Rep. Paul Introduces Bill to Cancel $1.6 T in Debt Held By Federal Reserve

The Hill's Fllor Action Blog ^ | 08/02/2011 | Pete Kasperowicz

[ex-Texan]

Rep. Ron Paul on Monday introduced legislation that would lower the federal government's debt by canceling the roughly $1.6 trillion in debt held by the Federal Reserve.

Paul has argued for the last few weeks that the idea represents a quick way to make the growing fiscal crisis more manageable. Under his bill, H.R. 2768, the $1.6 trillion that the Treasury owes to the Federal Reserve would disappear.

The Federal Reserve began buying Treasury bonds in earnest late last year as part of its effort to keep long-term interest rates down. But Paul has argued that Fed purchases of Treasury debt represent a debt that the government owes to itself, and one that also leads to an unwanted and inflationary increase in the money supply.

Paul has also said the Fed is allowing the federal government to continue a spending binge it otherwise would not be able to afford, and is forcing the Fed to print money to keep up.

"If the federal government cannot cut spending and bring the budget back into balance, the Fed undoubtedly will be forced to simply monetize trillions of dollars in Treasury debt, which is nothing more than a stealth form of default," Paul said back in May.

Paul is highly critical of the debt-ceiling agreement that the House approved Monday, and said that rather than require real cuts in spending, the bill mostly cuts planned spending levels in the future. According to the legislation, discretionary spending in 2012 would be just $7 billion less than in 2011, and in 2013 it would be just $3 billion less than 2011 before allowing increases above 2011 levels.

"No plan under serious consideration cuts spending in the way you and I think about it," Paul wrote in a piece that appeared on The Hill's Congress Blog. "Instead, the 'cuts' being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases."

[Liz]

REFERENCE Behind The Real Size of Obama's Wall Street Bailout (more like $14 trillion)
Mother Jones | Dec. 21, 2009 / FR Posted January 04, 2010 by E. Pluribus Unum

A guide to the abbreviations, acronyms, and obscure programs that make up the $14 trillion federal bailout of Wall Street.

The price tag for the Wall Street bailout is often put at $700 billion—the size of the Troubled Assets Relief Program. But TARP is just the best known program in an array of more than 30 overseen by Treasury Department and Federal Reserve that have paid out or put aside money to bail out financial firms and inject money into the markets. To get a sense of the size of the real $14 trillion bailout, see our chart here. Below, a guide to the pieces of the puzzle:

Treasury Department bailout programs (controlled by Rahm Emanuel)

Money Market Mutual Fund: In September 2008, the Treasury announced that it would insure the holdings of publicly offered money market mutual funds. According to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), these guarantees could have potentially cost the federal government more than $3 trillion [PDF].

Public-Private Investment Fund: This joint Treasury-Federal Reserve program bought toxic assets from banks and brokerages—as much as $5 billion of assets per firm. According to SIGTARP, the government's potential exposure from the PPIF is between $500 million and $1 trillion [PDF].

TARP: As part of the Troubled Asset Relief Program, the Treasury has made loans to or investments more than 750 banks and financial institutions. $650 billion has been paid out (not including HAMP; see below). As of December 21, 2009, $117.5 billion of that has been repaid. Government-sponsored enterprise (GSE) stock purchase: The Treasury has bought $200 million in preferred stock from Fannie Mae and another $200 million from Freddie Mac [PDF] to show that they "will remain viable entities critical to the functioning of the housing and mortgage markets." GSE mortgage-backed securities purchase: Under the Housing and Economic Recovery Act of 2008, the Treasury may buy mortgage-backed securities from Fannie Mae and Freddie Mac. According to SIGTARP, these purchases could cost as much as $314 billion [PDF].

--SNIP--- long read

Federal Reserve bailout programs

Commercial Paper Funding Facility: With the support from the Treasury, the Fed established the CPFF in October 2008 to increase the availability of short-term debt (commercial paper) funding. Up to $1.8 trillion [PDF] was earmarked for the program.

Mortgage-backed securities purchase: In 2009, the Fed earmarked up to $1.25 trillion to buy investments based on home loans.

Term Asset-Backed Securities Loan Facility: TALF provides financing to investors who are buying asset-backed securities. In February 2009, the Fed and Treasury announced an expansion of the program to generate up to $1 trillion in new lending.

Foreign Central Bank Currency Liquidity Swaps: The Fed has provided $755 billion [PDF] for currency liquidity swaps with foreign central banks.

--SNIP--- long read

[volunbeer]

The statement that this is debt we just owe to ourselves does have a problem. If we have to keep passing the bonds, and the new ones issued as the old ones mature to others of us, then subsequent generations of ”we” have to be willing to buy into the scheme and in ever greater amounts. If “we” ever decide to hold gold or land, or decide we have to buy consumables instead, then inflation goes through the roof because there are no bond buyers. Prices for all goods and services skyrocket as bond yields increase exponentially.

_________________________________________

It’s a ponzi scheme!

I hope my kids fully realize just how badly their elders screwed them one day. I have lost hope for my generation.

