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The Fed Could Simply CANCEL $2 Trillion of Government Debt
Congressman Alan Grayson and former congressman Ron Paul are two of the fiercest warriors against an out-of-control Federal Reserve.
Paul has campaigned to dissolve the Fed for 35 years, and wrote an entire book called "End the Fed". Grayson has repeatedly slammed the Fed, and absolutely demolished it ... to its face. Paul and Grayson also co-sponsored a bill to audit the Federal Reserve. (Their desire to rein in the Fed is supported by numerous top economists.)
So when the two of them support a Fed-related solution to the "government shutdown" crisis, I listen.
Congressman Grayson writes:
A simple solution to the impasse is as follows: Federal Reserve Chairman Ben Bernanke should simply cancel the Treasury debt that it owns. The government can just forgive the government's debt.
This wouldn't solve the debt problem entirely. The Federal Reserve doesn't own all U.S. government debt; it owns only roughly $2 trillion of it. (Well $2,076,927,000,000.00, as of last Wednesday, but who's counting?)
NPR has a helpful graphic showing the various holders of U.S. government debt, including the Fed:
Source: NPR
Congressman Grayson continues:
Yet canceling this debt would give the government substantial room under the debt ceiling to manage its finances. It would end the debt ceiling standoff in Congress, and it would prevent a default.
The debt held on the balance sheet of the Federal Reserve can be canceled without any significant consequence, because it is a bookkeeping artifact corresponding to the money supply. In essence, the government owes this money to itself. If I owe money to myself, I can cancel that debt at will and without consequence, essentially taking it out of my left pocket and putting it in my right pocket.
Last year, the Federal Reserve declared a "profit" of roughly $91 billion, much of which came from interest payments from the U.S. Treasury. The Federal Reserve then quickly remitted nearly all of this profit right back to the U.S. Treasury.
The Federal Reserve does this every year. Reducing or eliminating this unearned "profit" actually will provide a more realistic view of federal finances.
Grayson gives credit to Paul for coming up with the idea:
I am a Democrat, and known as a progressive. But this idea was put forward a few years ago not by me, or by a member of my party, but by Republican Representative Ron Paul.
He thinks, as do I, that the Federal Reserve's dramatic expansion of its balance sheet is simply a way of financing the government by printing money. The Fed isn't really "buying" Treasury bonds, it is just letting the government finance its deficit by adding to the money supply.
Indeed, Paul introduced a bill in 2011 which would have led to the cancellation of $1.6 trillion in federal debt held by the Fed.
Grayson continues:
While canceling the Treasury debt held on the Federal Reserve balance sheet might be considered unorthodox, it is no more unorthodox than the quantitative easing that has added much of this debt to the Fed's balance sheet.
Indeed, quantitative easing - the radical program the Fed has engaged in for years, which doesn't help the economy, benefits the the super-elite and hurts the little guy, and more than offsets any savings from budget cuts in other areas - is largely performed through buying U.S. debt ... $45 billion each month.
Grayson concludes:
In any event, preventing a financial meltdown, with its attendant risks of interest rate and price spikes as well as staggering employment losses, is certainly central to the Federal Reserve's mandate of ensuring price stability, maximum employment and moderate, long-term interest rates.
Bernanke could alleviate the debt ceiling crisis simply by canceling the debt held on the Fed's balance sheet.
This may sound like a fringe idea. But the Financial Times noted in an article last year entitled “Will central banks cancel government debt?”:
It is obvious that governments are struggling to find the correct balance between controlling public debt ... and boosting the rate of economic growth. The former objective requires more budgetary tightening, while the latter requires the opposite. Is there any way around this? One radical option now being discussed is to cancel (or, in polite language, “restructure”) part of the government debt that has been acquired by the central banks as a consequence of quantitative easing (QE). After all, the government and the central bank are both firmly within the public sector, so a consolidated public sector balance sheet would net this debt out entirely.
***
Adair Turner, the chairman of the UK Financial Services Agency, and reportedly a candidate to become the next governor of the Bank of England, made a speech last week that said more unorthodox options, including “further integration of different aspects of policy”, might need to be considered in the UK. Two separate journalists (Robert Peston of the BBC and Simon Jenkins of The Guardian) said that Lord Turner’s “private view” is that some part of the Bank’s gilts holdings might be cancelled in order to boost the economy. Lord Turner distanced himself in public from this suggestion on Saturday. However, the notion will now be widely discussed.
