As a follow-up to our blog post (U.S. Debt Ceiling Debate – Blah, Blah, Blah) from yesterday, U.S. debt held by the Federal Reserve can be written-off at anytime, without consequence. The result of this action would reduce current outstanding U.S. debt by more than $3 trillion, freeing up considerable room under the current debt ceiling, while eliminating the involvement of Congress to debate an unnecessary action.
Why isn’t this done? Regrettably, as we discussed yesterday, most of our Congresswomen and Congressmen have no clue as to how our monetary system works – none! Furthermmore, concern about the impact on the U.S. bond market from the future “dumping” of Treasury bonds has investors needlessly worrying about the potential that interest rates would rise. This concern, although unfounded, would be eliminated by retiring our Treasury debt held by the Federal Reserve.