On August 19, 2013, Terence P. Jeffrey writes on CNSNews.com:
The Federal Reserve’s holdings of publicly traded U.S. Treasury securities—federal government debt—pushed above $2 trillion for the first time last week, hitting approximately $2,001,093,000,000 as of Aug. 14, according to the Fed’s latest weekly accounting.
By law, the Fed is not permitted to buy U.S. Treasury securities directly from the Treasury. Instead it buys them in the secondary market. However, when the Fed buys U.S. government debt even on the secondary market it creates a closed circle: The Treasury pays the Fed the interest owed on that part of the federal government’s debt, and almost all of that interest–considered “profit” by the Fed–is paid back to the Treasury.
“Monetizing the deficit refers to financing the budget deficit through money creation rather than by selling bonds to private investors,” said the CRS. “Hyperinflation in foreign countries has consistently resulted from governments’ decision to monetize large deficits.
“According to this definition, the deficit has not been monetized,” said CRS. “Section 14 of the Federal Reserve Act legally forbids the Fed from buying newly issued securities directly from the Treasury, and all Treasury securities purchased by the Fed to date have been purchased on the secondary market from private investors.”
“Nonetheless,” said CRS, “the effect of the Fed’s purchase of Treasury securities on the federal budget is similar to monetization whether the Fed buys the securities on the secondary market or directly from the Treasury. When the Fed holds Treasury securities, Treasury must pay interest to the Fed, just as it would pay interest to a private investor. These interest payments, after expenses, become profits of the Fed. The Fed, in turn, remits about 95 percent of its profits to the Treasury, where they are added to general revenues. In essence, the Fed has made an interest-free loan to the Treasury, because almost all of the interest paid by Treasury to the Fed is subsequently sent back to Treasury.
“The Fed could increase its profits and remittances to Treasury,” said CRS, “by printing more money to purchase more Treasury bonds (or any other asset).”
As of Aug. 15, according to the Bureau of the Public Debt, the total value of Treasury securities held by the public was $11,952,073,953,024.85. (The rest of the federal government’s debt is “intragovernmental” debt—n.b. money that the Treasury owes to federal trust funds, such as the Social Security trust fund.)
The $2,001,093,000,000 in Treasury securities now owned by the Fed equals 16.7 percent of the U.S. government’s debt held by the public. Another $5.6006 trillion in U.S. Treasury securities is owned by foreign entities, according to the Treasury’s latest report on foreign holders of U.S. debt. The combined $7,601,693,000,000 in U.S. Treasury securities owned the Fed and foreign entities equals about 64 percent of all extant U.S. Treasury securities.
After the Fed, entities on Mainland China are the largest owners of U.S. government debt, holding $1.2758 trillion as of the end of June.
The Federal Reserve perpetuates the “past savings” paradigm that results in concentrated ownership of the non-human factor of production––productive capital. Fortunately there is a way out of the slavery of past savings. The problem is, in large measure, the result of the evolution of a social, monetary, tax, and financial system that operates for the benefit of a few, and to the detriment of the many. This flawed system creates barriers to economic opportunity (primarily ownership of wealth-creating, income-generating productive capital) out of outdated methods of finance and money creation as well as a failure or refusal to understand the results of job-destroying and labor-worth-devaluation- advancing technology.
The Federal Reserve should be advancing universal access to productive capital ownership financed with future savings, thus freeing economic growth from the “slavery” of past savings. When the productive capital purchased with loan contracts are put to work producing marketable products and services, and a profit is realized from the sale of what is produced, part of the profits can be used to redeem the promise — the contract — by means of which the productive capital was purchased. In this way the capital pays for itself out of its own future earnings. Using this method of finance, people without capital can become owners of capital without taking anything from anybody else.
The issue of collateral can also be handled in a way that makes it possible for every otherwise qualified borrower to obtain capital credit. Instead of using traditional accumulated wealth (by definition a monopoly of those who are already rich) to secure a loan, capital credit insurance and reinsurance could be used, with the “risk premium” already charged on all loans used as the premium on an insurance contract.
In this way it is possible for as many as possible of the people to become owners without violating the rights of existing owners, or redefining human nature to exclude private ownership as a natural right, as the socialists demand.
See “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624
http://cnsnews.com/news/article/2001093000000-fed-s-ownership-us-debt-breaks-2t-first-time
