A Fix for the Debt Ceiling That No One Is Talking About
tnr.com — Economists believe that people respond to incentives. The fact that economists never suffer career consequences for failing to consider new ideas explains why they so rarely consider any policy that has not long been in the standard bag of tricks. I mention this background since it is relevant to the reaction given a proposal on the debt ceiling that Ron Paul originally put forward and that I subsequently endorsed. Paul suggested that the Fed could destroy the $1.6 trillion in government bonds that it now holds as a way of getting room under the debt ceiling. Debt to the Fed counts as part of the government debt subject to the limit. If the Fed destroyed $1.6 trillion in debt, then it would create a space of $1.6 trillion under the ceiling. This is an interesting way of getting around the ceiling, although it would almost certainly require an act of Congress to do it. As it turns out, the other side of this story is even more interesting.