Happy New Year to all.
A lot of fanfare and hoopla about a non-existent debt ceiling has captured the imagination of the press, the Tea Party, and even the President. The United States of America is more than three trillion dollars from the so called “Debt Ceiling.”
A sidebar of the Fed’s massive giveaway of taxpayer money to the banks is that the Fed has purchased between three and four trillion dollars of US GOVERNMENT DEBT – that is to say, that the US Federal Reserve Bank has purchased debt issued by the US Treasury and and holds it with public reference to the size of the Fed’s “Balance Sheet.”
Designed as a support function to the banks (the transfer of taxpayer money to bank profits) this Federal Reserve policy may in fact serve the purposes of defusing the “Debt Ceiling.”
(Each palette of dollar bills represents $100M. Image courtesy of Demonocracy.info)
A smattering of accounting knowledge will yield a simple paradigm. When the same entity (in this case the United States of America) is a lender and a borrower to and from itself the balance sheet of that entity should be viewed in terms of its Net Debt. Net Debt is the amount of debt that entity has outstanding after the reduction of the inter-entity debt. In this case the Net Debt of the United States of America is between three and four trillion dollars less than the present “Debt Ceiling” approved by congress.
Now, we may or may not approve of the massive transfer of taxpayer funds to the banks by the Fed, but Mr. President, Mr. Bernanke, and Mr. Geither, move over. Declare the concept of Net Debt a very real one economically or even declare the cancellation of the inter-entity debt and leave ourselves lots of room to fund the United States of America. Maybe, at the same time, you will review the Fed’s bank giveaway program and encourage the growth of properly targeted fiscal spending and the curtailment of irresponsible monetary policy.
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