Of Debt Limits and the Emperor’s Clothes
The debt limit is a fucking farce, cover to allow the Dems to do what their sponsors want and blame it on the GOP.
The debt limit is a gun that is not loaded. Tomorrow, Geithner could mint two trillion-dollar coins, swap them for $2T of Treasury bonds that the Fed holds, burn those bonds, and thus shrink the national debt by $2T without putting another penny into circulation.
Beowulf and letsgetitdone have been pointing out that the debt limit is a farce for months and have been paid no more heed than the fabled boy who noted the emperor’s nakedness.
Firepups, the fates of the New Deal and the Great Society are at stake! It’s time that we spread that the debt limit is a farce. We cannot yet again let Obama say “Those devils made me do it.” His bullshit has got to be stopped this time.
============= slightly wonkish answers to objections ==============
Some insist that this coins-for-bonds swap repudiates debt and/or debases the dollar. It does neither!
The Fed has already exchanged $2T of liquidity (produced out of thin air by incrementing account balances on Fed’s computers) for those $2T of Treasury bonds. So, in fact, the Fed has paid off (monetized) $2T of national debt with newly printed virtual money. But all of that is past history. These coins would not go into circulation unless the Fed choses to circulate them. But, the Fed has prime responsibility for preventing inflations and already has the power to print is own money (banknotes). Whether or not they put more dollars into circulation has absolutely nothing to do with what money they have on hand.
Bonds held by the Fed are considered to be “publicly held,” even though the Fed is essentially an arm of the government. So, in a value-for-value transaction, the Treasury would give the Fed specially minted coins, which are legal tender under law, in exchange for those bonds — there’s no repudiation of debt, since the Fed gets paid.
Here are the relevant laws (h/t Beowulf):
* TITLE 31, SUBTITLE IV, CHAPTER 51, SUBCHAPTER I, § 5103. — see (h) and (k).
* TITLE 31, SUBTITLE IV, CHAPTER 51, SUBCHAPTER II, § 5112.