The Fed Could Simply CANCEL $2 Trillion of Government Debt
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The Fed Could Simply CANCEL $2 Trillion of Government Debt

The Fed Could Simply CANCEL $2 Trillion of Government Debt

Posted on October 12, 2013 by WashingtonsBlog

Bipartisan Proposal Would Substantially Reduce Budget Crisis

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 itto 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:

pm-gov_debt_v-624Source: 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:

Continue reading at The Fed Could Simply CANCEL $2 Trillion of Government Debt | Washington’s Blog.

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