

Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse - known
http://www.tnr.com/article/politics/91224/ron-paul-debt-ceiling-federal-reserve

======
yread
I would agree with the commenter linjoco on the site:

 _> This can't work for the simple reason that most of the Fed's holdings of
Treasury securities are pledged to secure its note issues. If you look at one
of the bills in your wallet, you'll notice it says "Federal Reserve Note." The
face value of each of these notes is a liability of the issuing Reserve Bank,
which by law must be fully collateralized by Bank assets. According tho the
Fed's annual report, at the end of 2010 the 12 Federal Reserve Banks together
held $1.066 trillion in Treasury securities, of which $925 billion was pledged
to secure their note issues. So for the Fed to return these securities to the
Treasury for cancellation would require the Fed to recall 98% of the U.S.
currency in circulation.

Of course, Congress could amend the Federal Reserve Act to remove the collatel
requirement, turning Federal Reserve notes into unsecured liabilities, but
then you run into a different problem. Taking a trillion dollars off the asset
side of the Reserve Banks' collective balance sheet would require a
corresponding debit to the other side. Their biggest liability is deposits
(i.e., reserves held at the Fed by the nation's banks, $968 billion), followed
closely by Federal Reserve notes in circulation ($941 billion), then funds
held for the U.S. Treasury ($239 billion); you couldn't reduce any of these
liabilities. That means the Fed would have to take a charge against capital,
but the Reserve Banks collectively have only $53 billion in capital, so
writing off their Treasury holdings would put them over a trillion dollars in
the hole.

What do you think of an insolvent central bank? Me neither. Paul, of course,
is a crackpot and may actually want to have to Fed declared insolvent as a way
of getting rid of it, but that doesn't mean that we should buy his schemes._

------
jameskilton
Can we stop posting anything by Ron Paul? The guy is a known lunatic, Ayn Rand
objectionist, and as libertarian as they come... who wants to be the president
of the country.

He would make GWB's presidency look like heaven. Anything Ron says is not
news, and should not be taken seriously.

