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JPMorgan Chase & Co. Message Board

  • do_no_harm_social_order do_no_harm_social_order Dec 23, 2012 11:28 PM Flag

    Tell me why this won’t work, Bernanke

    Tell me why this won’t work, Bernanke

    The Fed and the Treasury come to an agreement where the Fed swaps one trillion dollars of existing Treasury debt for non-maturing zero interest Treasury bonds. Why? Because the Fed will always hold at least that level of debt to justify its minimum level of M-1, and most all the interest paid by the Treasury to the Fed on the debt goes back to the Treasury anyway, like most all the net profits of the Fed. Doing so will recognize the truth that in this case “we owe it to ourselves” and the trillion will never be paid back, nor should it. It was permanently monetized.

    Under present circumstances it is in both the Fed’s and Treasury’s interests to do so. Politics as usual and the fiscal cliff are going to destroy this nation unless the economy has more time to heat up. It’s the wrong time to cut fiscal stimulus yet we have too much debt. Do the swap and the GAO would have to agree the national debt has in fact dropped by one trillion and the debt limit has not been reached yet. This is not a trick, but possible. The Fed was willing to bail out other governments, banks and private companies, and you have now committed to 80+ billon a month in additional reserves. Swap maturing treasuries for non-maturing zero interest Treasuries and you will have helped bail out the American taxpayer and stimulated the economy at the same time. You said the Fed had no more tools it could use. You were wrong.

    Come to think of it, other central banks around the world could do the same thing. Imagine the results.
    They have been issuing M-1s to stimulate. It’s now time to ALSO effectively forgive debts “we owe to ourselves’” which have been permanently monetized by the government’s agents, their central banks.

    Readers, spread this idea if it appeals to you.

    Chakra Bliss

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    • Seems your debt swap idea has more merit than the highly publicized "million dollar" platinum coin petition offered Jan 3rd on the White House website which would compromise the Fed's ability to manage monetary policy. The Debt swap idea is more a 'balance sheet' adjustment, a restatement of the books, so-to-speak. Like you say, it recognizes what are truly offsetting liabilities of the US economy to itself, and permanently monetizing a trillion of M1 would not really stop the Fed from normal policy duties even if the economy comes back and it unwinds much of its current balance sheet. With so many Treasuries being purchased now, they, on balance, will never be resold back into the market place or the bond market collapses.

      The only caveat I see with your idea is that the swap sets a precedent and as such opens up a new can of worms to be politically bounced around, and if it works, it only kicks the can down the road, but I can see how it would allow a temporary reprieve - but only if a legal debt ceiling is hit. Ultimately the politicns have to take responsibility for the greater good of the nation and not their party or local constituency. Reaganomics -which is still argued - was a timely reprieve only facilitated through Keynesian debt expansion possible during his adminsitration. Times have changed.

      Good idea anyway. Deserves a bump. Would probably help JPM indirectly like all of us, especially if the can hits a wall at the wrong time.

      Two thumbs up!

      Just curious, do you work for JPM or own this stock?


      Sentiment: Hold

    • Sterilizing a minimal (but obviously very high and do-able) level of M1 in the manner you suggest has no net effect on real economic private activity, nor the real debt obligations of the taxpayer. It is, as you say, a ‘wash’ between the Fed and Treasury. What matters is real debt, and real future liabilities, not, as you say, fictitious debts. Also, it would probably require Congress, and not the GAO to agree the new bonds were of no force and effect.

      You can’t magically get around politics in something like this. We’re stuck, and so is Bernanke. Not a pretty thought.


      P.S. Why do you use the alias do no harm social order?

      • 1 Reply to clcary2012
      • CLC,

        You acknowledge that the existence of fictitious debt (that which we owe to ourselves because both the principle and interest are recycled through the Fed). Good.

        Any debtor and creditor can come to an agreement on existing obligations and forgive or exchange for 'new' if they want. It does not require intervention by any other party, surely not Congress, as the Fed is independent. The Fed returns one trillion of Fed obgligations and receives the new zero interest, perpetual bonds and holds it indefinitely (like it would anyway) to justify said minimal portion of M1. And the Treasury shows on its balance sheet one trillion drop in debt while at the same time NOT showing any new long-term or short-term obligations; not even off-balance-sheet future obligations. Why should it? Should the GAO or anyone else question it, they would have to do so AFTER THE FACT, and surely the FASB would have to agree the new 'bonds' need not be recognized. If not, the new debt instruments could simply be called "Fed Good Will". Even the so-called 'private' oweners of the Fed, the depository banks would not complain. They'd jump on board for this one.


        My moniker is to remind us all that the Key to a peaceful planet, at home and abroad, is to live more consciously, always being aware our thoughts, deeds, and actions ripple out to effect us all, seen or not. There is only one true spiritual admontion, Do No Harm. What that is has to be decided by each of us, but it needs to be kept in mind. Too often we act as if we are the center of the universe and we are not connected. One always knows in their heart if their words and deeds are kind or helpful or not. If they would only listen and adjust accordingly. It helps to remember. Do No Harm helps remind us we are all connected, and it matters.

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