***
Similar proposals have however been widely debated by economists in the past. This goes back at least as far as the works of Abba Lerner in the 1940s on “functional finance” and the role of fiat money. More recently, the Modern Monetary Theorists have reawakened Lerner’s ideas.
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That's the way I see it.
Another trillion dollar platnum coin to prove the point. T's are backing a thermonuclear pile of derivatives.
They can't be wished away to the cornfield.
Someone might notice.
Couple of thoughts on this..
The Fed is a conglomerate of private bankers. Private public partnership at best. It's not "the government" lending itself money from another "government" controlled institution. Fed is private enterprise.
Here's a clue. Fed pays interest on their UST holdings of $91 billion straight back to UST. Fed and the private bankers who own the Fed are neither working pro bono nor are they living just on air. Fed is earning revenues from managing the $2.1T in UST debt and rehypothecation. UST debt paper is essentially the "gold standard" of all the federal national government debt out there. If it fails to keep that standard, the world as we know it will end as there are is so much paper wealth hinging on that. Simple as that.
What's the Fed's relationship with the IMF? Same group of private bankers who created the Fed have created the IMF. Where there's a national going concern, there's a private banker lurking waiting to give a "helping hand". We all know the rest.
Why Ron Paul and Alan Grayson pretend they don't know who owns the Fed is something worth exploring further. Paul's motion to audit the Fed or even to end the Fed is lending credibility to the Fed's purpose and ultimately the US government's propaganda surrounding ownership and validity of the Fed.
The US was bankrupt when the group of friendly neighbourhood private bankers decided to offer that "helping hand" with their creation of the Fed, a.k.a. "The Creature from Jekyll Island" in 1913. Since then we had two world wars, several smaller wars and a very long "cold war" standoff between two "superpowers" which were funding their military arsenals to the point where both countries ended in bankruptcy.
We're now in the Twilight Zone where entire nations are on life support and run on financial alchemy. Merlin hasn't been able to turn hay into gold but he's been able to give the King wealth and riches from nothing and nobody is asking questions.
Well, walküre, one of the greatest benefits that the owners of the FED obtain is that they have the ultimate source of inside information, which allows them to time their investments to a T, (no pun intended.)
Consider how much money you could make if you KNEW when the bubble blowing machines would be turned on or off!
The great depression in the 1930s was a textbook example of being able to know when to get in, and when to get out, of the market, to make money on the way up, and then buy up real assets on the way down.
The FED is layer after layer of triumphantly organized frauds, which enables those doing that to make money out of nothing, in every possible way which facilitates robbing the wealth of everyone else, who is further away from that source of money made out of nothing.
After a Century of runaway that runaway triumphant fraud, we have 0.1% of the population owning about half of everything, and it appears we are headed towards 0.01% eventually owning about 99% of everything, unless some political miracles, or anti-miracles happen ???
The 1%, like any ownership elite, depend on a corps of servants to exercise control. Politicians, their military/law enforcement/militarized law enforcement labor, the legal/courts priesthood, mechanics and technicians, a fairly broad and surprisingly numerous layer between themselves and the laboring people who create the value they harvest. Automation and robotics is the latest gambit to decrease that dependance, but that's just kicking the can down the road. Then they're dependent on mechanics.
Right now, they're in the process of betraying that corps of servants. Many of the federal workers were former military, a lot of the code agencies were slanting their work in their favor, and the the work they did benefited them more than us, by definition. In any case, the Great Betrayal of gutting Social Security and Medicare will hurt the parents of those servants, just like the student loan scam is hurting their children.
The story going around is that the Marines in Barry's last inaugural parade had the bolts taken out of their rifles. Things to come?
Indeed, scraping_by, for several decades I have had the political fantasy that some kind of transnational scientific community would emerge as a future political force. After all, the military is now made up of mostly engineers and technicians, being provided weapons by scientists.
I regard the scientific community as being sort of the "aristocracy of the workers." Unless technology advances so very far that the computer machine entities get the point where they are servicing and designing themselves, then the human beings who are the engineers and technicians required to make and maintain the machines have a vital role to play.
