Musings on the US Deficit and Debt

By Asher Edelman

I read today in the New York Times that between 2008 and 2012 government (taxpayer) subsidies to the banks equaled $1.3 trillion. As those of you who read my missives know, my estimate was considerably lower.

At the same time, we are informed that the Fed has expanded its balance sheet by $4 trillion in its quest to assist the financial community through Q1, Q2, Twist, and perhaps, “Twist Again!”

Now let’s imagine that we had sane representation in the White House, House and Senate.

Would it not make sense to:

1) Reduce the Federal deficit by $400+ billion per year by damming the waterfall of bank subsidies?

2) Eliminate the $4 trillion on the Fed balance sheet; essentially the result of buying US government paper from the banks which the banks bought from the Treasury and marked up for sale to the Fed?

Now, for arguments sake, the Fed owns $4 trillion of Treasury paper. The Treasury pays the Fed interest on that paper, adding to the Federal deficit by at least $60 billion per year. The same $4 trillion appears as government debt on the US balance sheet – part of what pushes us beyond planned debt ceilings. To simplify the situation, the US is lending to the US, distorting both its income statement and balance sheet. What if the $4 trillion owed by the borrower to the lender were to be cancelled? We would reduce the US debt by $4 trillion and the deficit by at least $60 billion a year. We will have also achieved a step towards honesty in Federal accounting, a long lost responsibility.

Yes, a mere stroke of the pen in a rational, uncorrupted government can reduce the Federal deficit by about $460 billion per year and reduce the Federal debt by about $4 trillion. Try it – we will like it.


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