New congressional bill would cancel $1.6T in debt held by Federal Reserve

Rep. Ron Paul on Monday introduced legislation that would lower the federal government’s debt by canceling the roughly $1.6 trillion in debt held by the Federal Reserve.

Paul has argued for the last few weeks that the idea represents a quick way to make the growing fiscal crisis more manageable. Under his bill, H.R. 2768, the $1.6 trillion that the Treasury owes to the Federal Reserve would disappear.

The Federal Reserve began buying Treasury bonds in earnest late last year as part of its effort to keep long-term interest rates down. But Paul has argued that Fed purchases of Treasury debt represent a debt that the government owes to itself, and one that also leads to an unwanted and inflationary increase in the money supply.

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