Does anybody else wish Obama would just mint that trillion dollar coin and end this madness?

[FourScore]

Mint the damn coin and let's be done.

[el_bryanto]

1. There was an essay by Josh Marshall at Talking Points Memo on this

Why There's No Escape Hatch.

Solidity is about confidence. Your creditors - banks and foreign nations - evaluate you not only by your ability to pay (which the US clearly has) but also the regularity with which you actually do pay - your propensity and willingness to pay. Once you start paying some obligations and not others, investors start to get freaked out, if even you're still paying them. Because who's to say they're not next to get stiffed. This is what Wall Street is working very hard to tell Washington right now. Confidence is the simple assurance that the full force of the US government is beyond the obligation; and it's going to be done by the book.

Printing a Trillion Dollar coin when we actually have the means to pay our debt obligations without it won't inspire confidence.

Bryant

[FourScore]

3. Damn! We're screwed. n/t

[MFrohike]

20. Josh's analysis sucks

The test is political. The GOP can't remove him from office, so they have no way to stop this process without passing a law. Good luck doing that with just one chamber.

The coin is a gimmick, but it's a gimmick that works. The key flaw is that it takes us further from rational governance, not that the "bond vigilantes" give a damn. Besides, it's not as though the US has to sell bonds to raise revenue. One virtue of the coin is that it would put that old misunderstanding to rest.

[el_bryanto]

21. How do you respond to the contention that our creditors - say China and the EU

might find the whole stunt a little suspicious?

Bryant

[MFrohike]

28. I already did

If there is no alternative to the coin, they have no alternative. US Treasuries are the only "safe" investment in the world. If your choices are to hold your money (and lose value), invest in near-speculative items (most investments these days), or go with Treasuries backed by a gimmick that can't be undone, what alternative really exists? My guess is that most investors would back Obama and would funnel campaign bribes to the opponents of his opponents. After all, the coin would offer some measure of stability, which is far more than the other choices, except for holding money and watching its value dwindle.

It's a hell of a way to run a railroad, but I see this course of action as being less bad than other possibilities. It does have the virtue of laying bare the falsehood that the federal government funds itself through taxation and bond sales. Most knowledgeable people know this already, but it would be a real obstacle for those who like to claim that we can't "live beyond our means."

[SlipperySlope]

33. There are better gimmicks

I like the platinum coin solution. The law backing it is pretty rock solid and it wouldn't trigger a constitutional crisis. There is some question as to whether the federal reserve would go along, but I think in the end they would.

The problem is that it is too "gimmicky". If the whole crisis gets solved by minting a trillion dollar coin it kind of make a mockery of the whole economic process. Also, once the government demonstrates that it can summon a trillion dollars out of think air it also gets people thinking uncomfortably about what a dollar represents and what it is backed by.

There is another gimmick that is less "gimmicky" - the premium bond gimmick.

The debt ceiling is based on debt outstanding, and the debt outstanding is based on face value (not interest) owed on the debt.

So, here is how the gimmick works...

The treasury buys back $100 billion in current bonds (that are now paying 0%-3% interest). It then sells $100 billion (face value) in one-year bonds at a 900% interest rate. Because these bonds would be valued at face value plus interest, the treasury would raise approximately $1 trillion dollars. But for purposes of the debt ceiling only $100 billion in face value has been recycled.

Simple trick that would raise money without increasing nominal debt, and it doesn't look as "gimmicky" as the platinum coin, and it can be carried out without needing the federal reserve to go along.

[MFrohike]

35. Maybe

A swap for longer yield bonds at higher rates than current, say like 6-10% might work. I can't see anyone actually buying a bond like you described because it's more likely you'd get repaid with another bond than with actual money.

The problem with either of these ideas is that they do increase nominal debt because the interest is part of the equation. That runs square into the debt ceiling, which is the problem we're trying to avoid. The coin is literally money in the bank.

The coin would make people uncomfortable, I agree. I think it's time to do that. We stopped redeeming dollars August 5, 1971. It's time we formally acknowledge that the dollar, like all sovereign currencies, is created by the government and backed by the full faith and credit, not of the government, but of the US economy. I'd rather deal with a world where people understand that the federal government is an insurance company with an army and unlimited dollars rather than the current world of false scarcity when it comes to money.

[regnaD kciN]

34. Wall Street should be "telling that" to The Boner and the so-called "moderate" Republicans…

…because they're the only ones who can get us out of this mess.

[dkf]

2. The Fed is not on board. They would need to accept the coin and credit the Govt.

The Obama administration actually took it seriously — the idea of minting a $1 trillion platinum coin to avoid a debt-ceiling crisis.

But it would only have worked if the Federal Reserve, where it would be deposited, agreed to recognize its worth.

And the Fed, an independent agency, was not on board.