As the established systems become more obviously insane, and apparently anti-human, then perhaps some still necessary humans will emerge as a political force to bring back some humanity into the current runaway politics, which has become based on numbers which are NUTS!
Of course, we are rushing forwards into a drastically unpredictable future, with relatively easy to imagine megadisasters arranged on one hand, while on the other hand are a range of possible creative breakthroughs in basic science and technology, which are currently almost impossible to imagine.
Decades ago I was speculating my old kind of optimistic science fiction that world government would emerge when cyborgs became a working reality, on a very significant scale. However, these days, I tend to more believe that the future will become the realization of the genre of science fiction nightmares, which I always detested. Unfortunately, the more I learned about politics, the worse that got, and the main reason was that I was forced to gradually face the social facts that the overwhelming vast majority of people acted like political idiots, or Zombie Sheeple, and that that was actually getting worse, not better. Therefore, despite the situation that most of the constitutions of various democratic republics, or constitutional monarchies, look quite good on paper, the social reality is runaway domination by the banksters, due to enough of the so-called citizens being incompetent consumers of bullshit to make that possible to constantly get worse, faster.
In that context, one has to hope that some new kind of ruling class might emerge, which is able to resist the current ruling classes dominated by the banksters. As I said, my candidate for that political day dream would be some transnational scientific community, which, from an operational point of view, includes most of the current armed forces.
The FED pays MOST of the interest received from UST's back....MOST but not all.
Last time I checked, the FED kept 6% for its troubles. Roughly 5.6 BILLION/year kept by the FED! Not chump change by any standards...save BUFFET and other such potentates.
Add to that the COMMERCIAL BANKING SECTOR proceeds which borrow from the FED and lend out at INTEREST...such as one's local CHASE bank et al. THAT is a pretty good business model and the FED sets the interest, or margin if you will, for its overlords. Not to mention almost all major COUNTRIES which borrow from the FED...usually at INTEREST....including those who find they need to buy OIL...all of which is transacted in FED created DOLLARS.
Added up as a whole, the FED business is not a NOT-FOR-PROFIT entity...it is a private bank of the nature warned by JEFFERSON, THOMAS to avoid like the PLAGUE...a PLAGUE which has now descended upon the witless citizenry/serfs of amerika...and elsewhere, too!
The question as to why the congressional puppets PRETEND they don't know the game is indeed a worthy one. Particularly RONPAUL, who was chairman of the banking committee. I took the acclaimed BANZAI7 to TASK for depicting RONPAUL in a norman rockwell depiction as the citizen/politician/farmer garnering the respect of all in a town hall setting.
What RUBBISH.
We are all participants and therefore COMPLICIT of the financial, moral and ethical crimed committed on our behalf and from which we all receive some benefit or direct renumeration (in the case of the political class).
To pretend otherwise is to perpetuate the MYTH
You think Ron Paul doesn't know what the FED is?
That's a pretty amazing statement.
If he did truly understand the nature and facts of the FED, he would be criminally complicit and personally liable for the financial crimes so committed.
Why? Because he swore to uphold the CONSTITUTION and the LAW OF THE LAND from attacks, BOTH FOREIGN and DOMESTIC. If you don't understand WHY the private credit system is UNCONSTITUTIONAL, time to (re)read these documents.
RP has always acted against the Fed. The next step would have been to take up a gun, and if you think he should have done so, then why havent you?
Of course RP understands the Fed, probably better than just about anyone. He has identified it as the target of attack because he understands that it is basically the entire reason that the US is fkd.
Exactly - he wrote a book called 'End the Fed', for fuck sake!
But he can't end it on his own - hence is desire to see it audited, so the American people would get some idea of the shenanigans it gets up to, and its pro-globalist perspective.
I agree with the thrust and content of your original statement, but the degeration of the Constitution has been long term, incremental, and pervasive, and the socio-political-philosopical mileau to understand the basis for, to support, and to defend the Constitution has been functionally destroyed. Turning the process around toward reestablishment of the Constitution, its laws, directions and protections, as a realized, known, accepted, and felt context to work from, will take that same long term, incremental, and pervasive process in reverse. To ask that persons such as Paul throw themselve on the pyre of citizen ignorance and sloth to no good effect is too much to ask of the person and disingenuous, because the seed for any turnaround must be preserved in any case for its potenial, and this irrespecive that transient subjective contradictions that may be attached.
what S/O said.
that 6% vig does need to be factored in to any serious discussion on this topic however.
