Armchair Planners Plotting Monetary Conflagration [acting-man]

Ron Paul’s Foray Into Monetary Education

Readers may recall that Ron Paul once surprised everyone with a seemingly very elegant proposal to bring the debt ceiling wrangle to a close. If you’re all so worried about the federal deficit and the debt ceiling, so Paul asked, then why doesn’t the treasury simply cancel the treasury bonds held by the Fed? After all, the Fed is a government organization as well, so it could well be argued that the government literally owes the money to itself. He evenintroduced a bill which if adopted, would have led to the cancellation of $1.6 trillion in federal debt held by the Fed.

Paul argued that given the fact that the Fed had simply created the money to buy the bonds from thin air, no-one would be hurt by this selective default. Moreover, he reckoned that this would likely neuter the Fed and make it less likely to manipulate the money supply in the future – if it could no longer rely on the treasury honoring its debt, there would be no point in buying more of it. He also considered the Fed’s ‘exit’ talk to be spurious: the inflation of the money supply its bond buying had inaugurated would likely never be reversed anyway (we agree on this point).

Of course the proposal was not really meant to be taken serious: rather, it was meant to highlight the absurdities of the modern-day monetary system. Paul himself pointed out in subsequent interviews that the proposal would naturally never be adopted. In short, it was essentially an educational foray on his part -  he wanted to encourage people to think. Ron Paul has always been an exception among politicians – he regarded educating people about monetary policy matters as part of his remit.

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