Can the federal government default on its debt to the federal government?

This Hewitt/Steyn exchange reminded me of something interesting:

 61% of federal debt was actually bought by…the Federal Reserve.

When our system eventually (i.e., soon) goes belly up, shouldn’t the Federal Reserve be the last creditor in line?  Especially in a moral sense?

Yes yes, the Federal Reserve System is supposedly “quasi”-federal.

Thus the Federal Reserve has both private and public aspects.

Uh-huh.  Unlike Bernie Madoff, but exactly like Jon Corzine.

I say, stiff the Fed!  The government must pay off everyone else…even the Chinese…before it shifts money from the second pocket back to the first one.

About wormme

I've accepted that all of you are socially superior to me. But no pretending that any of you are rational.
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3 Responses to Can the federal government default on its debt to the federal government?

  1. midwest bill says:

    every time I think I have the fed’s money printing process figured out, it gets murky again. 🙂

    But I don’t think they get to keep the money, or the interest. It is the control of the rates that is the real issue, (especially for those important people that might know in advance). The inflation in money supply means everyone’s money is worth less, and government gets to invisibly “tax” everyone that holds dollar assets.

    Also the banks ended up much of that TARP money, when they did the bait and switch, first claiming they’d bailout the underwater homeowners. All these banks were not marking to market, all these bad loans, I think instead of buying the loans and marking them all to market, they instead switched and gave the money to the banks directly, to play with I guess. So the problem is still there .. the banks got the money AND they get low rates … but these bad loans from the real estate bubble are still out there, not written down. Responsible banks would have been OK, others might have gotten 30 cents on the dollar. Goldman Sachs especially came out golden …

    At least that is my understanding … I think we have to make citizens whole somehow, and choose to stiff the Chinese or others for unfair trade or something. But the government we have now will make sure citizens get screwed, and the lobbied up interests will get rewarded for their villainy. In the S&L crisis some 1500 bankers went to jail … now the criminals are the ones making out like bandits. I guess they learned their lesson … buy off ALL congress first, not just a couple guys.

    Supposedly, controlling rates avoids recessions … except it doesn’t. China is not upset about maybe not getting paid back, but about getting paid back in dollars with little value. So far they have known they may lose on their bonds, but they want to keep the trade imbalance bonanza working … but that is slowing.

    The problem with the 25 years of easy money is they push people into bad investments, then we get a collapse like the dot com bubble or housing bubble. But they aren’t fixing those problems, they are just pushing even more debt and spending.

  2. Pingback: The money bubble. | World's Only Rational Man

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