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Ron Paul Proposed A Fed Masterstroke That Can End The Debt Ceiling Crisis At Once!

While the fight on the debt ceiling continues with the White House unwilling to give in to what they see as extortion (which could set a bad precedent for future negotiations) and the Republicans unwilling to walk away with this without at least some concessions, is there any way out of this?

Well, apart from an epic back-down on either side, there actually is, and it's something we've suggested earlier (albeit not within the context of these debt ceiling negotiations). Central banks can simply cancel part of the debt. Up until the part it has accumulated as a result of QE1, 2 & 3, or roughly $2 trillion.

That sounds like a very easy way out, and indeed it is. With a stroke of a pen, there would be roughly $2 trillion less public debt outstanding, so the debt ceiling would be out of reach for years.

But isn't this debt monetization, stuff that would trigger hyperinflation like it did in the Weimar Republic and Zimbabwe? Well, yes, but here's the thing. The monetization already happened, the Fed already bought those government bonds in exchange for money, and inflation hasn't taken off (in fact, despite many dire predictions, it is still very subdued, and that's no accident, see below).


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I thought Ron Paul proposed

I thought Ron Paul proposed that Fred masturbate...

Obviously need to get some sleep.

That will never happen with the owned Congress we have.

But otherwise screw the FED and the fat cat bankers, cancel the debt.

It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people that pay no price for being wrong.
Thomas Sowell

First of all ...

I don't think Dr. Paul would support something like this without a comprehensive plan like a balanced budget amendment.

But having said that ...

It's not a bad idea.
The reality is that the FED would lose control of lending rates if that occurred, but that is not a bad thing.

It would be a back door to ending the FED.

You can't fool markets you can only delay the inevitability.

I think RP has already proposed such an idea when he was there

the debt the fed holds is the debt the gov owes itself as he stated it. So just wash it away.

As part of a comprehensive solution.

He doesn't believe it is possible to pay off the FED debt.

But if they are just going to ring up the bill again, it is not a solution.

Personally, I don't think there needs to be a plan. The markets will solve the problem anyways.

Just like it is currently doing.

Update: No, Paul suggested it. No strings attached.

As a matter of fact, he introduced it as a bill.


Short and sweet.

Yes!!! Ron Paul Introduced This Idea Over 2 Years Ago!

The Fed, Treasury and Congress should declare that $2 trillion of Treasury debt held by the Fed from its QE asset purchases should not apply to the debt ceiling. When the Fed buys Treasury debt via QE it is functionally the same thing as Treasury not issuing that debt in the first place. That would bring the outstanding debt down to about $15 trillion which is well below the $16.7 trillion ceiling which was technically breeched way back in May of this year. This policy action would make the debt ceiling crisis dissipate like the morning mist and give our policy makers 2-3 years of breathing space to come up with pro-growth economic policy as opposed to austerity.

Canceling the $2 trillion of Treasury debt held by the Fed was in fact the brain child of Ron Paul over two years ago during the last debt ceiling crisis. It is truly ironic that his proposal was enthusiastically endorsed by a well known liberal Keynsian economist, Dean Baker, in an article he wrote for the New Republic in July of 2011. Why isn't Rand Paul talking about it?

Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse


Ed Rombach

Thanks Bobby

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I think Dr Paul is being fecious to call attention.

It would be easier for the government to file for bankruptcy and reorganize the debt. If the banks have a problem because of the 14th amendment, we just have a constitutional amendment abolishing it so the government can default.

It would turn investors off to US bonds and bills....

....and force interest rates up to reengage the investing the community.

If the USG, in other words has been demonstrated that it can't pay its bondholders, then if you want me to buy another bond, you now need to offer a greater risk premium.

Of course higher interest rates also forces greater spending restraint, so it's a two edged sword.

Interest rates are way too

Interest rates are way too low. No incentive to save any money, exists, for anyone. If you save it, it is worth less than it was in a year. This is a fundamental problem.

inflation = an increase in the money supply

I wish the author understood that "inflation" is not a synonym for rising prices. Kind of like how the word "liberal" was lost.

Another pet peeve - referring to the Federal Reserve's debt as "money we owe ourselves". Collectivist language, as if I have anything to do with either the national govt. or the federal reserve. And as if the FED and the national govt are not two different entities.