The Fed and the ‘We Owe the Debt to Ourselves’ Fallacy

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As of now, the largest holder of U.S. Government debt is the Federal Reserve System (something ignored by the mainstream media), and I would look for this situation to accelerate rapidly, as the government is going to claim it now can fund its expenditures with “free money.” No doubt, Paul Krugman and the others will promote the fallacy of “we owe it to ourselves” and that there is no opportunity cost in the Fed directly monetizing government debt. (Krugman now is screaming for more inflation, as though we can save the economy by printing more dollars.)

The implications are ominous, as the Obama administration has demonstrated its hostility toward those sectors of the economy that actually are profitable (in relatively free markets) and is using massive subsidies to prop up those sectors (such as “green energy”) that are unprofitable. As the Obama policies of “starve the profitable industries to feed those that are unprofitable but politically-connected” continue to drag down the economy, the government will try to hide those losses through more spending financed by Fed-purchased debt. These are perilous times, indeed.

8:44 am on November 17, 2011