Repayment of government debt by creating credit for the issuance of Fed corporate bonds

General
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Repayment of government debt by creating credit for the issuance of Fed corporate bonds

Summary

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  1. Background

In the modern U.S. central banking system, the Federal Reserve (Federal Reserve Board) has a relatively small capital, and its financial risk absorption is effectively dependent on federal guarantees. As a result, the U.S. government has been forced to raise fiscal funds by issuing deficit government bonds, increasing the burden of interest payments and dependence on tax revenue.

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  1. Outline of the proposal

This proposal eliminates the fiscal deficit and provides the government with the possibility of tax-free financial management by combining credit creation through the issuance of FRB corporate bonds, the increase of Fed capital, and the issuance of government banknotes dedicated to debt repayment.

  1. Significant increase in FRB capital

• Set up a huge amount of capital in the FRB

• Accumulate and manage profits from credit creation in capital and establish a financial foundation that does not depend on government borrowing

  1. Fundraising through the issuance of FRB corporate bonds

• Based on a huge amount of capital, the Fed issues corporate bonds to raise funds from the market

• Funds raised are used for monetary policy and market intervention, reducing dependence on government deficits

  1. Issuance exclusively for debt repayment of government banknotes

• The U.S. government does not use banknotes for new spending, but issues them exclusively to redeem existing debt.

• Direct repayment of government bonds is possible, eliminating the need for new borrowing or dependence on tax revenue.

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  1. Expected effect

  2. Improving the independence and credibility of the FRB

• Huge capital increases the ability to absorb losses and expands the freedom of policy management

• Market psychology evaluates that “the Fed will not fall”, strengthening the credibility of the dollar

  1. Reducing the burden of U.S. government debt

• Government banknotes dedicated to debt repayment can directly carry out government bond repayment

• There is no need to issue new government bonds or depend on tax revenue, and tax-free financial management is possible.

  1. Improving the flexibility of policy management

• By creating credit by issuing huge capital + Fed corporate bonds, it is possible to integrate monetary and fiscal policy.

• Interest rate and inflation management can be implemented while supporting the credibility of the market

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  1. Constraints and points to note

• Legal: Amendments to the Fed Act and the U.S. Fiscal Act are mandatory

• Economic: Huge capital, issuance of Fed corporate bonds, and inflation risk management associated with the issuance of government banknotes are required

• Policy management: It is important to design that does not compromise independence due to private investment and Fed bond interest payment pressure

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  1. Conclusion

By combining the increase in FRB capital, creating credit by issuing FRB corporate bonds, and issuing government banknotes exclusively for debt repayment, tax-free financial management without the need for U.S. government borrowing will be possible, and the Fed’s creditworthiness and policy management capabilities can be maximized. Present a financial and fiscal paradigm.