Could The Fed Rescue Us From The Debt Ceiling?

John Carney CNBC July 25, 2011

Skip navigation #headerOverlay{ color: #ccd6df; font-size:11px; line-height:130%; } #headerOverlay strong{ color: #ffd226; } #headerOverlay a {color:#ccd6df;text-decoration:none;} #headerOverlay a:hover {color:#ffd226;} #headerOverlay a:visited {color:#ccd6df;} #headerOverlay a:visited:hover {color:#ffd226;} Symbol Lookup onloadAutoSuggest(); var pgValue = "CNBSEB"; var cmsKeyWord = "alternative investing"; var cmsNewPG = "CNBWAB"; if ((cmsKeyWord.length > 0) && (cmsNewPG.length > 0)) { var newPG = cmsNewPG.split(';'); var group = cmsKeyWord.split(';'); if (newPG.length == group.length) { var description = cnbc_pagedesc.toLowerCase(); for(var x = 0; x < group.length; x++) { var keyWord = group[x].split('|'); for (var j = 0; j < keyWord.length; j++) { if (description.indexOf(keyWord[j].toLowerCase()) != -1) { pgValue = newPG[x]; j = keyWord.length; x = group.length; }}}}} if (cnbc_DARTFlag=="new") { cnbc_DARTAdCall(88,31,pgValue); } else { dapMgr.enableACB("SearchBox88x31",false); dapMgr.renderAd("SearchBox88x31","&PG=" + pgValue + "&AP=1071&PN=CNBC",88,31); } cnbc_displayUsername("cnbc_usertime","cnbc_username");RegisterSign InMember CenterSign OutRegistercnbc_toggleUserState();HOMENEWSMARKETSEARNINGSINVESTINGVIDEOCNBC TVCNBC 360CNBC PROU.S.Asia-PacificEuropeEconomyEnergyGreenTechnologyBlogsWiresSlideshowsSpecial ReportsCorrections if (cnbc_DARTFlag=="new") { cnbc_DARTAdCall(728,90,"CNBGE7"); } else { dapMgr.enableACB("USNewsBlogs728",false); dapMgr.renderAd("USNewsBlogs728","&PG=CNBGE7&AP=1390&PN=CNBC",728,90); } NetEveryone Is a Contrarian Indicator var cnbcSubHeaderId = document.getElementById('subheader_'+ 38911124); cnbcSubHeaderId.innerHTML = document.getElementById('renderReaderContent').innerHTML; Email: document.write("");document.write("NetNet"+"@"+"cnbc.com");document.write('');Call: 201-735-iNet (4638)Text Message: Text NETNET followed by your tip to 26221. if (cnbc_DARTFlag=="new") { cnbc_DARTAdCall(300,900,"CNBGE3"); } else { dapMgr.enableACB("USNewsBlogs300x250",false); dapMgr.renderAd("USNewsBlogs300x250","&PG=CNBGE3&AP=&PN=CNBC",300,900); } Current DateTime: 11:42:58 25 Jul 2011LinksList Documentid: 38910464Expiration DateTime: 7/25/2011 11:45:44 AM cnbc_commentCountMapObj.cnbc_commentCountMap_put("", "38910464_1","cnbcCommentsTxt" ); Is Brain Science Economics Liberal? cnbc_commentCountMapObj.cnbc_commentCountMap_put("43883247", "38910464_1","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43883247", "38910464_1","cnbcCommentsTxt" ); Sen. Coons: Very Worried a Debt Ceiling Deal Will Not Be Reached cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879040", "38910464_2","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879040", "38910464_2","cnbcCommentsTxt" ); Obama Can Raise the Debt Ceiling on His Own cnbc_commentCountMapObj.cnbc_commentCountMap_put("43881701", "38910464_3","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43881701", "38910464_3","cnbcCommentsTxt" ); The Debt Ceiling Is Greece & Lehman Brothers"¦In Reverse cnbc_commentCountMapObj.cnbc_commentCountMap_put("43881315", "38910464_4","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43881315", "38910464_4","cnbcCommentsTxt" ); Court Rejects SEC Shareholder Democracy Rule cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879656", "38910464_5","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879656", "38910464_5","cnbcCommentsTxt" ); At Least We Will Have Football! cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879041", "38910464_6","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879041", "38910464_6","cnbcCommentsTxt" ); Could the Fed Rescue US From the Debt Ceiling? cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879039", "38910464_7","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879039", "38910464_7","cnbcCommentsTxt" ); What It Will Take to Get a Deal on the Debt Ceiling cnbc_commentCountMapObj.cnbc_commentCountMap_put("43858936", "38910464_8","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43858936", "38910464_8","cnbcCommentsTxt" ); Nicole Lapin's Short & Long List cnbc_commentCountMapObj.cnbc_commentCountMap_put("43858086", "38910464_9","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43858086", "38910464_9","cnbcCommentsTxt" ); Citi and Morgan Stanley Borrowed Over $2 Trillion From Fed cnbc_commentCountMapObj.cnbc_commentCountMap_put("43856550", "38910464_10","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43856550", "38910464_10","cnbcCommentsTxt" ); How Tim Geithner Bailed Out a Swiss Bank cnbc_commentCountMapObj.cnbc_commentCountMap_put("43856553", "38910464_11","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43856553", "38910464_11","cnbcCommentsTxt" ); GAO Audit Reveals Fed Played Fast and Loose With Loan Rules cnbc_commentCountMapObj.cnbc_commentCountMap_put("43855944", "38910464_12","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43855944", "38910464_12","cnbcCommentsTxt" ); Goldman Sachs Escapes Fraud Charges Again cnbc_commentCountMapObj.cnbc_commentCountMap_put("43854379", "38910464_13","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43854379", "38910464_13","cnbcCommentsTxt" ); Small Businesses Worry Debt Deal Will Mean Higher Taxes, Fewer Jobs cnbc_commentCountMapObj.cnbc_commentCountMap_put("43854642", "38910464_14","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43854642", "38910464_14","cnbcCommentsTxt" ); Kicking The Grecian Can cnbc_commentCountMapObj.cnbc_commentCountMap_put("43846207", "38910464_15","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43846207", "38910464_15","cnbcCommentsTxt" ); That Wall Street Prostitution Ring Is Still Going cnbc_commentCountMapObj.cnbc_commentCountMap_put("43844107", "38910464_16","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43844107", "38910464_16","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("", "38910464_1","cnbcCommentsTxt" ); Current DateTime: 05:52:17 25 Jul 2011LinksList Documentid: 39085620FacebookTwitterRSSCurrent DateTime: 05:52:17 25 Jul 2011LinksList Documentid: 38852222John Carney

