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Makes sense. Too much sense.
have the Federal Reserve Board destroy the $1.6 trillion in government bonds it now holds. While at first blush this idea may seem crazy, on more careful thought it is actually a very reasonable way to deal with the crisis. Furthermore, it provides a way to have lasting savings to the budget.
In short, Representative Paul has produced a very creative plan that has two enormously helpful outcomes. The first one is that the destruction of the Fed’s $1.6 trillion in bond holdings immediately gives us plenty of borrowing capacity under the current debt ceiling. The second benefit is that it will substantially reduce the government’s interest burden over the coming decades. This is a proposal that deserves serious consideration, even from people who may not like its source.
http://www.cepr.net/index.php/op-eds...epr+%28CEPR%29
Makes sense. Too much sense.
This sounds gimmicky as . Will it work?
Dean Baker's usually a solid guy, not a gimmick pusher.
That's why when he says something by a nutcase like Paul looks good, it got my attention.
While the Fed might be able to it, they'd be crucified by the Repugs who want to cause, in their "fundamentalist Christian pandering/anarchist/end-times" bull style, another financial apocalypse, no matter how many $Bs it costs the country.
I'll bet this happens. I'll bet congress & Obama jump all over this. Just vaporize $1.6 trillion worth of funny money and you can maintain status quo until late early fall 2012. Why, if you toss in some token spending cuts and you could avoid having to worry about the debt ceiling again until oh I don't know, let's just call it mid-November 2012.
The chance to take $1.6 trillion of debt off the books without having to agree to significant spending cuts or tax increases before the next election? If you're a politician, what's not to love?
Some help for the ill informed please.....
Is he proposing that we destroy something that doesn't exist? Does this fall under the creative accounting tab a la Arthur Andersen? Does M1, M2, et al. tie into this?
While I have no reason to doubt Ron Paul's sincerity in putting forth this idea, I can't help but believe that the opportunities his idea would produce would be squandered by a congress and a president more focused on putting painful decisions beyond the next election than prescribing the painful medicine this country needs.
this made me lol.
lifiknow.Tearing up $1.6T in US obligations might not be as consequence free as it first appears and can hardly be calculated to inspire investors with confidence.
stood out to me, too.
Maybe people will finally begin to listen to him if this ends up being productive.
Investors needn't worry. There's $10 trillion of public debt that can be destroyed sitting in between them and the Fed holdings.
Yep. This nation is like a shopoholic with a maxed out credit card tormented by a pair of shoes on sale. Oh how glorious it would be if we could just borrow a little more money.
What a relief.
I don't know if you understand, this is 1.6 T in treasury bonds owned by the treasury. They owe money (plus interest) to themselves. If they forgive themselves their debt, well then no harm no foul.
I understand that we're essentially talking about debt forgiveness. Funny you should say they.
Wonderful system. Thank goodness that the masses are too busy or not concerned enough to learn how it actually works.
Take funny money that I owe to myself and light it on fire so that I can lend more funny money to myself as I write it off.
Then the future congress' can claim they don't owe the SS accounts, government employee pension accounts, postal service, etc. any money.
Federal govt won't ever default on SS bonds.
Federal govt won't default on 40%+ of the US debt held by (big) US capitalists, since the capitalists own the federal govt and the Fed.
Let's see how played out:
The Fed Reserve went to the banks holding all of those toxic mortgage back bonds and says "Let"s make a deal!" The Fed offered to buy those bonds with money the Fed invented with a few cyber key strokes. Sweet deal for the banks: unload those worthless toxic mortage bonds for some cold hard cash, albeit invented money!
But there was one little catch. The banks had to agree to use that invented money received from the Federal Reserve and buy new U.S. Govt bonds from the US Treasury. Not a bad deal for the banks: they sell the toxic mortgage bonds and replace them with interest paying bonds. Sweet!
Then the Fed Reserves comes out with QE2 and and invents another $600 billion dollars. The Fed then goes back to the banks and says, "Hey banks.....We want to make you another deal and buy back those US Treasury bonds you got from selling us those nasty toxic mortgage bonds!" The banks couldn't refuse that offer!
So the banks sold those toxic bonds to the Fed, used the money to buy Treasuries and then sold those Treasuries back to the Fed for cash. In short order the banks turned those toxic mortgage bonds into cold hard cash they were suppose to loan out to business. Except that never happened and it got funneled back into the stock market.
The rich bankers taking care of the rich.
So by the Fed junking the $1.6 Trillion in bonds they hold, a big chuck of that came from inventing money to buy the bonds.
Can you say monetize? As in monetize the debt?
As I understand it, the debt that the Fed holds is non obligatory (ie They owe themselves). The SS stuff is separate.
As I think about it, I think you're right.
One figure I have heard is that there is 10.9 trillion dollars in circulation. If the US "Forgives" it's own 1.4 trillion dollars in debt, that reduces the intrinsic value of the existing dollars by more that 10%. That doesn't bother anyone?
How does it lower the value of the dollar? I'm confused. This doesn't add any new money into circulation.
"reduces the intrinsic value of the existing dollars by more that 10%"
If that reduces the exchange rate of the dollar, then exporters of $100Bs of US goods become more compe ive.
What Fed should do is make the sellers of toxic , now making $100Bs in profits, buy back all the toxic they created, about $T1.1.
Of course, the Fed won't do that because the Fed is nothing but subsidiary of the financial sector.
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