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The new Fed Chair can end the debt ceiling debate in a blaze of glory - and go on to eliminate the national debt

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Janet Yellin. new Chair of the Fed, and in the background, her blaze of glory
(image by Sarah Lance)

Imagine the new Fed Chair making history with this appearance on TV:

[Camera shot of an announcer, speaking from the Federal Reserve building in Washington, D.C.]

Announcer: We are presenting a special broadcast tonight for an announcement by Janet Yellen, the new Chair of the Federal Reserve System.

[Camera shot of Janet Yellen, at the Federal Reserve building.]

Janet Yellen: Good evening!

Once again, our nation is caught up in a debate over raising the debt ceiling. On February 3rd, U.S. Treasury Secretary Jack Lew pleaded for yet another increase. Unless Congress acts before the end of February, America will default on its legal obligations. Spending by the US government must be authorized by Congress. But Congress continually balks at raising the debt ceiling, preventing the borrowing required for spending it has already approved.

The Federal Reserve, acting on its own, can end this foolish debate, not just this once, but forever.

Behind me, you will see a wire cage, full of papers. [The camera pulls back to show a wire cage behind Yellen, then moves in closer to the cage.] The papers in the cage are US Treasury Bonds, owned by the Federal Reserve System. [The camera returns to a head shot of Yellen.] The US national debt totals $17.3 trillion, and the Federal Reserve holds about $3 trillion of that debt in the form of US bonds it bought on the open market.

Any bonds issued by the government that cannot be presented for redemption are canceled, and the debt they represent is simply eliminated. So if the Fed destroys its US bonds, the national debt would be reduced automatically by the value of the bonds destroyed: about $3 trillion.

The Federal Reserve System has decided to destroy the US bonds it owns. The destroyed bonds will never be presented for redemption. As you can see, we are burning them up. [The camera shows the papers in the wire cage beginning to burn, quickly turning into a conflagration. A blaze of glory.]

Burning up the bonds reduces the national debt by some $3 trillion, to well below the current debt limit. The government can now pay its bills.

The assets of the Federal Reserve must of course be decreased by the value of the bonds destroyed. But we can do that easily -- it's just a matter of entering some keystrokes. [Camera shows hands at a keyboard typing numbers into a computer.]

Can the Federal Reserve just do this? Yes. No government authorization is needed.

[Camera returns to a head shot of Yellen.] You ask, "But what about the decrease in assets? Can the Fed afford to reduce its assets that much?"

Yes, the Federal Reserve can afford the necessary decrease in assets. It simply reverses the increase in assets it made to buy the bonds in the first place. The money to buy the bonds on the open market was created by a similar keyboard entry -- assets were simply increased by the amount of money needed to buy the bonds. Those assets came from nowhere, and we can as easily make them disappear back into that nowhere.

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http://whatsnotso.blogs.com

A serial entrepreneur, cofounder of three high tech companies and an avid multihull sailor.


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Thomas Edison said any sovereign entity, like the ... by Tom Hagan on Sunday, Feb 9, 2014 at 5:14:23 PM
Ron Paul proposed something similar when he was st... by Scott Baker on Sunday, Feb 9, 2014 at 5:21:49 PM
Indeed, Ron Paul, in a Republican primary Preside... by Tom Hagan on Sunday, Feb 9, 2014 at 10:06:38 PM
Very well said and informative article.  Unfo... by Mark Adams JD/MBA on Tuesday, Feb 11, 2014 at 9:46:04 AM
For its part, economic theory sees through labels... by Peter Palms on Sunday, Feb 9, 2014 at 10:07:00 PM
For its part, economic theory sees through labels... by Peter Palms on Sunday, Feb 9, 2014 at 10:08:28 PM
It's on a entirely different subject, i liked it. ... by Jasmine Kaur on Sunday, Feb 9, 2014 at 11:44:31 PM
Give a man a bank and he can rob the world - Sour... by Lance Ciepiela on Monday, Feb 10, 2014 at 12:35:56 AM
Thank you for your patriotism ... by Peter Palms on Tuesday, Feb 11, 2014 at 4:54:45 PM
With respect Mr. CiepielaThat would constitute def... by Peter Palms on Tuesday, Feb 11, 2014 at 5:00:12 PM
Converting our legal tender to debt free United S... by Lance Ciepiela on Wednesday, Feb 12, 2014 at 8:25:35 AM
TAXES NOT EVEN NECESSARY It is a sobering... by Peter Palms on Sunday, Feb 16, 2014 at 3:28:18 PM
Republicans and Democrats spent last summer battl... by Peter Palms on Monday, Feb 10, 2014 at 3:46:29 PM
When fully retired, 78 million baby boomers will ... by Peter Palms on Monday, Feb 10, 2014 at 3:47:57 PM
Actually, the government is NOT like a household e... by Scott Baker on Tuesday, Feb 11, 2014 at 11:35:45 AM
Hi Scott Baker You are not replying to my article.... by Peter Palms on Tuesday, Feb 11, 2014 at 4:35:05 PM
I am replying to Tom Hagan's article on this page,... by Scott Baker on Tuesday, Feb 11, 2014 at 6:28:07 PM
One quibble, Tom.  The Fed's balance sheet i... by Derryl Hermanutz on Monday, Feb 10, 2014 at 4:56:05 PM
So: what's the implication of your comment? What d... by Eric Zuesse on Tuesday, Feb 11, 2014 at 1:13:16 PM
A total ponzi scheme. Not you, you are just expou... by Peter Palms on Sunday, Feb 16, 2014 at 4:24:15 PM
What a superbly written piece! I hope that it will... by Eric Zuesse on Tuesday, Feb 11, 2014 at 1:07:10 PM
I believe that what Derryl Hermanutz suggests cons... by Peter Palms on Tuesday, Feb 11, 2014 at 5:10:31 PM
We don't owe anywhere near that much CURRENTLY.&nb... by Scott Baker on Tuesday, Feb 11, 2014 at 6:32:19 PM
There is a Gap. When people can vote for th... by Peter Palms on Wednesday, Feb 12, 2014 at 6:51:32 AM
Welll maybe some small part of the $251 trillion d... by Peter Palms on Tuesday, Feb 11, 2014 at 1:57:55 PM
The annual WORLD GDP is only $70 trillion or so.&... by Scott Baker on Friday, Feb 14, 2014 at 3:35:33 PM
... by Peter Palms on Tuesday, Feb 11, 2014 at 2:07:23 PM
Until, and unless, and inevitably  the World ... by Peter Palms on Tuesday, Feb 11, 2014 at 3:14:44 PM
This is maybe the very best article i have ever se... by Charles Roll on Tuesday, Feb 11, 2014 at 4:23:22 PM
Thisn is the time for all good men to come to the ... by Peter Palms on Tuesday, Feb 11, 2014 at 4:53:30 PM
Interesting responses to this piece. There are th... by Tom Hagan on Friday, Feb 14, 2014 at 12:34:24 AM
That's actually easy to answer.The Fed is the Cent... by Scott Baker on Friday, Feb 14, 2014 at 3:38:26 PM
e know there is no scarcity because they loan it e... by Peter Palms on Sunday, Feb 16, 2014 at 3:31:13 PM
WE ARE NOT USING THE BANKS MONEY. THE BANKS IS MA... by Peter Palms on Sunday, Feb 16, 2014 at 4:01:54 PM
Scott - Agreed that debt is the product of banks.... by Tom Hagan on Tuesday, Feb 18, 2014 at 12:47:13 AM