Great!... they can also send me and everyone else a $1 million dollar check.
Everyone would be rich and spend like crazy.
Economic prosperity for all!
Please. It would cause massive defaults down the daisy chain of repothicated credit derivitives and massive deflation. Deflation is a sin in the Keynesian bible of usury and inflation, so it would never happen.
I guess we should just resign ourselves to be controlled by bankster "innovation" and goal post shifting and the impotent sheep we are always be content with that.
While they are at it, they may as well suspend income taxes. The Treasury just issues $2 trillion in Console Bonds (these are interest only sovereign bonds that have a very long maturity - 100 years would do). The interest rate would be close to zero so that the interest payment is "small". The Fed could then buy this debt.
This would bring about an economic recovery and encourage new businesses to come to the US. (Probably need to suspend anti-business Federal regulation).
"A simple solution to the impasse is as follows: Federal Reserve Chairman Ben Bernanke should simply cancel the Treasury debt that it owns. The government can just forgive the government's debt."
Not gonna happen. Jewsury choosury usury. Another ZH item compared an increase to the debt ceiling to using your Visa to pay off your Mastercard. The suggestion was that this should be visibly absurd to even the most facile of the electorate, but it overestimates the majority of the electorate who themselves ignore that the koshernostra don't care because the Fed continues to receive its vigorish on new debt.
I liked the word" Koshernostra". Very good play with words. Milestones
I agree, great one deserving of wider distribution.
The cat is out of the bag. What will they do to kill the cat?
It's been around for a while to describe the eastern European Judische Chicago mob like Meyer Lansky and Bugsy Siegal. They make the Sicilians look like amateurs.
Many of the roots of the current administration and their TBTF bankers lie there.
absolutely, the word has been around for a long time. on the other hand, i do lay claim to coining the word 'cohencidence', as in:
"0.2% of the world's population finds itself as 40% of the Forbes 500 wealthiest. 2% of the US population finds itself as (at least) 1/3 of SCOTUS, and the last 4 Fed Reserve Chairs, and 75% of the Clinton Administration's Cabinet Secs, and over half of Obama's czars, and 75% of the major sports commisioners, and 25% of the owners, and 50% of the sports' on-air and print personalities ad, at least 25% of the players' agents, ad fucking nauseum.....
...Oy, ain' that a cohencidence!"
For that coin to land on that side that many times? You have a better chance of being struck by lightning, winning the lottery, being attacked by a great white, and being killed by terrorists all in the same day, and then having the same exact things happen to each of your family members. If African-Americans were over-represented in Congress to the same degree then you'd rightly think that you woke up in fucking Zimbabwe, but oh, no, perish the thought that anyone think (realize) that they woke up in Tel Aviv. They'd be called an anti-semite. Argh, no, not that. And as COHENCIDENCES go, it's quite one that 99% of these 'chosen' people have less Semitic DNA than my cat, and that the people they herd into the world's largest open air prison (Palestineans) have FAR more Semitic DNA.
consider 4 straight Fed chairs alone = 1 / (50 x 50 x 50 x 50) = 1 in 6.25 million
The Jews will not cancel the debt until all the tribes return:
but then what of the 99% of the modern day Jews who have less semitic DNA than my dog? what interest could they possibly have in ISR?
The Talmud is originally, and essentially, an oral tradition. What matters your DNA assertion in that context?
i'll see that and raise you this:
Why are you AUTOMATICALLY a tribe member if your mother was a tribe member? Hmm? Same Talmud; same Law.
Could it be that (until the very recent ability to test DNA) your paternity was ALWAYS subject to doubt but maternity was not? Hence...FUCKING DNA (in that instance used as a proxy for proof of maternity)...and the ability therefore to trace your lineage back to the original spawn of the original fucking demons.
I'd say "nice try" but you don't merit anything near that.
Membership in Native American tribes, prereservation, used to be by acceptance. This percentage of ancestors thing came in the early 20th century with Eugenics.
Culture rather than genetics. So, mostly the same thing.
I dunno, you'll have to ask the 1%
what their plans for the 99% are.
