Debit limit real solutions and accounting and other tricks

I will be following up this article with a detailed posting on how to increase GDP growth and change regulations to increase the use of domestic resources over the next decade or two. Such changes can increase the revenues by trillions of dollars (without increasing taxes but by increasing the income and revenues that are available for taxation.) Increased digging up of domestic resources would by actual production of real wealth and would be money that is not sent overseas to buy resources.

This site has reviewed some McKinsey ideas on how to increase economic growth in the United States

Actually having effective removal of regulations that block growth and new oil and natural gas projects could get fast tracked to help with the fiscal situation and to get employment increased.

UPDATE – A deal has been made to raise the debt limit

The off topic observation is to note that the Treasury department has “extraordinary accounting tools” that it can use to give the government breathing room in the range of $150-billion when the Debt exceeds the Debt Ceiling.

Previously such breathing room would have meant many months of time. Now that adds about 5-6 weeks at the rate of $125 billion in borrowing per month.

Ron Paul has suggested that $1.6 trillion in Treasury debt be set on fire as a a solution. The Fed simply take a match to the $1.6 trillion in Treasury obligations it currently holds on its balance sheet as a result of its various QE (quantitive easing) programs.

The left leaning New Republic’s Dean Baker (co-director of the Center for Economic and Policy Research) thinks it was worth considering

There would be consequences to the Fed destroying these bonds. The Fed had planned to sell off the bonds to absorb reserves that it had pumped into the banking system when it originally purchased the bonds. These reserves can be created by the Fed when it has need to do so, as was the case with the quantitative easing policy. Creating reserves is in effect a way of “printing money.” During a period of high unemployment, this can boost the economy with little fear of inflation, since there are many unemployed workers and excess capacity to keep downward pressure on wages and prices. However, at some point the economy will presumably recover and inflation will be a risk. This is why the Fed intends to sell off its bonds in future years. Doing so would reduce the reserves of the banking system, thereby limiting lending and preventing inflation. If the Fed doesn’t have the bonds, however, then it can’t sell them off to soak up reserves.

But as it turns out, there are other mechanisms for restricting lending, most obviously raising the reserve requirements for banks. If banks are forced to keep a larger share of their deposits on reserve (rather than lend them out), it has the same effect as reducing the amount of reserves. To take a simple arithmetic example, if the reserve requirement is 10 percent and banks have $1 trillion in reserves, the system will support the same amount of lending as when the reserve requirement is 20 percent and the banks have $2 trillion in reserves. In principle, the Fed can reach any target for lending limits by raising reserve requirements rather than reducing reserves.

Representative Paul has produced a very creative plan that has two enormously helpful outcomes. The first one is that the destruction of the Fed’s $1.6 trillion in bond holdings immediately gives us plenty of borrowing capacity under the current debt ceiling. The second benefit is that it will substantially reduce the government’s interest burden over the coming decades. This is a proposal that deserves serious consideration, even from people who may not like its source.

The current news is that there is a general belief that a deal to raise the debt limit is close. Although the statement that they have been close to a deal has been made many times before

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