WASHINGTON MERRY-GO-ROUND
Founded by Drew Pearson 1932
Could the Fed save America
By Douglas Cohn and Eleanor Clift
WASHINGTON – President Obama says if the impasse with Congress continues, he will not use the 14th Amendment of the Constitution to raise the debt ceiling on his own. Aside from the legality, which as a constitutional lawyer he finds questionable, he said in his press conference Tuesday that the litigation and uncertainty that it would generate would only contribute to the chaos we’re experiencing, instead of easing it.
Obama also said he’s not a fan of “rolling out a big coin” with the presidential imprimatur to make up for any financial shortfall. Obama’s unwillingness to stretch his powers with either of these steps suggests he probably won’t adopt what we’re about to suggest – but here goes:
You’ve probably heard about the Federal Reserve and its quantitative easing program, which is now in its third round and known as QE3. The Fed is a huge holder of T-bills (Treasury bills) that it buys with the money it prints. Yes, it’s the Fed’s job to print money, and they’ve been doing it with great regularity during the five years since the economic meltdown in 2008 and the ensuing Great Recession.
The problem we’re facing now is that the federal government can’t borrow any of that money that the Fed is printing unless it gets permission from Congress, which must raise the debt ceiling for the government to access that money. Congress is at an impasse, and with the deadline fast approaching when the government will run out of money to cover all its obligations, it’s time to think out of the box – way out of the box.
The Fed is an independent agency, and it could waive the government’s indebtedness. Just like past administrations have forgiven debt in Africa, when there’s a worthy country trying to get back on its feet and struggling under the weight of its debt, lifting some or all of that debt makes everybody feel good. It’s a win-win situation.
There’s no reason the Fed can’t do it for the federal government other than the fact it’s never been done before and would create a political ruckus. But hey, the shutdown and a potential debt default are already creating quite a ruckus. How much worse could it get?
Preliminary research doesn’t uncover any major barriers. Having the Fed step in and save the day is logical, practical and legal. Current Fed Chairman Ben Bernanke is a lame duck; his term expires in January. His successor, Janet Yellen, was formally nominated Wednesday in a ceremony at the White House.
Bernanke could forgive a trillion dollars of debt, and if he faces criticism, so be it. He will have just taken one for the country. It’s all paper pushing anyway; the Fed prints the money and buys the T-bills, prints more money and buys more T-bills.
The same day Yellen was formally announced, the Fed held an auction of 10-year Treasury bills. Without knowing the precise numbers, the Fed can buy whatever it wants, let’s say 40 percent, the rest of the world, including China buys 60 percent. Despite the uneasiness in the markets, the U.S. is still the best place for foreign countries to park their currency.
Of course the Chinese could take pity on us and forgive some of the enormous debt they hold, but that won’t happen, because they would lose a great deal. But the Fed could do it and it wouldn’t hurt them a bit. It’s like one hand owing the other hand and saying let’s forget it. It’s unlikely, but as far as we can tell, it’s legal and it just might work.
© 2013 U.S. News Syndicate, Inc.
Distributed by U.S. News Syndicate, Inc.
END WASHINGTON MERRY-GO-ROUND