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Should The Fed Burn A Pile Of Treasury Securities?
Nolan Chart ^ | July 9, 2011 | Gene DeNardo

Posted on 07/10/2011 5:52:40 PM PDT by Tolerance Sucks Rocks

Ron Paul's recent idea on how to ease the national debt is hardly original but none the less worthy of consideration. He has proposed what leftist critics of the status quo monetary system have been proposing for decades: that money printing should be used to fund the government.

To give Ron due credit, he is not proposing exactly that. More precisely, he is proposing that the Fed should tear up a bundle of its Treasury securities, which would lower our overall debt total bringing us below the current debt ceiling.

Still, the mechanics are identical, if not in reverse order. Far left liberals have correctly criticized the fiat system of money production as benefiting the banking and elite wealth interests while disadvantaging the poor. Their solution, at least those who aren't anarchists, has always been to free up money production as a method of directly funding the state or for that matter, the states, alleviating the interest and debt that is synonymous with our current system.

The interest on the particular notes in question, since they are owned {I use this term loosely} by the Federal Reserve is in a practical sense already extinguished. The Fed is required at the end of the year to turn in its profits to the Treasury. The Fed makes good money on the interest it collects from the Treasury during the year from all the government paper it has in its possession. In this sense, the Treasury has already stopped paying interest on the bonds the Fed owns, since the interest is the Feds profit, which by law must be returned to the Treasury.

Whether the profits turned in are greater or less than the interest the Fed collects on all the Treasury paper in its name is an interesting question and worthy of research, if the numbers are indeed available. The Fed since its inception has always prized its secrecy.

Opponents of Ron's idea believe that if the Fed torched a pile of its government securities that it would lose the ability to withdraw money from the economy. The Fed does this by selling securities and hoarding the greenbacks it gathers from the proceeds of the sales.

The truth is the Fed does not lose its ability to suck money out of the economy until it relinquishes all its paper assets. As long as it has something to sell, it can pull money from the economy and store the greenbacks in its vaults.

We can also take Paul's idea one step further and approach this dilemma from another angle. The Fed could actually purchase brand new Treasury securities without paying the government one dime. It could then sell those securities to its buddies and deposit the cash. Since the Fed must turn in its profits, much of the cash would end up back in the hands of the government at the end of the year, but without any new money creation and again; a lower debt amount. This is actually illegal, but when has that stopped the Fed?

Pauls idea or the left monetary critique ideas aren't nonsensical; they actually make perfect sense relative to the monetary system. What is nonsense is the status quo financial system itself.

On the other hand, it all makes perfect sense: if you happen to be on the receiving end of the Fed's graciousness. Problem is, very few of us are and those that are certainly don't need any assistance. For our leaders unfortunately, this actually isn't even a little problem. Advantaging the already advantaged seems to be a favorite pasttime of theirs.

The merits of Pauls idea should be judged individually. If Paul stands for the common man as he claims, then we can judge his suggestions based on that premise. How would extinguishing a chunk of the federal debt affect the average fellow?

Taking the entire financial system into consideration, the effect of Pauls idea on everyman probably wouldn't add up to the proverbial hill of beans. The scope of the system is so massive, only wholesale change will benefit us regular folks in any meaningful manner.

On the other hand, any mandate or directive that takes even a little teeny bit of power out of the Feds hands, chips away at its omnipotence is worth pursuing. -

TOPICS: Business/Economy; Crime/Corruption; Editorial; Government; News/Current Events; US: Texas
KEYWORDS: banksters; bernanke; borrowing; collapse; debt; debtceiling; decline; default; economy; fed; federalreserve; idiocy; inflation; lunacy; lunaticleft; money; moneysupply; ronpaul; securities; stupidity; thefed; treasury

1 posted on 07/10/2011 5:52:44 PM PDT by Tolerance Sucks Rocks
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To: Tolerance Sucks Rocks
Doing that would give them a license to spend more. No, we must pay the bill for our folly. Then re-group.
2 posted on 07/10/2011 6:04:34 PM PDT by screaminsunshine (Socialism...Easier said than done.)
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To: screaminsunshine

Oh......, of course you mean everyones kids and grandkids and greatgrandkids and their issue.
Yeah, we are going to pay for our folly.
Yeah,I get it.

3 posted on 07/10/2011 6:10:46 PM PDT by nkycincinnatikid
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To: nkycincinnatikid

A small price. Compared to those who have gone before.

4 posted on 07/10/2011 6:12:53 PM PDT by screaminsunshine (Socialism...Easier said than done.)
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To: Tolerance Sucks Rocks
Should The Fed Burn A Pile Of Treasury Securities?

And this would do what? They already printed the greenies to "pay" for them. Burning them just means they never have to be "redeemed." (For those who do not know when the Fed "redeems" Treasury Paper, it means the Treasury gives greenies to the Fed which then disappear as if they never existed.)