Runs this joint.

Cadie Thompson

Really, really runs this joint.

Kate Kelly

Reports on the major Wall Street firms, trading, and regulation.

Jeff Cox

A staff writer with CNBC.com, covering the gamut of issues affecting the stock market and the economy.

Lori Spechler

A Senior Editor at CNBC, commodity trader in a former life.

Lori Ann LaRocco

A Senior Talent Producer at CNBC.

Nicole Lapin

Runs the graveyard.

Current DateTime: 05:53:22 25 Jul 2011LinksList Documentid: 43730562The Greatest Trades of All Time

The following list of people showcases some of the greatest trades in the business.

What Happens If Greece Defaults?

If Greece defaults on its sovereign debt, the effects will be global.

The 10 Toughest Greek Austerity Measures

Greece begins to confront the true reality of austerity.

25 Things Every Wall Street Intern Should Know

Some words of wisdom for all the Wall Street Interns this summer.

Current DateTime: 11:45:39 25 Jul 2011LinksList Documentid: 38910635Expiration DateTime: 7/25/2011 11:48:35 AM cnbc_commentCountMapObj.cnbc_commentCountMap_put("", "38910635_1","cnbcCommentsTxt" ); Debt Talks? Many US Investors Are More Interested in Earnings cnbc_commentCountMapObj.cnbc_commentCountMap_put("43882431", "38910635_1","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43882431", "38910635_1","cnbcCommentsTxt" ); Debt Talks Split Between Longer-Term Deal, Quick Fix cnbc_commentCountMapObj.cnbc_commentCountMap_put("43883330", "38910635_2","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43883330", "38910635_2","cnbcCommentsTxt" ); Big Target in Debt Talks: Mortgage Interest Deduction cnbc_commentCountMapObj.cnbc_commentCountMap_put("43882179", "38910635_3","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43882179", "38910635_3","cnbcCommentsTxt" ); US Holds World 'Hostage' but Analysts See Debt Deal cnbc_commentCountMapObj.cnbc_commentCountMap_put("43876062", "38910635_4","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43876062", "38910635_4","cnbcCommentsTxt" ); Guess Who's Backing Europe's Bailout Fund? cnbc_commentCountMapObj.cnbc_commentCountMap_put("43880026", "38910635_5","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43880026", "38910635_5","cnbcCommentsTxt" ); Moody's: Greek Default Is Almost Certain. Here's Why cnbc_commentCountMapObj.cnbc_commentCountMap_put("43876647", "38910635_6","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43876647", "38910635_6","cnbcCommentsTxt" ); NFL Players Board Approves Contract, Ending Lockout cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879719", "38910635_7","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879719", "38910635_7","cnbcCommentsTxt" ); Colleges That Bring The Highest Paycheck cnbc_commentCountMapObj.cnbc_commentCountMap_put("40703034", "38910635_8","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("40703034", "38910635_8","cnbcCommentsTxt" ); NetNet: Could the Fed Save US From the Debt Ceiling? cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879039", "38910635_9","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43879039", "38910635_9","cnbcCommentsTxt" ); RIM to Cut 2,000 Jobs in Move to Slash Costs cnbc_commentCountMapObj.cnbc_commentCountMap_put("43878320", "38910635_10","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("43878320", "38910635_10","cnbcCommentsTxt" ); cnbc_commentCountMapObj.cnbc_commentCountMap_put("", "38910635_1","cnbcCommentsTxt" ); » HelpCurrent DateTime: 05:53:22 25 Jul 2011LinksList Documentid: 38851925Subscribe to this RSS feed

