Monetize This! - Resolving A Spiraling Public Debt Crisis How Obama could take a Page
from the Fed's Playbook
How about turning to the lender of last resort, the Federal Reserve itself? The advantage for the government of borrowing from its own central bank is that this money is virtually free. This is because the Federal Reserve rebates any interest it receives to the Treasury after deducting its costs, and the federal debt is never actually paid off but is just rolled over from year to year. Interest-free loans that are never paid off are basically free money. In 2008, 85% of the interest collected by the Federal Reserve (or "Fed") was returned to the Treasury. The average interest rate on Treasury securities today is only about 3%; 15% of 3% is less than 12% such a negligible interest as to make the money nearly free.
The key is that the Fed does not actually have to acquire the money before lending it. The Fed originates the money it lends, either on a printing press or with accounting entries. It can purchase Treasury debt simply by writing credits into the "reserve account" of the seller's bank, which then credits the seller's account. The Fed's ability to write numbers into an account is obviously unlimited; but it has normally restricted its purchase of government securities to only so much as is necessary to provide the liquidity needed for banks to cash and clear checks. Funding the government's budget shortfall has usually been left to private lenders; but those loans are drying up, and servicing them is proving expensive. Both this interest burden and the need to continually attract new lenders could be avoided by tapping into the government's credit line at its own central bank.
The bottom line is that we cannot borrow our way out of debt. Only new money will stimulate a debt-ridden economy money that is interest-free and does not have to be paid back. The direct road to that result would have been to nationalize the Federal Reserve and return the power to create money to Congress; but as Wright Patman found, that solution is controversial and could be a difficult piece of legislation to get passed. In the meantime, the same result can be achieved by tapping into the government's nearly-interest-free credit line at the Federal Reserve. Nearly-interest-free loans of accounting-entry money that never has to be paid back are a source of debt-free liquidity that can be used to fund projects that put people back to work, without increasing the interest burden on the government or the tax burden on the public.
På samma vis skötte Kanada sin statsekonomi 1938-1974..tills plötsligt man från gick Bank of Canada-praxis och lät staten mjölkas av internationella bankirer.