lunes, 11 de abril de 2011

Treasury may borrow federal retirement funds in debt emergency--My answer is No!

The government could temporarily tap tens of billions of dollars from two federal employee retirement programs if Congress fails to raise the federal debt ceiling next month, Treasury Secretary Timothy Geithner told lawmakers.
The government expects to hit a $14.3 trillion debt ceiling on May 16 or before, Geithner said in a Monday letter.
Geither implored Congress to extend the debt ceiling by that deadline and said that if Congress does not, Treasury will be forced to borrow money from the Civil Service Retirement and Disability Fund and the Thrift Savings Plan’s Government Securities Investment Fund, or G Fund, both of which are invested in U.S. Treasury securities. Those two moves could free up $142 billion through early July.
The government has taken similar steps before with no effect upon federal retirees. If the debt ceiling is extended by Congress within a couple months of the May 16 deadline, retirees and TSP participants should have nothing to worry about, several experts said. By law, both funds have to be repaid with interest, said Susan Irving, director for federal budget analysis at the Government Accountability Office.
“I would anticipate no impact,” echoed Dan Adcock, legislative director for the National Active and Retired Federal Employees Association.
Geithner said borrowing money from the federal retirement programs and other “extraordinary measures” available to the government would stave off the need to raise the debt ceiling until around July 8. Once those measures are exhausted, the government “will be limited in its ability to make payments across the government,” Geithner said.
In that case, retirees’ pensions could be affected. Adcock said that, if that were to happen, any impact on retirement payouts would be “the least of their problems because we’ll face a worldwide economic collapse.
“I think people would understand what’s at stake and cooler heads would prevail,” Adcock added.

miércoles, 9 de febrero de 2011

Ronald Reagan, Enabler of Atrocities

Ronald Reagan, Enabler of Atrocities

By Robert Parry
February 6, 2011

When you’re listening to the many tributes to President Ronald Reagan, often for his talent making Americans feel better about themselves, you might want to spend a minute thinking about the many atrocities in Latin America and elsewhere that Reagan aided, covered up or shrugged off in his inimitable "aw shucks" manner.

After all, the true measure of a president shouldn’t be his style or how he made us feel but rather what he did with his extraordinary power, what were the consequences for real people, either for good or ill.

Yet, even as the United States celebrates Reagan’s centennial birthday and lavishes praise on his supposed accomplishments, very little time has been spent reflecting on the unnecessary bloodbaths that Reagan enabled in many parts of the world.

Those grisly deaths and ugly tortures get whisked away as if they were just small necessities in Reagan’s larger success “winning the Cold War” – even though the competition between the United States and the Soviet Union was already winding down before Reagan arrived on the national scene. [See Consortiumnews.com’s “Reagan’s ‘Tear Down This Wall’ Myth.”]

Yet, Reagan’s Cold War obsessions helped unleash right-wing “death squads” and murderous militaries on the common people in many parts of the Third World, but nowhere worse than in Latin America.

In the 1970s and 1980s, as Latin American security forces were sharpening themselves into finely honed killing machines, Reagan was there as an ardent defender, making excuses for the atrocities, and sending money and equipment to make the forces even more lethal.

For instance, in the late 1970s, when Argentina’s dictators were inventing a new state-terror program called “disappearances” – the unacknowledged murders of dissidents – Reagan was making himself useful as a columnist deflecting the human rights complaints coming from the Carter administration.

At the time, Argentina’s security forces were rounding up tens of thousands of political opponents who became subjects of ingenious torture techniques often followed by mass killings, including a favorite method that involved shackling naked prisoners together, loading them onto a plane, piloting the plane out to sea and shoving them through the plane’s door, like sausage links.

However, since Argentina’s rightists were devout Catholics, they had a special twist when the prisoners were pregnant women. The expectant mothers would be kept alive until they reached full term and then were subjected to either induced labor or Caesarian sections.

The babies were handed out to military families and the new mothers were loaded aboard the death planes to be dumped out over the sea to drown. The children were sometimes raised by their mothers’ murderers. [See Consortiumnews.com’s “Argentina’s Dapper State Terrorist” or “Baby-Snatching: Argentina’s Dirty War Secret.”]

As ghastly as Argentina's “dirty war” was, it had an ardent defender in Ronald Reagan, who used his newspaper column to chide President Jimmy Carter’s human rights coordinator, Patricia Derian, for berating the Argentine junta.

