I have been attempting now for several days to bring attention to an error in the accounting of the National Debt, and hence an error in supposedly reaching the "debt limit". The Republicans and more than a few Democrats are gearing up for yet another "crisis" in order to excuse their delinquent behavior and their inability to address issues except on "crisis mode".
In the case of the "debt limit" screeching match and the threat that the moron party will shut down the government if the moron party doesn't get what it wants, the error needs to be corrected and the Politicians thus forced to address the real issues as opposed to the BOOGERMAN pig shit.
The Fact is that we are actually quite a ways away from this imaginary brick wall called "The Debt Limit".
And the reason that is true is because Treasury Debt held on the balance sheet of the Federal Reserve is NOT part of the National Debt and is not a liability of the Treasury. Any interest inuring to these instruments is refunded to the treasury:
"Overcoming the Debt Trap" -- Dean Baker (Co-Director of the Center for Economic and Policy Research)
There is a simple way to avoid a sharp rise in the interest burden associated with a higher debt. The Federal Reserve Board can buy and hold the debt that is currently being issued by the Treasury to finance the deficit. The logic of this is straightforward. If the Fed holds the debt, then the interest on the debt is paid to the Fed. The Fed then returns the interest to the Treasury each year, meaning the net cost to the government is zero.
The fact that the Treasury bills passed through the hands of the T-Bill brokers or the banks before coming to rest on the FED's balance sheet does not alter the fact that the bills so held are NOT an interest burden or an actual liability of the Treasury. Debt held by the FED isn't like the SS trust fund where there are actual people that expect to get paid.
The National Debt is well defined in several places.
CIA Word Fact Book
58.9% of GDP (2010 est.)
country comparison to the world: 36
53.5% of GDP (2009 est.)
note: data cover only what the United States Treasury denotes as "Debt Held by the Public," which includes all debt instruments issued by the Treasury that are owned by non-US Government entities; the data include Treasury debt held by foreign entities; the data exclude debt issued by individual US states, as well as intra-governmental debt; intra-governmental debt consists of Treasury borrowings from surpluses in the trusts for Federal Social Security, Federal Employees, Hospital Insurance (Medicare and Medicaid), Disability and Unemployment, and several other smaller trusts; if data for intra-government debt were added, "Gross Debt" would increase by about 30% of GDP
Nowhere will you find a definition in which assets held by the FED are a part of the national debt. As the FED buys T-Bills and Bonds from the current holders ("held by the public" (the banks)), the National Debt "held by the public" is reduced.
All assets on the balance sheet of the Federal Reserve are actually assets to the Treasury. This was recognized in the 1960's and since that time all income from such assets except a small handling fee needed to support the activities of the FED are transferred to the Treasury. To claim that the T-Bills and T-bonds being purchased from the banks via QE2 is the property of the FED as a private entity is simply not true. Those Bills and Bonds are purchased by money created from thin air but given value by the US government. And the stuff bought with the government's money is the property of the government and not the FED. Interest on these instruments is returned to the treasury and expiring T-Bills simply die -- there is no entity owed any money at redemption because all such entities have been satisfied as the bills and notes were purchased by the FED as a part of the QE.
In the future these Treasury debts held by the Fed may indeed by sold back into the public and at that time they will again be part of the National Debt. But so long as these Treasury instruments remain on the balance sheet of the FED then the interest and any other remuneration due will be transferred to the Treasury. The bills and notes held by the FED are not part of the National Debt. QE2 will reduce the National Debt by $600B and if no inflation results then there will be a QE3 and a QE4 and so on and these will also reduce the national debt.