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Federal Reserve solution to the debt ceiling crisis.

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Fool Count Donating Member (878 posts) Send PM | Profile | Ignore Sat Jul-30-11 07:36 AM
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Federal Reserve solution to the debt ceiling crisis.
Since half of the US Government debt is owned by the Federal Reserve as a part of monetary policy,
why can't the Fed Governors get together and vote to simply destroy $2 trillion worth of Treasury
bonds they hold? By doing that they will, in effect, write off that much debt reducing its total amount
to well below the debt ceiling and allowing USG to keep borrowing and paying all its obligations.
I may be missing something here, but what law or principle would be violated by such write-off and
who would suffer a financial loss in this event? Why can't the Fed write off all the debt it holds,
thus reducing the US Government debt by half? Is there anything in the Federal Reserve charter that
would prevent them from doing that? If they were allowed (and willing) to bail out private financial
institutions with a comparable amount, why can't they do as much for "We, the People"? Wouldn't the
consequences of inaction be even worse now than in the previous case?
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