Reagan joshed that Derian should “walk a mile in the moccasins” of the Argentine generals before criticizing them. [For details, see Martin Edwin Andersen's Dossier Secreto.]

Sympathizing with Torturers

So, there was good reason for the right-wing oligarchs and their security services to celebrate when Reagan was elected president in November 1980. They knew they would enjoy a new era of impunity as they tortured, raped and murdered their political opponents.

Even before Reagan took office, four American churchwomen in El Salvador were kidnapped by elements of the right-wing Salvadoran military. Because the women were suspected of harboring leftist sympathies, they were raped and executed with high-powered bullets to their brains, before their bodies were stuffed into shallow graves.

The incoming Reagan administration was soon making excuses for the Salvadoran killers, including comments from Reagan's U.N. Ambassador Jeane Kirkpatrick and Secretary of State Alexander Haig.

The brutal Argentine generals also got a royal welcome when they visited Washington. Kirkpatrick feted them at an elegant state dinner.

More substantively, Reagan authorized CIA collaboration with the Argentine intelligence service for training and arming the Nicaraguan Contras, a rebel force created to overthrow Nicaragua’s leftist Sandinista government. The Contras were soon implicated in human rights atrocities of their own.

Torture was also on the Reagan’s administration’s menu for political enemies. A 2004 CIA Inspector General’s report, examining the CIA’s abusive “war on terror” interrogations under President George W. Bush, noted the spy agency’s past “intermittent involvement in the interrogation of individuals whose interests are opposed to those of the United States.”

The report noted “a resurgence in interest” in teaching these techniques in the early 1980s “to foster foreign liaison relationships.” The report said, “because of political sensitivities,” the CIA’s top brass in the 1980s “forbade Agency officers from using the word ‘interrogation” and substituted the phrase “human resources exploitation” in training programs for allied intelligence agencies.

Euphemisms aside, the CIA Inspector General cited a 1984 investigation of alleged “misconduct on the part of two Agency officers who were involved in interrogations and the death of one individual.” In 1984, the CIA also was faced with a scandal over an “assassination manual” prepared by agency personnel for the Nicaraguan Contras.

While the IG report’s references to this earlier era were brief – and the abuses are little-remembered features of Ronald Reagan’s glorified presidency – there have been other glimpses into how Reagan unleashed this earlier “dark side” on the peasants, workers and students of Central America. Arguably, the worst of these “dirty wars” was inflicted on the people of Guatemala.

Genocide in Guatemala

After taking office in 1981, Reagan pushed to overturn an arms embargo that Carter had imposed on Guatemala for its wretched human rights record. Yet even as Reagan moved to loosen up the military aid ban, U.S. intelligence agencies were confirming new Guatemalan government massacres.

In April 1981, a secret CIA cable described a massacre at Cocob, near Nebaj in the Ixil Indian territory. On April 17, 1981, government troops attacked the area believed to support leftist guerrillas, the cable said.

According to a CIA source, "the social population appeared to fully support the guerrillas" and "the soldiers were forced to fire at anything that moved." The CIA cable added that "the Guatemalan authorities admitted that 'many civilians' were killed in Cocob, many of whom undoubtedly were non-combatants."

Despite the CIA account and other similar reports, Reagan permitted Guatemala's army to buy $3.2 million in military trucks and jeeps in June 1981. To permit the sale, Reagan removed the vehicles from a list of military equipment that was covered by the human rights embargo.

Confident of Reagan’s sympathies, the Guatemalan government continued its political repression without apology.

According to a State Department cable on Oct. 5, 1981, Guatemalan leaders met with Reagan's roving ambassador, retired Gen. Vernon Walters, and left no doubt about their plans. Guatemala's military leader, Gen. Fernando Romeo Lucas Garcia, "made clear that his government will continue as before – that the repression will continue."

Human rights groups saw the same grisly picture. The Inter-American Human Rights Commission released a report on Oct. 15, 1981, blaming the Guatemalan government for "thousands of illegal executions." [Washington Post, Oct. 16, 1981]

But the Reagan administration was set on whitewashing the ugly scene. A State Department "white paper," released in December 1981, blamed the violence on leftist "extremist groups" and their "terrorist methods," inspired and supported by Cuba’s Fidel Castro.

More Massacres

Yet, even as these rationalizations were pitched to the American people, U.S. intelligence agencies in Guatemala continued to learn of government-sponsored massacres.