5 posted on 07/10/2011 6:14:15 PM PDT by ml/nj
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To: Tolerance Sucks Rocks

Government cannot be “big” without a large manufacturing base (sustainable revenues) and with a worthless currency. The victory of the bipartisan socialists is turning into defeat, and they’re crazy with fear. They’ve made quite a mess. Thus...the ever crazier political speech. Better, more independent Americans will rebuild under our formerly good morals and Constitution that have been temporarily violated.

6 posted on 07/10/2011 7:20:30 PM PDT by familyop (We Baby Boomers are croaking in a thunderous avalanche of rottenness smelled around the earth.)
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To: screaminsunshine

I think the Fed should do like the banks have done with homeowners and simply forgive a large portion of the debt owed to them.

7 posted on 07/10/2011 7:26:10 PM PDT by B4Ranch (Allowing Islam into America is akin to injecting yourself with AIDS to prove how tolerant you are...)
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To: B4Ranch

Like the social security treasury notes? All Trillions of them?

8 posted on 07/10/2011 7:33:18 PM PDT by screaminsunshine (Socialism...Easier said than done.)
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To: Tolerance Sucks Rocks

Crazy uncle Ron is right-as-rain as usual on economic matters.

We should not be borrowing to fund gov’t spending. Spending in excess of revenue has roughly the same devaluation impact whether bonds are created or not. Inflation is partly a function of monetary supply which could easily be controlled without bonds. Why should we pay interest on top of taking the devaluation for the privilege of using our own money? If we’re going to run on fiat currency, we may as well use one of the inherent advantages, which is that it should cost nothing besides paper and ink to increase supply.

Taxes are another thing that are technically unnecessary in a fiat system. All gov’t spending could be paid for by simply firing up the presses. Everybody pays ‘their fair share’ through currency devaluation. Taxes are only necessary under an asset-backed currency where real wealth transfer must occur in order for the government to fund itself.

9 posted on 07/10/2011 7:33:38 PM PDT by CowboyJay
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To: screaminsunshine

Sure, why not?

10 posted on 07/10/2011 7:35:51 PM PDT by B4Ranch (Allowing Islam into America is akin to injecting yourself with AIDS to prove how tolerant you are...)
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To: CowboyJay

>>Everybody pays ‘their fair share’ through currency devaluation. <<

That’s the hidden tax they NEVER talk about.

Sales Tax
School Tax
Liquor Tax
Luxury Tax
Excise Taxes
Property Tax
Cigarette Tax
Medicare Tax
Inventory Tax
Real Estate Tax
Well Permit Tax
Fuel Permit Tax
Inheritance Tax
Road Usage Tax
CDL license Tax
Dog License Tax
State Income Tax
Food License Tax
Vehicle Sales Tax
Gross Receipts Tax
Social Security Tax
Service Charge Tax
Fishing License Tax
Federal Income Tax
Building Permit Tax
IRS Interest Charges
Hunting License Tax
Marriage License Tax
Corporate Income Tax
Personal Property Tax
Accounts Receivable Tax
Recreational Vehicle Tax
Workers Compensation Tax
Watercraft Registration Tax
Telephone Usage Charge Tax
Telephone Federal Excise Tax
Telephone State and Local Tax
IRS Penalties (tax on top of tax)
State Unemployment Tax (SUTA)
Federal Unemployment Tax (FUTA)
Telephone Minimum Usage Surcharge Tax
Telephone Federal Universal Service Fee Tax
Gasoline Tax (currently 44.75 cents per gallon)
Utility Taxes Vehicle License Registration Tax
Telephone Federal, State and Local Surcharge Taxes
Telephone Recurring and Nonrecurring Charges Tax

Not one of these taxes existed 100 years ago, & our nation was the most prosperous in the world.

We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids.

11 posted on 07/10/2011 7:39:18 PM PDT by B4Ranch (Allowing Islam into America is akin to injecting yourself with AIDS to prove how tolerant you are...)
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To: Tolerance Sucks Rocks
As long as we have reserve currency status this can be done ... The problem is if we play to fast and lose with our currency we'll lose reserve status.

When that happens we'll be no different than Haiti.

Countries like Haiti and North Korea can't pull this kind of stunt... and if we're not careful we won't be able to either.

12 posted on 07/10/2011 7:46:39 PM PDT by GOPJ (Honk if I'm paying for your car, your mortgage, and your big, fat Greek bailout - mewzilla)
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To: CowboyJay


Everyone read CowboyJay’s post #9.

Not sure I want to do it that way, because it puts control in the government (as controlled by voting, etc.) rather than the more direct and granular free market, but your post makes it really clear what is going on.

(And those who would resist this suggestion the most, even to the point of violence (carefully obscured in their usual manner they have perfected over the years), are the same people presently benefitting from “the interest.”)

13 posted on 07/10/2011 8:58:30 PM PDT by Weirdad (Don't put up with ANY voter fraud...)
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