Nationalize the Federal Reserve Bank - Who's $2.9 trillion?

During the recession the Federal Reserve Bank essentially printed a large amount of money to buy up mortgage assets (some toxic, some not) and government debt.

They bought the debt on the secondary market to assuage the guilt of politicians and economists who don't like the idea of the government printing money. Regardless of that, the Federal Reserve Bank now has $2.9 trillion dollars of assets. Fortunately the Federal Reserve Bank is essentially owned by the federal government and it pays its profit to the US treasury.

In December 2012 the Federal Reserve agreed to continue printing money - to the tune of $85 billion per month until unemployment fell to a reasonable level.

For the past forty years or so, since the inflation of the seventies, the United States and most other countries in the world have been on a campaign to build up their credibility as inflation-haters. They tried to follow the general tenets of more conservative "classical" or "neoclassical" economics which argues that monetary growth should be roughly restricted to equal that of economic growth and that inflation should be driven down to zero.

Zero inflation was hard, so most countries (like Canada and the US) settled for 2%.

This anti-inflationary policies drove down interest rates. They may have also, with the help of globalisation and increased concentrated corporate power, drove down wages and used low wages to keep inflation low.

Pretty much the entire mainstream and alternative/progressive media are ignoring the fact that a large chunk of the federal debt is money that the Treasury department owes to the Federal Reserve Bank. The Treasury pays interest to the Federal Reserve Bank which then returns it to the Treasury as its profit. I'm not sure why this is being ignored?

Conventional economics would have the Federal Reserve sell off its assets and restrict the monetary supply once the economy starts to overheat. Essentially, the Federal Reserve will "burn" money that it has printed and we'll lose most of the $2.9 trillion.

A radical idea is to not burn the money. Rather we could keep it and use it to essentially ignore a large part (25-30%) of the US debt. The downside of this is that it might cause inflation and destroy trust in the Federal Reserve's reputation as in inflation fighter. I'm not sure if I buy this. Currently the US is having a hard time generating inflationary pressures (Japan is having an even harder time for the past decade as they are stuck in an extremely long recession). We've driven interest rates down to zero in the short-run, and have also driven ten-year treasury bond rates to an all-time low (1.7%).

Most liberal (or even radical) economists argue for government spending and for fiscal stimulus. I'm all for spending hundreds of billions of dollars on education, health, ending poverty, and building a green economy. However very few people on the left are talking about the advantages of a monetary stimulus!

With a progressive fiscal and monetary policy you could cut unemployment to 5% and have budget surpluses (after taking into account the Federal Reserve's balance sheet) within 5 years.

The key moves are
-print $85 billion/month (or more in the short run, and less in the long run as the economy improves)
-cut the military by 50% (or more)
-spend hundreds of billions on the green economy (Ex. the federal government could invest $1 trillion in wind and solar, borrow the money at 1.7% and get a 5% (or much greater) return - making $33/billion year profit and creating jobs)
-single payer health care
-partially shift taxation from income to pollution
-tax the rich
-fund education
-cut corporate profit rate from all-time high down to the average rate for the past 50 years (by empowering workers, strengthening labor laws, and taxing profit)
-longterm war on poverty