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U.S. National Debt

 
 
gollum
 
Reply Fri 11 Jan, 2013 08:53 pm
Could the U.S. Government pay off its national debt by having the Federal Reserve create money and use its to buy the entire debt?
 
Kolyo
 
  2  
Reply Fri 11 Jan, 2013 09:04 pm
@gollum,
There was a debate about this recently in the fiscal cliff thread.

My own (instinctive) view is that that would be such dishonest conduct towards our creditors that we might as well just default outright as do that.

Our creditors hold debt valued in dollars, and that move debases the dollar.

(But I'm still trying to get my mind around the financial system.)
tsarstepan
 
  1  
Reply Fri 11 Jan, 2013 09:25 pm
@Kolyo,
Kolyo wrote:

Our creditors hold debt valued in dollars, and that move debases the dollar.

That would mean the high possibility of hyperinflation if history tells us anything.
http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html
http://www.sjsu.edu/faculty/watkins/hyper.htm
spitfire88
 
  3  
Reply Fri 11 Jan, 2013 09:51 pm
@gollum,
The federal reserve is a private bank. It issues loans to the government. If the government asked for a 17 trillion dollar loan and paid off the current debt, we would then owe the federal reserve that 17 trillion dollars plus interest in addition to hyperinflation.
0 Replies
 
oralloy
 
  0  
Reply Sat 12 Jan, 2013 02:58 am
@gollum,
gollum wrote:
Could the U.S. Government pay off its national debt by having the Federal Reserve create money and use its to buy the entire debt?


Yes. Such a move might be done by the Treasury rather than the Federal Reserve though.

Unlikely that we'll do it, because it is unlikely that we'll need to do it. But, yes we could.
0 Replies
 
oralloy
 
  0  
Reply Sat 12 Jan, 2013 02:58 am
@tsarstepan,
tsarstepan wrote:
Kolyo wrote:
Our creditors hold debt valued in dollars, and that move debases the dollar.


That would mean the high possibility of hyperinflation if history tells us anything.
http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html
http://www.sjsu.edu/faculty/watkins/hyper.htm


Presumably the Fed would kick interest rates way high and drive all borrowing to a screeching halt in order to try to counter the inflation.
0 Replies
 
 

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