The only downside to flushing those $1.6 trillion down the toilet is a surplus of reserves on the market, possibly fueling some inflation in the (near) future. And he's correct in pointing out that with high unemployment and therefore stagnant/falling wages, the risk of runaway inflation is negligible, if not downright non-existant at this moment. In any case, raising the reserve requirement to suck reserves out of the market works just as nicely as buying them back.

People argued that it's just an accounting trick. So what? It's debt owed to yourself, interest paid to yourself through the treasury. Core inflation is low as it is, arguably even too low already. It's easy, simple, straight-forward; any reason not to do it?

But are people really against raising the debt ceiling? It's just an arbitrary number that has been raised over and over again, it has no meaning. The deals that might come along with it this time, those are fucking scary. And it's not just the Republicans, Obama is right up there on the frontline, pushing for even more radical cuts to Medicare spending and Social Security, as this article shows.

As for reducing the double mandate to stable prices only: look at the ECB. Those shitheads are even worse than the Fed in that regard. They take an additional 5% unemployment over an additional 0.5% inflation any day.

Wankers, the lot of 'em.

@radx You seem to know what is going on here better than I. What is this mystery money we owe the fed for? Is this for assets they bought for us that we are just going to liquidate? What is this 1.6 trillion, where did it come from, whos money was it first? So confused.

Simple: The FED takes US Bonds and gives the same amount of money back to the US Government. (Remember that the FED is a private bank, despite the word 'Federal' in the title.) It works exactly the way you or I could buy Federal Bonds, except on a much larger scale.

So if Congress decides we are in need of an extra 100 million, they give the FED that amount in bonds and get back 100 million in treasury notes (US dollars) which are immediately deposited into the US Treasury account at the FED itself. The FED then gets to use this money as a fractional reserve to loan out ten times that amount to other, smaller, consumer banks. (Who, in turn, do exactly the same thing.)

This technically puts the government 100 million in debt, and it's why everyone talks about 'making money out of thin air.' This is significant because - since the Gold Standard no longer exists - it is also the sole defining factor involved in the value of the dollar.

If you're actually curious to learn how all the background dealing works, I recommend reading "The Create from Jekyll Island" by G. Edward Griffin. It's a remarkably well written assessment of how the FED operates.

she is SO annoying

@soulmonarch

Looks like good reading, still reading wealth of nations, so one more book to add to the list. If you don't mind me probing, does the Fed have "depositors" that it is using to loan against when handing out money to the government? I assume that the debt the US owes to the Fed is to be secured by tax dollars down the line, but aren't those monies created by fractional reserve banking? This reminds me of a snake eating its own tail. If you just close the 1.6 trillion, I would imagine that would close the door on a lot of created money, thus, reduce the money supply quite a bit, which is what I guess they were addressing in the video? Seems like a bit of money contraction couldn't be to bad, as long as you keep your eye on it.

In doing some more reading, it seems like the people applying the most pressure for the new debt ceiling is wall street. Fuck those guys, though. Fool me once, shame on you, fool me twice, shame on me.

*lies

Adding video to channels (Lies) - requested by MrFisk.

@GeeSussFreeK

No, not in the way I think you mean. The FED doesn't function as a bank of deposit, they function as an interbank lending facility, where the money being lent is created (or recycled) by the FED itself. Bonds and treasury securities are the primary source of the reserve, although there are other assets in play as well.

Technically, any debt incurred by the government is a liability of the public taxpayer, given that the government is expected to pay those debts off by using tax income. The Bond is, by definition, a loan TO the government. It is also the only legal way the government is allowed to get money, aside from taxes. Which is why the give them to the FED.

Let the logic of THAT sink in. We loaned money to ourselves by going into debt to ourselves, and then immediately turned around and called it a 'bank asset' and used it to loan more money out to every one else. If you subtract back to the start of the whole equation we, quite literally, end up with zero 'real' dollars in existence.

It's confusing, but that's the point. If people don't understand how badly they are getting screwed, they don't do anything to stop it.

@soulmonarch everyday, the more I know, the less I know. Thanks my friend, you have been almost TOO helpful!