Saturday, October 8, 2011

I have a dollar they can use

From Nick Rowe:

Also, how much money does it take to pay down $1 trillion in debt? $1. If it circulates quickly enough. Remember the joke/story about the rich tourist who walks into town, puts a $100 bill on the counter of the hotel, which gets "borrowed" to pay off a circle of debts, and then returned to the tourist before he notices it's missing?

Here. The Fed can use my dollar. The Fed can keep my dollar, if they will use it to pay themselves, a dollar at a time, to pay off all the troubled-asset debt they bought up a couple years back. Pay off *all* that underwater-mortgage debt that they hold. Every time they pay off a dollar of somebody's bad-asset debt, mortgage debt or whatever, the dollar comes back to the Fed as the holder of that debt. So then they can use it to pay off another dollar of bad debt. To pay off another trillion, for that matter.

They can balance those payments against goodwill, as Waldman and I have noted. At the end, their books will be out-of-whack by a dollar. At that point, they can give me back my dollar, if that puts them more at ease.

There is a version of the story Nick Rowe mentions, here.

No comments: