How is this whole thing supposed to work? The government buys up $700B of "assets" that are not really worth $700B. They float bonds to pay for them. What market actor in his right mind is going to buy a bond that finances something that is worth less than the price of the bond? Would I lend you $20 so that you could spend it on something that you'd only be able to sell for $10 in order to try to pay me back? What kind of sense does this make? Why would I want to cut in a money-wasting middleman to effectively buy assets I wouldn't want to touch myself, and for more than I'd have to pay for them if I did, in fact, want them?
The only thing that would make me want to take such a deal is the expectation that the government will shake down taxpayers for real (as opposed to merely printed) money to pay me back. As a foreign creditor I'd only take such a deal on the understanding that the government actually intended to end the inflationary shell game and actually--get this--pay its debts. Otherwise, no deal.
It would be interesting if this turns out to be the end game for the alleged "Reagan strategy" of killing the federal beast by bankrupting it. Could you imagine the drastic cuts in government spending (besides debt repayment and bank reliquification) that would have to be made to genuinely solve this problem?
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