The US owes the FED 4.8 trillion, whereby the FED pays 97% of its profits to the treasury. We could just default?

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  • Thu, Apr 16, 2009 - 05:18pm

    #1

    George Karpouzis

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    The US owes the FED 4.8 trillion, whereby the FED pays 97% of its profits to the treasury. We could just default?

I cant just get my head around this. The fed has "assets" of 4.8 trillion in US treasuries, whereas the US government has liabililites of 4.8 trillion to the fed. But, the FED pays 97% of its profits to the US treasury. So technically, doesnt the US have assets in 4.8 trillion becuase its going to get the money back anyway??

What effect is there if the US doesnt pay back the fed but uses the revenues to service the foreign debt instead. That way the Chinese, Japanese and Arabs dont freak out and dump all their treasury holdings. US could always tell the FED to take a IOU for the time being.

$100 created by the FED. $100 in treasury note created by the Treasury. Swap occurs. US gov spends 100. 100 is in circulation somewhere. Tax revenues by the US gov then go to service the treasury bill held by fed. Then fed turns over $97 back to the treasury which in turn gives it back to the US gov. What??

  • Thu, Apr 16, 2009 - 06:16pm

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

[quote=bearmarkettrader]

$100 created by the FED. $100 in treasury note created by the Treasury. Swap occurs. US gov spends 100. 100 is in circulation somewhere. Tax revenues by the US gov then go to service the treasury bill held by fed. Then fed turns over $97 back to the treasury which in turn gives it back to the US gov. What??

[/quote]

97% is profit not amount of money,

Example, if we take a loan for $100 AT 1% per month than we pay it back in a month we owe $101.  The profit is $1.00 so we get $0.97.  We still need to pay back the original amount to the Fed

  • Thu, Apr 16, 2009 - 06:55pm

    #3
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

If the money never gets paid back, it cannot be destroyed and removed from the Fed’s books and circulation.

If it stays in the money supply, it diminishes every other dollar in existence – inflation. Do too much of it – hyperinflation.

Many people believe that this money never will be paid back and it will in fact cause inflation. It’s pretty much core to the issues at hand and those discussed on this site.

You simply can’t loan yourself money. If you could, we would all be rich. If we were still on the gold standard, this would not be possibile.

Best,

Rog

  • Fri, Apr 17, 2009 - 12:55am

    #4
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

[quote=Ready]

If the money never gets paid back, it cannot be destroyed and removed from the Fed’s books and circulation.

[/quote]

It would seem that the money HAS to be paid back since the Treasure bonds the Fed holds all have maturity dates. Dates by which the Treasury must fully repay the principle.

So even if the Treasury ends up selling more bonds to banks or the public to repay the principle on the maturing Fed bonds, they are still being paid off and the money is still being destroyed. Therefore, the money *will* be removed from the Fed’s books and won’t stay in circulation for perpetuity. The situtation you describe where they money is not retired/destroyed requires the Fed to buy more bonds to replace the "retired" money.

  • Fri, Apr 17, 2009 - 06:25am

    #5
    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

Watch this two part series, and then ask yourself if you still think defaulting is a good idea?

 

http://www.youtube.com/watch?v=h22UjKwI7rI

 

 

  • Fri, Apr 17, 2009 - 06:40am

    #6
    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

Thomas Hedin,

Paraphrase for those of us who cannot watch YouTube at work?

Cheers,

Aaron

  • Fri, Apr 17, 2009 - 06:56am

    #7
    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

Sure thing. 

 

All of these promisorry notes that we sign are all court enforceable which means they are backed by the full faith and credit of the United States government.  Which means a mortgage on all the property in the USA.  So in other words we could default on all of our loans, including the government debt, but legally, that would allow the private banks to forclose on all of the property in the USA. 

 

 

  • Fri, Apr 17, 2009 - 10:07am

    #8
    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

 
The Government should just take out the Middle man and not borrow it’s own money.   The entire money system fails no matter what due to technological unemployment anyways.  That will be a great day.
  • Fri, Apr 17, 2009 - 02:12pm

    #9
    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

[quote=taco]

It would seem that the money HAS to be paid back since the Treasure bonds the Fed holds all have maturity dates. Dates by which the Treasury must fully repay the principle.

[/quote]

I believe the original question was what if we don’t pay it off and basically scrap the debt and leave the money already created from thin air just where it is.

Overall, bad idea, but then again we have a lot of bad ideas being acted on in Washington.

 

Rog

  • Wed, Apr 22, 2009 - 08:14am

    #10
    Peak Prosperity Admin

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    Re: The US owes the FED 4.8 trillion, whereby the FED pays …

"The Government should just take out the Middle man and not borrow it’s own money.   The entire money system fails no matter what due to technological unemployment anyways.  That will be a great day."

 

I agree with you that the government should create the money supply and regulate it, without borrowing, and without interest.  The problem we face right now is that the government creates no money and this debt money system we are under is designed to fail.  If we had a wealth money based system, it would be sustainable.

 

P.S.  The government doesn’t own the money, nor do the citizens.  The private banks own every dollar and every penny, cash or credit, we have in circulation.  Remember we are mearly borrowing their money, since they only loaned it to us, they retained ownership.  The government does bear the liability of all the notes though.  What a concept, the private banks create the money but it becomes a liability of the government.  Talk about the perfect scam.

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