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Freedom Fighters Liz MacDonald, Brigid Harrison, and Steve Horwitz on why the government thinks it owes money to itself, and whether the credit rating...
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Congressman Ron Paul is running for the Republican nomination for president has a way to lower our government's debt by one point six trillion dollars immediately.
And -- at the kinds of balanced budget cuts that -- liberals howl in pain this week.
He's introduced legislation that would simply cancel the one point six trillion the United States treasury -- the Federal Reserve.
His argument is simple it represents debt that the government owes itself here not to discuss in my freedom fighters Fox Business stocks editor.
And my colleague Elizabeth MacDonald Bridget -- found a state university law.
And political science professor Steve -- its saint Lawrence University economics professor.
Steve to you first is this too good to be true.
Is this to some -- it's too easy -- could is really work.
It's it's very complicated and it just demonstrates how crazy the role of the Federal Reserve is being does not private not public institution.
Normally a -- if you wiped out one point five.
For six trillion dollars of their assets they're in bankruptcy there in negative net worth they've got a major problem.
But the Fed's balance sheet does it really make any sense in a typical business contacts and so what you're essentially saying here's the Fed doesn't run on profit and loss -- what does it mean.
To wipe this off the treasury now.
-- of treasury has less debt we have the and we just raise the debt ceilings will be can borrow more but who loses here right -- that's the that's the really tricky question I think ultimately the American people lose that loss of wealth from the Fed represents funds that have gone from the people to the treasury.
Congressman Paul and other constitutional -- small government people among which I count myself.
Have argued that the Fed is a private bank with governmental authorities and the courts are pretty much agree to that though they're pretty much a characterize that is private.
If the treasury attempts to cancel one point six trillion in debt won't the first thing the Fed do is go to court.
And say we are a private bank.
And the government can't cancel its -- we know from the fourteenth amendment the government can't question its own obligations.
And we're not a public -- is not the first Howland completely.
You're absolutely right judge and a court is actually ruled on this matter saying that in effect.
The Fed is a private hands but the reality is here that that's actually right.
When we look at this what is going to be the net impact and the net impact is going to be eliminate the debt and then there's no incentive to cut spending.
And that is going to the long term implication of this it's just a simple solution almost like an individual going bankrupt all right here's Ron Paul's argument.
Tactic to.
Have made it support it however you see fit.
Whatever money the Fed makes it pays 90% of the to the treasury so that's -- treasury money anyway it's just a Paper debt.
Like its two sides of the balancing the -- we know that the Fed and it's the danger -- that they.
Travel to the outer limits of monetary policy on that they're gonna get hit men in their own head.
With the boomerang and inflation but here's the deal.
They effectively hit a button create bank reserve sees that money to them by treasury -- -- you gonna wipe out the treasury debt.
You have to wipe out the bank reserves to and that a slam the bank balance sheets because they've been earning interest on that and also -- -- default situation with the credit rating agencies it could also cause is to to put into the fall well let's business while -- -- received credit default swaps that market.
So it's a compelling intriguing idea but it could be inflationary.
Because if you don't wipe out the other side of the balance sheet then that my money ends up in the economy via the bank.
Professor Horowitz the total debt of the United States government is now approximately fourteen point three trillion it's probably gonna want to sixteen point 72 years.
Yet we have learned from the very minimal minimal audits of the fact of the Federal Reserve.
That they have printed as Elizabeth would say created by pressing a button on their keyboard.
Over sixteen trillion in the past three years.
They have created out of thin they are more wealth than the United States government owes its creditors what kind of sense does that.
It doesn't and that that's the thing -- one of the strange things about this is that it if if we were to do this.
It would really sort of laid bare the way the Fed operates which is if you like about that that this that that that that essentially what you're doing you think the Fed might also push a button and instead of buying all these bonds from private -- can't just created.
You know what the trend -- real danger zone is the real money printing is a dollar slots they literally to print money to buy Euro to Euro -- price and I think that's -- I think that's.
Punishment that OK switching gears credit rating agencies have threatened to knock the United States treasuries off the AAA pedestal if the big government party in Washington.
That would be Democrats and Republicans.
Offered up anything less than four trillion in deficit reduction but Washington produce no such deal.
So why -- we still have the pristine rain.
What credibility do these agencies have if -- Elizabeth.
Looking invalidate did affect like the bartenders.
At the boozing partied during the sub prime bubble incredible years you know handing out think I.
We get there isn't really -- hello.
Credibility has been you know damaged.
But they have a more activist they still matter to the SEC they still are in all sorts of debt offerings are ratings are even though the -- get this judge.
Did Dodd-Frank are trying to scale back their influence on certain death security.
Professor -- what what is your view we are do they have any credibility do do we deserve a triple A rating are they giving it to was just because we are the United States of America and they -- here in the US.
So something we don't know that they're actually going to give it -- there there is talk that Standard and Poor's may lower on our bond rating process a double A plus.
But the reality is here is where is that money if people are not investing in those bonds they don't to a best what is the most secure market in the united in the world right now.
-- they don't invest in Greece they don't invest in Italy doesn't make any sense.
-- and so I think that what we're looking at here is really.
The bond rating companies are stuck between a rock and a hard place and they've threatened us trying to six keynesian policy and now they're they've kind of -- of.
-- -- are they intellectually honest when they give us AAA rating do we desert where -- where does the treasury department of the executive branch of the United States government -- -- triple -- bond rating.
Like democracy we're still the best game in town right but that doesn't mean we're really good -- and some objective sense we probably don't deserve that AAA rating.
But you also have to remember that these rating agencies are in effect the government cartel they were set up.
They said I hope to have to have to make to be official rating agencies to approve these kinds of instruments for the very people they and and they provide that -- -- -- the people ask you what if anything would prevent GMAC and company right from the beginning to -- the Treasury's.
I would have downgraded the treasuries sometime -- personally speaking.
Giving me outside Jupiter sized debt we have.
Both previous -- security Medicare -- Medicaid which is not taking on health reform.
But you know here's the issue in this gonna make your head explode judge the reason why we're AAA is because we can print currency the real.
Like okay was AAA for years is because -- can print currency is now double leg.
But -- Japan it still has bond yields that are only averaging 2%.
Why because most of its domestic savers own the debt but still the fact that they can -- yen matters -- that reading that's.
The issue is going to matter in the long I mean and that's the reality as it is lowering that.
Breeding going to matter -- -- aren't investors intent of the -- and honest opinion from the spokesman -- -- -- I don't want I mean out of negative that one during the market price if you don't like it right the US treasury with a -- -- couldn't get a collateralized -- got Bridget Harrison Steven -- -- -- thank you very much it's a pleasure guys up next.
How the government is spending us into hyper.
