The Obvious Solution to the Nation’s Sequester Problem

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After reading in the Fed meeting minutes the other day that some members of the central bank are having second thoughts about their ongoing $85 billion per month money printing program, it occurred to me that, since Congress has an $85 billion per year “sequester” problem, maybe these two should work together.

Maybe the Fed should stop buying mortgage-backed securities and long-dated Treasuries just for one month and, instead, have that newly printed money directed to the parts of government that will otherwise suffer layoffs and cutbacks when the March 1st “sequestration” cuts go into effect.

Let the Defense Department and all the affected government agencies establish an account at the Federal Reserve and, as is done with the nation’s big banks, Ben Bernanke can just credit their accounts with the amount of money that won’t otherwise be available this year due to sequestration – about $85 billion.

Sequestration and the Fed

Then they can just keep on doing what they’ve been doing and everybody wins!

That way, hesitant Fed hawks could rest easy for a month with the knowledge that 1/12th of the Fed money printing scheduled for 2013 won’t be feeding asset bubbles in such areas like junk bonds, farmland in Iowa, and mortgage REITs.

Rather, the money will go directly toward keeping the nation’s defense strong and to keep firefighters and other first responders on the payroll for the rest of the year while also keeping the national parks open.

As it turns out, $85 billion is just a drop in the bucket for the Fed, but, as we’ve all learned in recent weeks, the $85 billion in budget cuts are going to inflict all sorts of pain on the American public, at a time when a weak economic recovery is gathering strength.

Surely the Fed doesn’t want to see the U.S. economy relapse due to some squabbling on Capitol Hill.

The Republicans will be happy because government spending will have been cut and the Defense Department won’t have to mothball any ships while the Democrats will rest easy in the knowledge that there will be no furloughs of non-defense federal workers.

Meanwhile, the budget deficit will be reduced, the Congressional Budget Office might finally stop harping on the White House to take the nation’s debt more seriously, and the credit rating agencies can all remove their “negative outlooks” on U.S. credit.

Maybe Standard & Poor’s will even restore our Triple-A rating.

I don’t know why somebody else hasn’t come up with this idea already.

What’s not to like about this?

Source: Iacono Research

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About Tim Iacono