How the gov't could save $1.6 trillion

WITHOUT raising the debt ceiling.

From Dan Ferris in The 12% Letter:

... There's another solution to the debt ceiling problem that would instantly eliminate $1.6 trillion in government debt.

In other words, it would instantly reduce the national debt to approximately $1.6 trillion below the debt ceiling. That would give the President and Congress at least a year to hash out an agreement on spending cuts and tax increases.
The plan is elegantly simple and radical.

The largest holder of U.S. Treasury debt is the Federal Reserve Bank of the United States, the central bank of the United States. Texas Congressman Ron Paul has proposed the Federal Reserve simply cancel the $1.6 trillion in Treasury debt it holds. The Federal Reserve owns the bonds, so the Treasury is paying the Fed interest. The Fed in turn refunds the interest back to the Treasury. This is theatre of the absurd.

Though the Fed is technically a privately owned bank, it's really the hand maiden of the government. It was created by a government act and is overseen by a government-appointed board of governors. For practical intents and purposes, the government owns the Fed's Treasury debt holdings. In other words, the government is borrowing from itself and manufacturing an enormous liability on which it must make interest payments – to itself!

I hope you're starting to get the feeling the government is playing games and inventing a phony crisis. That's much closer to the truth. But the government's shell game of lending to itself could turn genuinely ugly.

You see, the Fed plans to sell the bonds eventually. That would be bad. It would turn a phony liability the government owes itself into a real liability the government owes to real investors outside itself. The government would owe the interest payments to the individuals and corporations who buy the bonds from the Fed. Such a sale would take a piece of government monetary voodoo that could easily be undone and turn it into a real problem. Canceling the debt is a much better idea.

Congressman Paul's ingenious solution will never fly politically. It would reveal too much about the flimsy nature of our monetary system. It would also shrink the Fed's balance sheet... meaning it would shrink the country's monetary base. Economists would line up around the block to scream about how that would cause a deflationary collapse. I don't see how. Everyone would still get paid. Nobody would get fired. No jobs would be lost. We just wouldn't have $1.6 trillion of phony obligations the government owes to itself.

But like I said, don't hold your breath. The debt won't be canceled. I just want you to understand how silly the whole system is and how any intelligent person could quickly fix it.

lol I like it. If we are going to default, default on the Fed first!

1.6 trillion, anyone else freak out at those numbers?

Just shows that alot of individuals a smarter than the gov.

Hey a new television show


Are You Smarter than a Congress Person.

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I posted an article about the Fed and their tricky accounting gimmicks awhile ago. They have about 2.7 Trillion on their balance sheet that was printed money and loaned to Treasury and Fanny/Freddie. Any losses on these loans get transferred to the Treasury (Taxpayers) via an accounting rule they made up Jan. 2011. So basically the Fed is a fantasy bank with unlimited printed money, and any losses can be sent to the Treasury.

http://www.federalreserve.gov/releases/h41/20110106/

Yup, I think I posted tha somewhere as well.

The thing I don't understand is after QEI and QEII, why doesn't anyone have any money?

Are they all sitting on it pleading poor?

Banks and money-market funds are stockpiling cash leading up to the August 2 deadline. If the U.S. actually gets downgraded, these entities will need to hold far more cash in reserves (to comply with international banking standards).


According to Barclays Capital, government-only money-market funds have increased cash to 68% of assets from 48% at the end of March. "We've built up liquidity with a rather meaningful amount of maturities prior to the debt ceiling," said Robert Brown, head of money markets for Fidelity. In particular, money-market funds are avoiding the one-month Treasury notes, which mature on August 4 and August 11. The interest rates on one-month debt securities are now more than double the rate for three-month U.S. paper.

SS109 wrote: The thing I don't understand is after QEI and QEII, why doesn't anyone have any money?

Are they all sitting on it pleading poor?

There is plenty of money sitting in money market and savings accounts earning 0.01% interest. No market demand for it since the FED is basically writing the 3-4% mortgages, and buying the Treasury debt.

Corps. are sitting on their cash or buying back their own stock since they have no reason to invest in an America run by the "Tax the rich" crowd.