Tuesday, March 13, 2012
QE and the lunacy of the gov't paying interest to itself
When the Fed conducts QE and expands its balance sheet by buying government securities, it receives interest paid on these securities. Last year it collected $80 bln, paid to it by the government (we, the people). Over the past four years it has collected over $400 bln in interest.
Then what happens?
The Fed turns that interest income over to the Treasury.
In other words, the government pays interest to the Fed, which the Fed then hands back over to the government. You got that?
This is just crazy. The government is paying interest to itself.
The Fed could just tear up those bonds, which it has no need for, and the debt would be reduced by $3 trillion in a single stroke. That’s how to reduce the debt. Too easy. That’s why we don’t do it. Instead, we continue this idiotic exercise of the government paying interest to itself and people worrying about the debt, which is clearly nonsense.
It’s like, if you took $1 out of your left pocket and put it into your right pocket, all day long and then saying all the dollars you put into your right pocket equated to a huge debt that was going to bankrupt you. However, if you just kept the dollar in your left pocket, you’re totally fine and solvent. Crazy stuff!