While much of the focus in past weeks has been on the attempts of the US Congress to reach a debt ceiling agreement, Rep. Ron Paul insists there is a quick fix that would cancel $1.6 trillion in debt.
Earlier Tuesday, US President Barack Obama signed legislation to raise the U.S. debt ceiling, avoiding a potential government default hours before the deadline. That news was followed by Moody’s Investors Service confirming its US Aaa government bond rating, and adding that the rating outlook is now negative. In assigning a negative outlook to the rating, Moody’s indicated that there would be a risk of downgrade.
Seeking to avert such a possibility, Rep. Ron Paul introduced Monday a bill (HR 2768) aimed at cancelling the US $1.6 trillion debt to the Federal Reserve, while at the same time lowering the debt limit by an equal amount.
Paul’s H.R. 2768 bill proposes that the $1.6 trillion that the Treasury owes to the Federal Reserve be cancelled.
HR 2768 currently has no co-sponsors, but Paul argues that such a proposal would be a quick fix for the current financial crisis.
The bill on Monday was referred to the House Committee on Ways and Means.
Late in 2010, the US Federal Reserve began buying Treasury bonds to keep long-term interest rates down.
But Paul argues that Federal Reserve purchases of Treasury debt actually represent a debt that the government owes to none other than itself – and that this debt is causing an inflationary increase in the money supply.
“We owe $1.6 trillion to the Federal Reserve. But where did they get the money to buy our debt? Well, they created it out of thin air,” Paul said in one recent interview, adding that “taxpayers keep working hard to pay the interest to the Federal Reserve, as well as to finance these bonds if the Fed wants to take the monies. So I would say that is not a real debt. It’s a fictitious debt. It’s a dishonest debt, and that we’re not obligated.”