[JPJones]

This could be an elegant stealth method to get rid of the Fed. I like it

That maybe his whole idea. Unlike others here, I don't think the Fed is "us", I believe it's a private bank (owners unknown), whose chairman of fomc is appointed by the prez.

[ex-Texan]

Super Congress: The Final Nail in the Coffin of Representative Democracy and Freedom As We Know It

[stephenjohnbanker]

” When six Republicans, six Democrats and the President have complete control over the legislature, we need to be concerned. “

Six RINOS & six Marxists......I worry.

[mlocher]

Thank God the Fed is using imaginary numbers and computer transactions and one and zeros of digital money

If the fed were actually printing money, think of all the printers that would be employed, all the Brinks people that would be employed moving the money around the country, all the tellers who would have to count the incoming money that would be employed. Heck, unemployment might reach 5%!

Oh yeah. They would be paid with my tax dollars. ..... Never mind!

[mlocher]

The Federal Reserve Corporation is a private bank.

I understand that. It is a private bank that has its CEO selected by the president and approved by the Senate. (No other private corporations operate like that, right?.....)

[CORedneck]

Fed should be shut down and assets confiscated as per RICO. Any debt owed to the Fed, of course, canceled.

[GeronL]

I wonder if the proposed “Infrastructure Bank” will also be a private or quasi-private corporation? The left says it will be able to spend a leveraged $650 billion on projects with just $10 billion.

Just more and more debt

[mlocher]

I wonder if the proposed “Infrastructure Bank” will also be a private or quasi-private corporation? The left says it will be able to spend a leveraged $650 billion on projects with just $10 billion.

Bailout 3.0 in the making.

[GeronL]

I just hope that thing doesn’t pass

[mlocher]

Me too. About 2 weeks ago Kucinich was talking about something similar on FBN that may have been the same thing. Kucinich’s plan would initially focus on infrastructure, but would expand to fund private businesses, thereby allowing the government to make a profit. Kucinich actually had the audacity to compare the plan with actions in Japan the last several years.

[exit82]

Stick a hose in your butt and live by breathing your own farts. That is what the US government is doing.

No wonder the whole thing stinks.

[Retain Mike]

Yep. It is a ponzi scheme. I realized I could have added that analogy after I hit post. It also comes under the heading of the greater fool concept such as those from tulips to real estate.

[Retain Mike]

I will try, but being educated and working in the accounting/finance trade for several decades means acquiring a dialect that is hard to abandon. I admire those people who can speak with clarity to wide audiences.

I think a key point is to realize the government has given the Federal Reserve by law an ability reserved for God in the Old Testament. The new money is not printed, but spoken into existence in exactly the same manner as God created the heavens and the earth in Genesis. However unlike God’s creation, money has no substance at any time. In spite of that people do exchange items of real value such as labor, cars, and food for words spoken over a phone by a twenty something Fed bond trader. This person calls a company such as Goldman Sachs that has an inventory of securities it brokers for the Treasury Department, and pays let’s say $1 billion for securities. Until the trader speaks “$1billion”, the money to pay for the notes or bonds does not exist. Anyone else purchasing the bonds does so with dollars already in circulation.

Now if the Fed and the Treasury get rid the bonds they own and owe, the Fed does not have anything to offer in the marketplace in exchange for the money it created. This means the new money is on its own and continues to exist even if people have doubts about that “full faith and credit” statement appearing on the Federal Reserve notes we carry in our wallets. If they existed the Fed could sell bonds and reverse the process I described in the previous paragraph. By reversing the process, the Fed reduces the money supply and reduces inflationary pressures.

[RobbyS]

Indeed. I am so totally confused by all this. Nothing makes sense. It’s like looking a shell game, with the hands flying as fast as lightning.

[oblomov]

>>Which raises the question, if the Treasury ceased making interest payments would the fed sue?

No. In fact, this was one of the US Treasury’s scenarios in case the debt ceiling were not raised, to not pay interest/principal on only the Fed’s holdings of treasuries.

[oblomov]

>>The Fed is a private for-profit corporation. Strangely enough!

There is some confusion regarding this. The Federal Reserve itself is an independent agency of the federal government.

Each of the regional Federal Reserve banks, such as the New York Fed, is a private corporation owned by the banks that are members. Although the regional banks could theoretically set their own monetary policy (e.g., the Cleveland Fed could set a different Fed Funds rate than the St. Louis Fed), this has not happened for over sixty years. The policy set by the Board of Governors is, in practice, followed to the letter in each of the regional reserve banks.

[FightThePower!]

“I understand that. It is a private bank that has its CEO selected by the president and approved by the Senate. (No other private corporations operate like that, right?.....)”

True, but so what? The pick from a pool of candidates that are pre selected by the banks that own the Fed. It doesn’t matter who they pick, they will all do the same thing.

Kennedy was the last President who went against the Fed by having the Treasury print money backed by the United States’s silver. He got his head blown off and by 1964, silver was out of the money supply.

[RC2]

I find it interesting that 13 people will be able to do what the entire United States Congress won’t do. Not on my watch. If this is true, why do we need the Congress?