and in this case, as it often appears, the only Republican with even a distant interest in the facts is Ron Paul, given, of course, that it suits his motives. Rand Paul, on the other hand, not so much. Given his stances on the never ending war story, legalization of marijuana and an honest debate of economic policy, I find Ron Paul is often the most tolerable member of the Republic Party, but he loses all those points for unleashing his idiot son into the political world.
With that being said, now that I got my digs in on the Paul boys, you gotta admit that this makes perfect sense.
Of course, I'm not pretending that Federal Reserve Ben Bernanke can be persuaded to do ANYTHING that doesn't please the false Gods of the international bonds markets, or anything at all for that matter, but he could.
And that is the most frustrating part of this charade over the Debt Ceiling is that the Democratic Establishment KNOWS that the GOP isn't that crazy, the Chamber of Commerce won't allow it, but they went through with it anyway, and gave up damn near everything but the Oval Office (and maybe that too) in order to placate the "insane" Republic Party, but it didn't have to be this way. There are alternatives. Using the 14th Amendment could be one, demanding that the Federal Reserve destroy $1.6 trillion in debt it essentially owes itself is another.
Or we can go through a long, drawn out kabuki, at the end of which the Democratic folds pathetically and incurs massive political damage among their base, resulting in a huge gap of "voter enthusiasm" on their side that will cost them big at the polls, but why would anyone do that unless they wanted to. That would be "insane".
Just as insane as negotiating in a hostage situation with a crazy person.
Especially when there are alternatives.
Peace and love to all,
MoT
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