McCain//Palin economic advisor Mark Zandi: "The point is that with each passing day the debt limit is not increased the more damage it will do to our economy. If lawmakers don’t raise the debt limit by November 1, the economy will fall back into recession. If they can't raise it by the end of November, we will be dooming our economy and the entire global economy to a wrenching economic downturn with implications for years if not decades to come."Mother Jones
Economist Mark Zandi on Default: "We Will Be Dooming Our Economy and the Entire Global Economy" For Years
David Corn
Congressman Alan Grayson (D) Florida has a solution to the debt ceiling crisis....
ReplyDeleteEnding the debt limit crisis: Dear Ben Bernanke
http://blogs.reuters.com/great-debate/2013/10/09/ending-the-debt-limit-crisis-dear-ben-bernanke/
Grayson pretty much repeats Ron Paul's plan, as he says. To bad he did not improve it using MMT principles, which I think he has been exposed to, perhaps by Matt Stoller. I wonder if Warren has ever sat down with Grayson and explained MMT to him.
ReplyDeleteI wonder if Warren has ever sat down with Grayson and explained MMT to him."
ReplyDeleteMight be time profitably spent. Aside from that, let's do a thought experiment on this approach because Im not sure I am taking it all to its logical conclusion.
When the Fed buys Treasury securities in its QE operations, it is functionally the same thing as if the Treasury had not issued that debt in the first place. If a private sector domestic or foreign investor in US Treasury debt decided to forgive the US government of its obligation to pay coupon interest and principal on that debt at redemption, not only would the Treasury's liability be extinguished but also the future value of private sector cash asset.
Therefore, since $2 Trillion of Fed holdings of Treasury debt matches virtually dollar for dollar the amount of excess reserves held on account at the Fed, it makes sense that if the Fed were to cancel $2 trillion of Treasury debt on its balance sheet, it would also have to cancel excess reserves held on account at the Fed. However, if banks got wind that the Fed was about to confiscate their excess reserves, wouldn't they run for the exits in an attempt to keep from losing those assets?
Ed, the tsys that the Fed purchased through POMO were bought by exchanging rb for the tsys with the seller of the tsys. The amount of $NFA stays the same, regardless of composition and maturity. It's like making change. Someone in non-government has a deposit account entry in dollars equal to the tsys that were sold to the Fed.
ReplyDeleteIf the Fed purchases the tsys that allowed the Fed to credit the Treasury account with the reserve to spend, then this is functionally equivalent to the Fed just giving the Treasury the reserves for direct issuance thru spending, but without the interest, and since the Fed pays the interest to the Treasury after it is deducted from the Treasury account, the interest is not involved either. The seller voluntarily forewent the interest in preference for a dollar denominated deposit payable in currency.