jdawg1847 (94.30)

Monetize Intragovernmental Holdings

December 09, 2008 – Comments (2)

Currently, some $4.2T of the national debt is held in a category called "Intragovernmental holdings." This category has been steadily growing over the years as politicians try to "stash" money away from budget surgeons.

According to the public debt website, intragovernmental holdings are "are mostly made up of the Government Account Series (GAS) held by government trust funds, revolving funds, and special funds."  This is primarily composed of the medicare trust fund and social security trust fund.

http://www.treasurydirect.gov/NP/BPDLogin?application=np

Not only is it odd that we own debt to ourselves, but we also pay interest on this debt.

This is completely rediculous.  1st of all, the notion of a "social security trust fund" or a "railroad retirement account" being protected is unreasonable.  All debt is an obligation to pay from future earnings.  The debt is meaningless without tax revenue.  While taxes are separated by law, laws can be changed. 

If you count the Fed's holdings of treasuries, over 54% of all treasury debt is held by the government itself.

http://en.wikipedia.org/wiki/United_States_public_debt

Approximately $412B was spent paying interest on this debt in FY08.  If we make a simple calculation based on the 54% number, we can come up with  $222.4 billion that we paid to ourselves.

You might say, well, this is just accounting.  No, it's not.  When we paid this $222.4 billion, we actually BORROWED again to pay the interest.  So we have created more debt to pay ourselves interest.  While we have a deficit of close to $1T this year, $222 billion is nothing to sneeze at.

This nonsense must stop.  The fed should monetize all of the debt held by all government agencies and the treasury should stop paying the fed interest.  While the fed actually makes a market in treasuries, by some definition, it is the "God" of the money supply and doesn't really need to collect interest on treasuries as it can "print" whatever money it needs.  This will save the taxpayer ~ $200B a year.  Yes, it doesn't solve our fiscal crises, and the government is still woefully underfunded -- but that is solved only through higher taxes, not fiscal stimulus or monetary nonsense.

This proposal is not hyperinflationary because 1) the government already owns the debt (it's not from the public circulation) and 2) debt = money in a fiat currency system, so the money already exists -- and thus its monetization is not inflationary.