One CIA report in February 1982 described an army sweep through the so-called Ixil Triangle in central El Quiche province.

“The commanding officers of the units involved have been instructed to destroy all towns and villages which are cooperating with the Guerrilla Army of the Poor [known as the EGP] and eliminate all sources of resistance," the report stated. "Since the operation began, several villages have been burned to the ground, and a large number of guerrillas and collaborators have been killed."

The CIA report explained the army's modus operandi: "When an army patrol meets resistance and takes fire from a town or village, it is assumed that the entire town is hostile and it is subsequently destroyed."

When the army encountered an empty village, it was "assumed to have been supporting the EGP, and it is destroyed. There are hundreds, possibly thousands of refugees in the hills with no homes to return to. …

“The well-documented belief by the army that the entire Ixil Indian population is pro-EGP has created a situation in which the army can be expected to give no quarter to combatants and non-combatants alike."

In March 1982, Gen. Efrain Rios Montt seized power in a coup d’etat. An avowed fundamentalist Christian, he immediately impressed Official Washington with his piety. Reagan hailed Rios Montt as "a man of great personal integrity."

By July 1982, however, Rios Montt had begun a new scorched-earth campaign called "rifles and beans." The slogan meant that pacified Indians would get "beans," while all others could expect to be the target of army "rifles."

In October 1982, Rios Montt secretly gave carte blanche to the feared “Archivos” intelligence unit to expand “death squad” operations, internal U.S. government cables revealed.

Defending Rios Montt

Despite the widespread evidence of Guatemalan government atrocities cited in the internal U.S. government cables, political operatives for the Reagan administration sought to conceal the crimes. On Oct. 22, 1982, for instance, the U.S. Embassy claimed the Guatemalan government was the victim of a communist-inspired "disinformation campaign."

Reagan personally took that position in December 1982 when he met with Rios Montt and claimed that his regime was getting a "bum rap" on human rights.

On Jan. 7, 1983, Reagan lifted the ban on military aid to Guatemala, authorizing the sale of $6 million in military hardware, including spare parts for UH-1H helicopters and A-37 aircraft used in counterinsurgency operations.

State Department spokesman John Hughes said the sales were justified because political violence in the cities had "declined dramatically" and that rural conditions had improved, too.

In February 1983, however, a secret CIA cable noted a rise in "suspect right-wing violence" with kidnappings of students and teachers. Bodies of victims were appearing in ditches and gullies.

CIA sources traced these political murders to Rios Montt's order to the "Archivos" the previous October to "apprehend, hold, interrogate and dispose of suspected guerrillas as they saw fit."

Despite these ugly facts on the ground, the annual State Department human rights survey sugarcoated the facts for the American public and praised the supposedly improved human rights situation in Guatemala.

"The overall conduct of the armed forces had improved by late in the year" 1982, the report stated.

A different picture – far closer to the secret information held by the U.S. government – was coming from independent human rights investigators. On March 17, 1983, Americas Watch representatives condemned the Guatemalan army for human rights atrocities against the Indian population.

New York attorney Stephen L. Kass cited proof that the government carried out "virtually indiscriminate murder of men, women and children of any farm regarded by the army as possibly supportive of guerrilla insurgents."

Rural women suspected of guerrilla sympathies were raped before execution, Kass said. Children were "thrown into burning homes. They are thrown in the air and speared with bayonets. We heard many, many stories of children being picked up by the ankles and swung against poles so their heads are destroyed." [AP, March 17, 1983]

‘Positive Changes’

Publicly, however, senior Reagan officials continued to put on a happy face.

On June 12, 1983, special envoy Richard B. Stone praised "positive changes" in Rios Montt's government. But Rios Montt’s vengeful Christian fundamentalism was hurtling out of control, even by Guatemalan standards. In August 1983, Gen. Oscar Mejia Victores seized power in another coup.

Despite the power shift, Guatemalan security forces continued to kill anyone deemed a subversive or a terrorist.

When three Guatemalans working for the U.S. Agency for International Development were slain in November 1983, U.S. Ambassador Frederic Chapin suspected that “Archivos” hit squads were sending a message to the United States to back off even the mild pressure for human rights.

In late November 1983, in a brief show of displeasure, the administration postponed the sale of $2 million in helicopter spare parts. The next month, however, Reagan sent the spare parts anyway. In 1984, Reagan succeeded, too, in pressuring Congress to approve $300,000 in military training for the Guatemalan army.

