Ricter's Rentier Class Visits Their Employee. No wonder Boehner was invited so quickly to the White House. Link 15 Bankers just paid a visit to the White House, listened to President Obama, and explained what a total disaster it would be if the US debt-ceiling is breached and Treasuries technically default. While the politicians exclaimed how bad a government shutdown would be, the banks have turned the panic dial to 11 as Goldman's Lloyd Blankfein noted, bankers are âin a position to really know early what the consequences are,â and it would be catastrophic. The irony of the firm that the government is trying to fine $20 billion, providing the government advice on debt default is not lost on us as Dimon was among the visitors but it is Blankfein's warning, echoing Obama, that will get the headlines, "they shouldn't use the threat of causing the U.S. to fail on its obligation to repay debt as a cudgel." <param name="movie" value="http://plus.cnbc.com/rssvideosearch/action/player/id/3000204288/code/cnbcplayershare"/> <embed name="cnbcplayer" PLUGINSPAGE="http://www.macromedia.com/go/getflashplayer" allowfullscreen="true" allowscriptaccess="always" bgcolor="#000000" height="380" width="400" quality="best" wmode="transparent" scale="noscale" salign="lt" src="http://plus.cnbc.com/rssvideosearch/action/player/id/3000204288/code/cnbcplayershare" type="application/x-shockwave-flash" /> </object> Via Bloomberg,
If the Fed can print money to buy Treauries, why can't they print money to pay interest on them? Or why can't they just retire the Treasuries that the Fed has bought under QE? Every bond retired reduces the amount of debt, so in effect it is raising the debt limit. Am I crazy or is this possible? There are many other things that could be done to forestall a default. The government is still collecting tax money for example. They have plenty of assets they could monetize. They could repo some gold holdings for example. They would rather try to frighten us than look for a way out. Parading a bunch of Wall Street criminals in front of the White House to tell us we should give up is not a winning strategy in my opinion. Most of them would be in other lines of work but for the taxpayer bailout. They should have all been forced out of their cushy jobs as the price of a bailout, but here they are, lecturing us.
There are two lines of thought on this in the legal literature. One side seems to put up a lot of conjecture. The other side is pretty clear... There is no law stopping the fed from just honoring all requests for payment. The bottom line and answer lies at the heart of what the charter for a private banks does... Does the Fed get to create money. The Fed Reserve system does create money. Therefore, they do not need "authorized debt" to create money. Therefore, they can and will make good on U.S. obligations. To not make good would put their incredible franchise in jeopardy.