See if I get this right:
So if the Federal Government would pay off all African debt by borrowing from the Fed and the Fed cancels this debt, we have a win-win situation!
Perhaps they can also pay my taxes?
in this new iteration of monetary wizardry there
are no need for taxes but you do need a machete
to work your way forward to the fed window!
it is barbaric.
Why is everyone so focused on the paltry $17 trillion in US debt when the real action is in the $126 trillion in unfunded liabilities - $16.6 trillion in Social Security and $109.4 trillion in Medicare and Prescription Drug. There is no way that these programs can be cut as people willl not stand for it.
Every business and state and local government is required by law to account for its future liabilities but the Federal government is exempt from this requirement. These unfunded liabilities of the Federal government grow at $7.1 trillion a year compared to the debt which is only growing at $800 billion a year. So these unfunded liabilities are about an order of magnitude larger than the debt and yet everyone focuses only on the debt.
The other part of the equation that gets little attetion is the fake numbers in the US GDP. It went up by $500 billion due to the addition of intangibles in July of this year. Everyone knows that US inflation has been understated for decades now. Shadowstats claims it is understated by an average of 5% a year. But even if you assume that US inflation data is understated by a modest 2% a year for the last 20 years, then the true US GDP is only $10 trillion. Then all those debt to GDP projections just explode.
Dagong, the Chinese rating agency, claims that current US GDP is only about $6 trillion.
All in all, every US economic statistic is massaged and manipulated to keep confidence in the dollar and keep the stock market elevated and precious metals controlled. All this talk about the US debt of $17 trillion ignores the elephant in the room of unfunded liabilities of $126 trillion which are growing at $7.1 trillion a year.
The US dare not cancel any debt as the confidence in the dollar will collapse immediately.
From Dagong:
If we exclude the factor of virtual economy, the U.S. actual GDP is about 5 trillion U.S. dollars in 2009, per capita GDP about $ 15,000.
http://www.businessinsider.com/china-dagong-us-gdp-2010-11#ixzz2RZwq0kxW
For the average non MMT informed voter - none of this matters. All that matters is the question of, - Can the government continue to operate without default and provide all the goodies that have been promised?
The majority believe that - YES it can. It is unimportant to them that tax revenues are not sufficient on an annual basis to cover government costs. As long as the Treasury can borrow from the FED in perpetuaty to make up any funding shortfall - then all is well.
The FED is not just another ordinary Central BAnk. It is the "source, central bank." They are the ultimate backstop to the current world wide fractional reserve banking system, the petro dollar and are the "measuring stick" for all wealth throughout the world.
For the average person, FED daily funding operations are just a "lot of sausage making." People enjoy the product without asking what is in the sausage."
Be careful about throwing around terms like "unfunded liabilities". You are invariably confused about what it means and how it is calculated. Those big numbers you throw around assume some fantastical scenarios.
Also, why is it that the "unfunded liabilities" canard is always attached to middle class assets like Social Security and pensions? Why do we never use that term for the inevitable future bank bailouts, future tax cuts and future wars?
Hey rube! The Oligarchs flipped you
The $126 trillion unfunded liabilities has even more gross inaccuracies than the GDP does. Why don't you compare apples with apples rather than with dogshit? They're all figments of someones' imaginations. These projections have absolutely NO likelihood of being in the ballpark. They never have and they never will.
$109.4 trillion? How funny it is that some fucking idiot has calculated this to FOUR decimal places!
So true, and it's not just the US, the entire OECD is in full denial mode.
Extreme, radical reforms are needed but will not be implemented because:
A) the current system is massive and has too much inertia to turn on a dime.
B) the entrenched powers have every incentive to NOT change course. In keeping with the Iron Law of Institutions, they will run the ship into an iceberg and still be squabbling over status as they push away in a lifeboat, leaving the rest to drown.
No escaping it, the vectors all point in the same direction: war (calling it for late 2020s, early 2030s), barring some unforeseen technological miracle to kick the can another 50 years.
I'll take the under.
Got a plan for extracting all the physics PhDs from the pointless void of investment banking? We need a carrot.
"...unfunded liabilities....$109.4 trillion in Medicare and Prescription Drug."