By mid-1984, Chapin, who had grown bitter about the army’s stubborn brutality, was gone, replaced by a far-right political appointee named Alberto Piedra, who was all for increased military assistance to Guatemala.

In January 1985, Americas Watch issued a report observing that Reagan's State Department "is apparently more concerned with improving Guatemala's image than in improving its human rights."

Other examples of Guatemala’s “death squad” strategy came to light later. For example, a U.S. Defense Intelligence Agency cable in 1994 reported that the Guatemalan military had used an air base in Retalhuleu during the mid-1980s as a center for coordinating the counterinsurgency campaign in southwest Guatemala – and for torturing and burying prisoners.

At the base, pits were filled with water to hold captured suspects. "Reportedly there were cages over the pits and the water level was such that the individuals held within them were forced to hold on to the bars in order to keep their heads above water and avoid drowning," the DIA report stated.

The Guatemalan military used the Pacific Ocean as another dumping spot for political victims, according to the DIA report.

Bodies of insurgents tortured to death and live prisoners marked for “disappearance” were loaded onto planes that flew out over the ocean where the soldiers would shove the victims into the water to drown, a tactic that had been a favorite disposal technique of the Argentine military in the 1970s.

The history of the Retalhuleu death camp was uncovered by accident in the early 1990s when a Guatemalan officer wanted to let soldiers cultivate their own vegetables on a corner of the base. But the officer was taken aside and told to drop the request "because the locations he had wanted to cultivate were burial sites that had been used by the D-2 [military intelligence] during the mid-eighties," the DIA report said.

‘Perception Management’

Guatemala, of course, was not the only Central American country where Reagan and his administration supported brutal counterinsurgency and paramilitary operations -- and then sought to cover up the bloody facts.

Deception of the American public – a strategy that the administration called “perception management” – was as much a part of Reagan's Central American activities as the Bush administration’s lies and distortions about weapons of mass destruction were to the lead-up to the war in Iraq in 2003.

Reagan's falsification of the historical record became a hallmark of the conflicts in El Salvador and Nicaragua as well as Guatemala. In one case, Reagan personally lashed out at a human rights investigator named Reed Brody, a New York lawyer who had collected affidavits from more than 100 witnesses to atrocities carried out by the U.S.-supported Contras in Nicaragua.

Angered by the revelations about his beloved Contras, Reagan denounced Brody in a speech on April 15, 1985, calling him "one of dictator [Daniel] Ortega's supporters, a sympathizer who has openly embraced Sandinismo."

Privately, Reagan had a far more accurate understanding of the true nature of the Contras. At one point in the Contra war, Reagan turned to CIA official Duane Clarridge and demanded that the Contras be used to destroy some Soviet-supplied helicopters that had arrived in Nicaragua.

Clarridge recalled that "President Reagan pulled me aside and asked, 'Dewey, can't you get those vandals of yours to do this job.'" [See Clarridge's A Spy for All Seasons.]

On Feb. 25, 1999, a Guatemalan truth commission issued a report on the staggering human rights crimes that Reagan and his administration had aided, abetted and concealed.

The Historical Clarification Commission, an independent human rights body, estimated that the Guatemalan conflict claimed the lives of some 200,000 people with the most savage bloodletting occurring in the 1980s.

Based on a review of about 20 percent of the dead, the panel blamed the army for 93 percent of the killings and leftist guerrillas for three percent. Four percent were listed as unresolved.

The report documented that in the 1980s, the army committed 626 massacres against Mayan villages. "The massacres that eliminated entire Mayan villages … are neither perfidious allegations nor figments of the imagination, but an authentic chapter in Guatemala's history," the commission concluded.

Mayan Exterminations

The army "completely exterminated Mayan communities, destroyed their livestock and crops," the report said. In the northern highlands, the report termed the slaughter "genocide."

Besides carrying out murder and "disappearances," the army routinely engaged in torture and rape. "The rape of women, during torture or before being murdered, was a common practice" by the military and paramilitary forces, the report found.

The report added that the "government of the United States, through various agencies including the CIA, provided direct and indirect support for some [of these] state operations." The report concluded that the U.S. government also gave money and training to a Guatemalan military that committed "acts of genocide" against the Mayans.

"Believing that the ends justified everything, the military and the state security forces blindly pursued the anticommunist struggle, without respect for any legal principles or the most elemental ethical and religious values, and in this way, completely lost any semblance of human morals," said the commission chairman, Christian Tomuschat, a German jurist.

