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

[green iguana]

Normally I like the economic and monetary ideas that Ron Paul has, but this one is terrible. Not sure what he’s thinking, or maybe there’s more to the story than this brief article let on.

Paul’s concerned about the inflationary increase in the money supply, but that’s already out there. The Treasury sold the bonds to the Fed, and the Fed printed cash and gave it to Treasury to spend. It’s been done. When the debt comes due, Treasury will give cash back to the Fed - that’s how you get the money back out of the system (assuming you don’t just sell more debt to get the cash...)

If the debt is cancelled outright, it does two bad things. It lowers the amount of outstanding debt, so Treasury now has that much more borrowing room under the debt ceiling, and it keeps the money out there in the money supply - you get rid of the debt without a corresponding decrease in the cash in circulation.

This is a plan the Demoncrats would love.