Yeah, the erosion of trust would compromise the Fed as an institution. I don’t think the counterparty matters, a Fed default on its holdings is a default on the promises made to future generations of Americans and would result in a reboot.
Funny thing is that the reboot might be happening now just because the default is inevitable … and bitcoin is the forced accountability they’ve been able to avoid up until now.
I asked ChatGPT:
“No, the Federal Reserve cannot forgive the U.S. Treasury debt it holds on its balance sheet. The Federal Reserve is an independent government agency responsible for implementing monetary policy, which includes controlling the money supply and interest rates. The U.S. Treasury Department is responsible for managing the government's finances and issuing debt to finance its operations.
When the U.S. Treasury issues debt, the Federal Reserve may purchase some of that debt through its open market operations. The Federal Reserve holds these securities as assets on its balance sheet, and the interest paid on those securities is returned to the Treasury.
However, forgiving the debt held by the Federal Reserve would effectively mean canceling a portion of the government's own debt. This would undermine the credibility of the U.S. Treasury and damage the country's creditworthiness. Therefore, debt forgiveness is not a feasible option for the Federal Reserve.”