"Within the framework of the counterinsurgency operations carried out between 1981 and 1983, in certain regions of the country agents of the Guatemalan state committed acts of genocide against groups of the Mayan people,” Tomuschat said.

During a visit to Central America, on March 10, 1999, President Bill Clinton apologized for the past U.S. support of right-wing regimes in Guatemala.

"For the United States, it is important that I state clearly that support for military forces and intelligence units which engaged in violence and widespread repression was wrong, and the United States must not repeat that mistake," Clinton said.

Though Clinton admitted that U.S. policy in Guatemala was “wrong” -- and the evidence of a U.S.-backed “genocide” might have been considered startling -- the news was treated mostly as a one-day story in the U.S. press. It prompted no panel discussions on the cable news shows that were then obsessed with Clinton’s personal life.

But there was another factor in the disinterest. By the late 1990s, Ronald Reagan had been transformed into a national icon, with the Republican-controlled Congress attaching his name to public buildings around the country and to National Airport in Washington.

Democrats mostly approached this deification of Reagan as harmless, an easy concession to the Republicans in the name of bipartisanship. Some Democrats would even try to cite Reagan as supportive of some of their positions as a way to protect themselves from attacks launched by the increasingly powerful right-wing news media.

The Democratic goal of looking to the future, not the past, had negative consequences, however. With Reagan and his brutal policies put beyond serious criticism, the path was left open for President George W. Bush and Vice President Dick Cheney to return to the “dark side” after the 9/11 attacks, authorizing torture and extrajudicial killings.

Now, Reagan’s “greatness” is being sealed by the elaborate celebrations in honor of his 100th birthday, including a special homage paid during the Super Bowl. In recent days, commentators, like MSNBC’s Chris Matthews, have scrambled to position themselves as Reagan’s admirers, all the better to protect their careers.

But amid all the extravagant hoopla and teary tributes to the late president, perhaps some Americans will stop and think of all the decent people in Latin America and elsewhere who died horrible and unnecessary deaths as Ronald Reagan cheerily defended their murderers.

[Many of the declassified Guatemalan documents have been posted on the Internet by the National Security Archive.]

[For more on these topics, see Robert Parry’s Lost History andSecrecy & Privilege, which are now available with Neck Deep, in a three-book set for the discount price of only $29. For details, click here.]

Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & 'Project Truth' are also available there.

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lunes, 22 de noviembre de 2010

The Great Tax Cut Debate - Myths and Facts

In the lame-duck Congress agenda, perhaps the most substantive debate is over whether to continue tax breaks for the rich. President Obama and most Congressional Democrats want to extend the Bush tax cuts for 98 percent of Americans, everyone making under $250,000. Republicans want to extend the tax cuts for everybody despite Bush's tax bill enacted in June 2001 to suspend the tax cuts at the end of 2010 in order to restore needed revenue. If nothing is done, everyone's taxes will rise. Follow the Truthout article here.

sábado, 20 de noviembre de 2010

Millionaires Tell President Obama: Tax Us and Let the Little Fellow Go

American Billionaires and Millionaires have told the President that: "For the fiscal health of our nation and the well-being of our fellow citizens, we ask that you allow tax cutson incomes over $1,000,000 to expire at the end of this year as scheduled..." The "Patriotic Millionaires for Fiscal Strength" have made their feeling known in their website

Quantitave easing explained

See this excellent explanation of Quantitative Easing (money printing) in this You Tube video

martes, 9 de noviembre de 2010

The Federal Reserve and the Magic of Imaginary Money

The Federal Reserve and the Magic of Imaginary Money- by Larry DeWitt
Okay, this business about the Fed and the government and who owns the government debt, always drives me crazy. Every time it comes up I study the matter again, understand it a little, then forget what I thought I learned. So I am writing it down! Anyway . . . here is how I think it works.

