Ron Paul’s solution to the debt ceiling impasse. It would buy the government more time to continue arguing over how to bring about a more permanent fix.
So far as I understand the plan: Imagine one day you loan yourself a considerable sum of money. Months or years later you find you can no longer pay all your bills, which includes the interest on the loan you made to yourself, because 1) over the years you’ve over-committed yourself (bought too much stuff), and 2) there’s no longer enough revenue coming in to pay all your bills – maybe you lost your job. Instead of borrowing on your Visa to pay your bills, you merely forgive the loan you made to yourself, thus you no longer have to pay the interest, and this leaves you with enough money to pay your other bills. In the case of the government and the Fed (Federal Reserve), the “loan” was made in the form of a bond sale, the Fed bought the bonds from the government.
Paul’s suggestion is to have congress tell the Fed – whose assets belong to the government – to destroy the bonds. This would lower the government’s debt by $1.6 trillion, effectively “lowering the floor” and leaving the ceiling unchanged, and allow the government to borrow more money now.
Brilliant. So far as it goes anyway.
The real problem is to get the government to stop over committing itself. Paul has some ideas for that as well.