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So here's a bit of mad economics for you
Jan. 3rd, 2010 10:22 pmOkay, so, I haven't been posting econ lately, and I'm not going to post any links right now. There are things you should read, but I'll get to those later.
No, instead, I've been sitting here trying to figure out how the hell the US gets out of its debt spiral. I've been churning on that for months. And then today, I had this bit of mad economics1 bullshittery pop out:
What do you think happens if the Fed "buys" the next few years of T-bills issuances (printing to do it), as it looks like it's going to do and has already been doing... and then gets shut down by Congress and assets nationalised? With existing Federal Reserve Notes and such recognised by a simultaneously-created NewFed, of course. This is legal. The Fed is a private bank, or, more correctly, a set of private banks. Any private bank can be shut down for a whole variety of reasons.
What happens? The Treasury suddenly owns an assload of its own T-bills (previously issued T-bills, not new ones) which it then sells back to itself in a zero-sum transaction2. This results in a huge cut in outstanding theoretical government debt, without external defaults. The dollar is already devalued by the inflationary printing process you used to get total outstanding credit back up3.
Nobody "loses" except the Fed, in theory. There are no T-bill "defaults." There's no new currency. The actual monetisation will have already happened, so it's not inflationary; suddenly the US debt level drops back down by, who knows, several trillion - back to considerably more than now, but still dramatically lower than then, and possibly denominated in a much lower-value dollar (from the prior printing). How much debt gets magically erased depends upon how much debt can be racked up by the Fed - will it start buying already-extant T-bills, maybe to "support the market" as people flee USD debt? - before people catch on.
I KNOW IT'S MAGIC AMIRITE
There are a billion ways this can and probably will go wrong4, but it also kinda/sorts fits a lot of patterns I've been seeing. So shoot it down. Tell me this isn't the plan and why. Because it's one hell of a gamble, and if it fails, well, it'll take down ... a lot ... with it.
Tell me why I'm wrong. Please.
1: It's like mad science, but with less electricity and more boring.
2: ...or which it could resell for cash(!) on the private market(!) to raise money(!) but this is one of those ways This Shit Goes Srsly Wrong OMG and then everything assplodes.
3: Which leads to the only link I'll include here, please follow it: See total fungible credit. See total fungible credit fall for the first time since records started in 1952. This is not good.
4: See footnote2.
No, instead, I've been sitting here trying to figure out how the hell the US gets out of its debt spiral. I've been churning on that for months. And then today, I had this bit of mad economics1 bullshittery pop out:
What do you think happens if the Fed "buys" the next few years of T-bills issuances (printing to do it), as it looks like it's going to do and has already been doing... and then gets shut down by Congress and assets nationalised? With existing Federal Reserve Notes and such recognised by a simultaneously-created NewFed, of course. This is legal. The Fed is a private bank, or, more correctly, a set of private banks. Any private bank can be shut down for a whole variety of reasons.
What happens? The Treasury suddenly owns an assload of its own T-bills (previously issued T-bills, not new ones) which it then sells back to itself in a zero-sum transaction2. This results in a huge cut in outstanding theoretical government debt, without external defaults. The dollar is already devalued by the inflationary printing process you used to get total outstanding credit back up3.
Nobody "loses" except the Fed, in theory. There are no T-bill "defaults." There's no new currency. The actual monetisation will have already happened, so it's not inflationary; suddenly the US debt level drops back down by, who knows, several trillion - back to considerably more than now, but still dramatically lower than then, and possibly denominated in a much lower-value dollar (from the prior printing). How much debt gets magically erased depends upon how much debt can be racked up by the Fed - will it start buying already-extant T-bills, maybe to "support the market" as people flee USD debt? - before people catch on.
I KNOW IT'S MAGIC AMIRITE
There are a billion ways this can and probably will go wrong4, but it also kinda/sorts fits a lot of patterns I've been seeing. So shoot it down. Tell me this isn't the plan and why. Because it's one hell of a gamble, and if it fails, well, it'll take down ... a lot ... with it.
Tell me why I'm wrong. Please.
1: It's like mad science, but with less electricity and more boring.
2: ...or which it could resell for cash(!) on the private market(!) to raise money(!) but this is one of those ways This Shit Goes Srsly Wrong OMG and then everything assplodes.
3: Which leads to the only link I'll include here, please follow it: See total fungible credit. See total fungible credit fall for the first time since records started in 1952. This is not good.
4: See footnote2.