The Fed is a private corporation, owed by its member banks. The Fed sells stock ownership in itself. The stock cannot be resold or transferred. Only member banks can hold ownership of the Fed. About 34% of the private banks in the U.S. are members of the Fed. Of course the fact that these are U.S. banks does not mean they are necessarily U.S. owned. Whoever owns the banks is the stockholder in the Fed.
In addition to the private banks themselves, there are 12 Regional Fed banks. These are kind of holding companies. This is where all the money is actually on deposit, and it from these 12 banks that the money is borrowed between banks.
There is also the Federal Reserve Board in Washington, which has oversight authority over the 12 Regional banks. Government control of the Fed consists principally in the power to appoint the members of the Reserve Board. (The executives of the Regional banks are appointed by their member banks.)
Since the Fed is a quasi-government, quasi-private, entity, it is a moneymaking concern. The Fed makes its money by lending money to member banks and charging them interest, and by providing other services to the financial system (the Fed is the clearinghouse for all checks in the economy, among other things).
The Fed religiously asserts that it is a non-profit institution. Like some others of that genre, the Fed nevertheless manages to accrue a considerable amount of not-profit each year. The Fed is guaranteed by law a 6% return on the money invested in it by its member banks. So if there is net income from the Fed’s activities, it goes first to pay dividends to the Fed’s owners. After the dividend is paid, the Fed can retain additional monies by placing them in its own reserve account. Anything left after this is paid to the government as the government’s profit on the Fed’s activities. Hence the idea that the Fed retains no profits.
In 2009, the Fed had a gross income of $54.4 billion. It paid itself a billion dollars for its operating costs, leaving net income of $53.4 billion in not-profits. It paid $1.4 billion in dividends to its owners; it put $4.5 billion in its reserve; and it remitted $47.4 billion to the U.S. government.


The Fed plays three roles in our political economy:
1) It is the government’s banker. That is, there is no treasury in the Treasury Dept. All the government’s money flows into the Fed and all government payments are paid out of the Fed. (All of the government’s accounts and transactions are processed through the New York Federal Reserve Bank.)
2) It controls the money supply (see below)
3) It set the rates of interest that it charges it member banks when they borrow money from the Regional banks (this is how they control interest rates). This interest-rate setting then cascades throughout the economy in the form of secondary interest rates and in this way the Fed can influence the whole economy through monetary policy.
The U.S. Treasury cannot create money. Nobody in the government can. Only the Fed can create money (that’s why our paper money is called Federal Reserve Notes). The Treasury prints the paper and mints the coins, but it cannot issue money. What happens is that the Treasury prints paper money and sells it to the Fed for the cost of printing. It also sells to the Fed coins at their face value. The Fed then distributes this paper and these coins through its 12 Regional banks as money. That’s how money gets created and circulated in the economy. (Note that this is an “in principle” discussion. In practice, only about 3% of the money in the U.S. economy is actual cash, the rest is just computer entries—but the principle is the same.)
Now, the way the Fed (as a private concern) creates money is by buying securities from the Treasury. So if the Fed wants to put more money into the economy it orders up some new cash from the Treasury, who prints the money and gives it to the Fed, who circulates this money into the economy. (Again, usually no real money is printed; the Fed just asks the Treasury to give it credit for more government bonds on its computer spreadsheets.)
So can the government just “print more money” to pay off its debts? No. Only the Fed can make more money appear in the economy. The Fed—not the government—controls how much money is in the economy. Can we print too much money and cause hyperinflation, or a devaluing of the currency. Yes, in theory. But the Fed’s main job is to control inflation. So it works to prevent this. Also, the Fed does not issue new money to help the government with its problems; it only issues new money to help the Fed with it’s problems—that is, with managing the economy to get it growing and keep inflation in check. So the Fed doesn’t authorize the issuance of new cash so the government can pay off the federal debt. Which would be monetizing the debt (i.e., paying it off by printing money). Rather, the Fed’s only concern is whether or not there is enough cash sloshing around in the economy to keep it running efficiently.

