Getting Around The Debt Ceiling

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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By October 17 the United States Treasury will run out of cash to pay the government’s bills if the Congress does not vote to raise the debt ceiling.

America will have to default on its debt in that event, sending shock waves through the global economy. There is, however, a way out.

Federal Reserve, the nation’s self-financed central bank, is open and functioning through the government shutdown and so will it if the US defaults.

The Fed can avert a US default on US debt. It can sell the Treasury securities on its massive balance sheet and fund the Treasury with that money. No laws will be broken because existing debt, within the constraint of the existing debt ceiling, will be sold by the Fed in exchange for existing cash to pay US obligations through the US Treasury.

Under normal circumstances cash received from the markets for bonds sold by the Fed is burned. Only this time, it will be put back into circulation by paying bills incurred by the United States with that money.


About Chandrashekar (Chandra) Tamirisa
This entry was posted in Economics, North America and Caribbean, Politics and tagged , , , . Bookmark the permalink.

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