That amount would have far less importance if both the cost and over-use of medical care were reduced. Ditto to the over-medication of America where in 2011 over 4 billion prescriptions were written. 13 per year per capita. What else to expect when your doc is a thinly-veiled sales rep for Big Pharma, and when your child's teacher has the authority (and $incentive$) to diagnose behavioral disorders and the school nurse has the authority (and $incentive$) to prescribe pharmaceuticals to treat that disorder, and when the cops have the authority to enforce that prescription.
In short (too late for that?)...we're fucked.
A simple solution is that if there were no one (Uncle) paying for the excessive care and overmedication, then there would be an institutional epiphany that we in fact did not need most of that shit. (i.e. "Oh, you can't pay for it? Well then, you don't really need it.")
Now you are just being dumb. First of all, there is no money for incentives or school nurses. That money has gone to your Oligarchs. Teachers have absolutely no legal, institutional or moral authority to diagnose behavioral disorders. And if there were actually school nurses, they certainly would not be prescribing medications.
This is the kind of dumb shit that keeps us down.
Puzzled by your response. Are you: 1) a shill, 2) completely fucking out of touch with nationwide news, or 3) sarcastic.
Congressional Testimony from Colorado State Board of Education member:
"One parent who was given the option of placing her son on a stimulant drug or removing him from school elected to home school her son"
"When the parent took him off the drug, the principal of the school began pressuring him to resume the stimulant -- so much pressure that the matter is now in court and the father could forfeit parental rights if he disagrees with the decision of the court on whether or not to place his child on Ritalin. Many more examples exist. "
"Unfortunately, financial incentives exist for schools to label children with learning disorders....
At this time, the IDEA legislation provided schools with an additional $400 per year for each child in special education. There followed a dramatic spike in the amount of methylphenidate consumed in the US. According to the DEA, the production and use of methylphenidate increased almost 6 fold between 1990 and 1995. "
?
http://www.house.gov/ed_workforce/hearings/106th/oi/ritalin92900/johnson... September 29, 2000
plenty of examples:
I know a couple of adult ritalin addicts and they are absolutely shocking. Idiots, thieves, liars, dole monkeys, no morals at all. When TSHTF, they will narc about grandma's gold tooth just to get their fix. All part of the plan to lobotomize the masses and generally destroy America.
Boys evolved to be hyperactive anyway. They should be out running around in the woods, asking annoying questions, etc. Much healthier to satisfy their natural curiosity rather than put them in a box and cram them full of Federally mandated drivel. But again, that's part of the plan, and any kid who doesn't like it gets a lobotomy or a lobotomy plus daily ass rapes in a foster house (to stop the "abuse" from parents who don't want the government to abuse him).
The Fed cancelling UST debt is identical to minting trillion dollar coins, without the coin. It is better to mint the coins, since that allows a way to unwind the injection of additional money if inflation gets out of control.
They will never do that, as it would derail Obama's grand plan.
Well, let's be fair. The Great Betrayal isn't Barry's plan. He's just the lickspittle who'll try to get it over.
The same could be said with the bonds. Just sell them back to the market. There's no difference between monetization of treasury debt and creating a "trillion dollar" coin
One problem is that the whole world is waching. One has to assume there is some point at which things fall apart. Best not do something out of the ordinary and focus attention on the BIG problem.
.
No, I donT have to assume that.
I assume, TPTB want the US to fail so that they can replace this Empire with a new-and-improved Empire.
Therefore, it is fully in their best interest to do something out of the ordinary and to cause a BIG problem.
lol, these guys know how to print but do they still know how to cut and run from the banks?
The whole fiat currency system instantly becomes illegitimate. Gold becomes legitimized and impossible to discredit and to devalue and manipulate.
Where does this stop. Every nation would have limitless capital. This creates the biggest WORLD WAR ever.
Every nation does have unlimited capital, if by capital you are referring to paper. The only question is how fast the leaches (most of the 1percent, their wannabes and flunkies) are willing to drain the host. Poor thing is on life support as it is...
"Poor thing is on life support as it is..."
Nah, Hes dead Jim!! What you see is the corpse laying there all pale and stiff. The heart machine hooked up to it still beeps and you see the bouncing dot on the monitor, but the patient is still dead. The machine was bought and paid for by the bankers......they want you to think the patient still has a pulse.