The way the Fed controls the amount of money flowing in the economy at any moment (that is, controls liquidity) is by buying and selling Treasury securities in the private markets. If it wants to push out more money it announces it is buying Treasury securities, and when it buys the bonds from the sellers it gives the sellers cash from its reserves. This injects cash into the economy (more money is now circulating). If the Fed wants to restrict the money supply, it announces it is selling Treasury securities. When it gets the cash from the buyers it puts this cash in its reserve, thus taking the money out of circulation.
Keep in mind that this control of the flow of money in the economy is not the same thing as increasing the total amount of money in the economy, which can only happen when the Fed “prints” new money by “buying” new government bonds from the Treasury.
The Fed can also buy other forms of assets, like foreign currencies. But this is not optimal as a way of putting more money in circulation. If the Fed buys, say, Chinese currency with its new money that places the new money in circulation in China, not in the U.S. To expand the money supply in the U.S. the Fed has to buy U.S. assets.
Where it seems to get a little tricky is when the Fed wants to expand the amount of “money” in the economy (to stimulate it) but not necessarily the amount of cash money in the economy. The Fed can create more “money” in the economy by just generating more Treasury securities. They don’t have to follow through with the physical printing of additional currency—especially since 97% of the “money” in the economy is just in the form of computer entries anyway.
So let’s say the Fed wants to expand the U.S. money supply by $600 billion (as it recently announced its intention to do). The Fed tells the Treasury it wants to “buy” $600 billion in Treasury securities. The Treasury agrees. Then four things happen in succession:
1) The Fed now increases its balance sheet to show that it owns an additional $600 billion in assets (the Treasury securities);
2) The Fed credits the government’s account with $600 billion in new “cash” from this “purchase”;
3) The government will now be $600 billion deeper in debt.
4) The economy will expand by $600 billion.
This purchasing of new assets by the Fed is called “quantitative easing.” It is the way that the Fed expands the money supply.
Now, an old-fashioned traditionalist might worry whether anything of real value has been created by this process, but that’s how the modern financial system works and there is little point in fretting about it now.
One advantage of buying Treasury securities rather than private-sector debt instruments is that the money is certain to be spent! This is because—among other reasons—the government has no mechanism for saving money, since it is not allowed to invest in the private economy. The only way the government can “save” money is by buying back some of the outstanding government debt. In fact, this is what happens automatically whenever there is a surplus in the federal budget. (This was, by the way, Bill Clinton’s plan for “saving Social Security”—just buying back some of the overall debt, so as to position the government to be better able to fund Social Security in the future.)
So, who owns the additional $600 billion in debt the government has just generated? The Fed. And who owns the Fed? The member banks. So can the government just cancel this debt, because it “owes it to itself?” Nope.
Of the $13.5 trillion in outstanding U.S. government debt, the Fed owns about $2 trillion; the Social Security Trust Fund about $2.5 trillion; various other “governmental entities” own about $2 trillion; and the “public” owns the remaining $7.1 trillion (the Fed’s holdings are actually considered part of the “public” debt—but it is broken out separately here).
That’s how the money supply is controlled in this country. That’s our quasi-private, quasi-public financial system in all its glory. Ain’t it grand!
-----------------------------
Coda: Social Security and Treasury Debt
Well, maybe the government cannot repudiate the Fed debt or the public debt, but can it repudiate the $2.5 trillion it owes the Social Security Trust Funds, since it only owes this money “to itself?”
No. For two reasons.
First, it is not correct to say the government owes this debt only to itself. The Social Security Trust Funds are not the government or an entity of the government. The Trust Funds are, in this context, a sovereign financial entity, for whom the government—in the form of the Board of Trustees—is merely the fund manager. The owners of this financial entity are the taxpayers who paid the payroll taxes that give them a claim on future benefits from this fund. The government no more owns the Social Security Trust Funds than the manager of a mutual fund owns the monies invested in the fund. (It was being confused on just this point that sent Bernie Madoff to prison.)
Second, all Treasury securities have the same status: they are all promissory notes backed by “the full faith and credit of the U.S. government.” Defaulting on any of them would bring the whole house of cards tumbling down. It is generally conceded that a collapse of the government’s credit system would produce a generalized world-wide economic collapse. For even the most crazy Tea Party nutjob this would be too high a price to pay just to cheat the Social Security system out of a couple of trillion dollars.
These facts should not be confused with the kind of “political hazard” that does exist in the Social Security system. It is certainly possible for a future Congress to change the rules of the game anytime it wants. So it can reduce or cancel promised benefits anytime it likes. But it cannot make the Trust Funds go away. There is already $2.5 trillion in Treasury bonds held by the Trust Funds. It is too late to do anything about this. These bonds are assets just like any other Treasury IOU. The Congress could alter the program such that no more surpluses will be generated. That is, they can stop the Trust Funds from growing—but they cannot make the existing fund disappear.
(By law, the assets in the Social Security Trust Funds cannot be spent for any purpose other than Social Security. But Congress could, in theory, change this provision of law. (It will not happen because it would be political suicide, for no purpose.) But Congress could do this. But what Congress cannot do—on pain of a default in the U.S. Government credit system—is make this asset disappear. Somebody, somewhere, somehow, has to reap the value of this asset. There is $2.5 trillion in asset value sitting out there, and it will not vanish—it will eventually be redeemed and spent by someone—whatever else may happen to Social Security, in theory.)