Stay up to date with NetNet.

setDefault('cnbc_textbody');Could the Fed Rescue US From the Debt Ceiling? Published: Monday, 25 Jul 2011 | 8:51 AM ET Text Size By: John CarneySenior Editor, CNBC.com window.fbAsyncInit = function() { FB.init({appId: 'your app id', status: true, cookie: true, xfbml: true}); }; (function() { var e = document.createElement('script'); e.async = true; e.src = document.location.protocol + '//connect.facebook.net/en_US/all.js'; document.getElementById('fb-r

Really, really runs this joint.

Reports on the major Wall Street firms, trading, and regulation.

A staff writer with CNBC.com, covering the gamut of issues affecting the stock market and the economy.

A Senior Editor at CNBC, commodity trader in a former life.

A Senior Talent Producer at CNBC.

Runs the graveyard.

The following list of people showcases some of the greatest trades in the business.

If Greece defaults on its sovereign debt, the effects will be global.

Greece begins to confront the true reality of austerity.

Some words of wisdom for all the Wall Street Interns this summer.

Stay up to date with NetNet.

APThe Federal Reserve maybe able to fund the U.S. government if no deal to raise the debt ceiling is reached.

The Fed currently owns about $1.63 trillion of Treasurys. It can sell these through its open market operations span#ExplainsLink a, span#ExplainsLink a img, span#ExplainsLink a:visited img, span#ExplainsLink a:visited {border:none;} . All Fed income that exceeds the Fed's costs are remitted to the U.S. Treasury Department. Which means that the revenues from selling Treasurys could be used to fund government operations instead of borrowing.

Sales of Treasurys by the Fed would not violate the debt ceiling laws, because the debt has already been issued. It is already counted against the debt ceiling.

The U.S. government borrows around $125 billion each month. This means that, at least in theory, it is possible for the Fed to fully fund the borrowing needs of the U.S. government for nearly a year.

RELATED LINKSCurrent DateTime: 05:53:22 25 Jul 2011LinksList Documentid: 43879061What It Will Take to Get a Deal on the Debt CeilingHow Corporate America Is Preparing for a Debt Ceiling DisasterIs Geithner Warning Dodd-Frank May Fall to Debt Ceiling Deal?

The Fed typically sells U.S. government debt when it wants to take money out of the system in order to reduce inflationary pressures. In ordinary times, such sales raise interest rates, because the market is oversupplied with U.S. government debt.

But rates wouldn't necessarily rise if the Fed was selling at a time when the U.S. Treasury is not. In fact, they might fall because the unwillingness of the U.S. government to issue more debt would potentially create a supply shortage.

One concern might be that having the Fed exchange Treasurys for dollars could be deflationary. But, again, this might not be the case at a time when the Treasury isn't issuing debt of its own. The dollars taken in from the Treasury sales wouldn't be taken out of the economy"”they would be poured back into it through government spending.

This might be an unlikely move for the Fed. The Fed has never undertaken anything like this operation. But over the past few years, we've seen the Fed do many things it has never done before.

___________________________________________

Questions? Comments? Email us at document.write("NetNet"+"@"+"cnbc.com");document.write('');

Could The Fed Rescue Us From The Debt Ceiling?

Related Articles