Read more: http://www.politico.com/story/2013/01/treasury-says-no-to-trillion-dollar-coin-report-86091.html#ixzz2h8jPTkfb

[grahamhgreen]

4. Legal tender for all debts, no?

[dkf]

5. They would be stepping on the Feds toes by moving into monetary policy.

As it is the Fed is having to compensate for fiscal policy by keeping monetary policy very loose.

[grahamhgreen]

16. Isn't the fed half our problem anyway?

[dkf]

18. Rand Paul thinks so. Personally I'm glad they exist but worry they won't manage things properly.

Done incorrectly they create bubbles.

[kenny blankenship]

26. And how's that working out for the 99%?

Free money to bid up the price of paper assets may be good news for my family, but it is not benefiting the vast majority of Americans at all.

[Jim Lane]

39. Thanks, very interesting article. I'm not sure it ends the matter, though.

The Fed didn't want to go the coin route -- last January. But the Republicans keep pulling this craziness. It's quite possible that Ted Cruz and his ilk have succeeded in changing some minds at the Fed. Even officials who still aren't keen on the platinum coin may now be coming to see it as the least bad solution.

[dkf]

40. The Fed isn't going to give the power of printing money to the treasury.

Think about it. Think about the Fed trying to control inflation if treasury decides to mint a bunch of coins. Even as we speak the fed is unhappy with the contractionary effect of the budget cuts.

[0rganism]

42. think about the Fed trying to control inflation if the USA defaults

If we end up with a "junk bond" rating and can't float a long-term bond for under 10%, that's going to fuck our currency up something fierce.

[Jim Lane]

43. The coinage option actually tossed around was much more limited.

Many people in this thread seem to assume we're talking about a wild spree of unlimited coinage, hyperinflation, etc. I think they're wrong.

Here's what I remember from last time, and I may have some key points wrong: Of the government's debt of about $16 trillion, about $2 trillion is held by the Fed. For purposes of the debt-ceiling law, this counts as debt, i.e., counts against the limit. In reality, though, it's just the government "owing" money to itself.

The coinage option is that the Treasury would mint high-value coins and use them to pay that portion of the debt. That is, the coins would travel from the mint to some safe storage space controlled by the Fed, and in return the Fed would surrender notes evidencing debt in the same amount. Thus, the government's outstanding debt, for purposes of the ceiling, would be reduced by a couple trillion. The government could then continue deficit spending until it again hit the limit, this time with "real" debt (i.e., debt owed to U.S. citizens, China, Swiss bankers, whoever).

In this scenario, creditors who were not the Fed would not be affected. I'm no economist, but I think the inflationary effect would come from the spending, not the coinage. In other words, minting $2 trillion worth of coins, to be used only to "repay" the Fed, would have exactly the same effect as a bill raising the debt ceiling by $2 trillion.

The coinage is an artificial gimmick, but it's somewhat artificial to treat the obligations to the Fed as part of the overall debt in the first place.

Note that the linked article talks about the necessity of the Fed's approval. If the plan were simply that the Treasury would mint a $100 million coin and use it to pay Boeing for the latest unnecessary military jet, then it wouldn't need the Fed's approval -- but I agree that would be inflationary and would be questionable on other grounds.

[dkf]

44. Depends if Boeing would accept the $1 trillion coin when the Fed wouldn't take it earlier.

[Jim Lane]

47. I think you misunderstood me.

Nothing depends on what choice Boeing would make because no one was talking about using newly minted hypervaluable coins to pay Boeing or any other outside creditor. The idea was solely to replace one accounting gimmick (intragovernmental debt) with another (intragovernmental payments in coins) so as to evade a third (a law that limits borrowing even when other laws set revenue and expense levels that make borrowing inevitable).

I mentioned the payment to Boeing as an example of what would NOT happen. The coins would not go to any recipient except the Fed.

[Rochester]

6. It's a measure of last resort

It's true that it would avert default, but it would still debase the currency, and very likely fuel high inflation, the same way as it would if the new money issued was paper. I'm not sure that's really that much lesser of an evil, especially since Obama would get the blame for it.
He'd be better off invoking the 14th amendment, or finding some other way to coerce the R's.

[Egalitarian Thug]

9. And proposing that balancing your checkbook is in any way comparable to the federal budget

tells everyone you have less than a clue, you are working from a media-driven standpoint of near total ignorance on this topic.

[eomer]

14. Not different at all, as long as you have the ability to print money.

If you don't have that ability then it's different.

[PETRUS]

41. It's big club.

The enslaved economic illiterates.

[freshwest]

11. Very much like the Sovereign Citizen fail. You don't get to unilaterally step away from debt.

Wars have broken out between naitons over this. You pay your debts or the creditor will take your assets by force.

I don't know where this and the idea of invovking the 14th amendment magical thinking got its start. But it's a no-brainer. It's deadbeating.

Will not work for an individual as the Sovereign Citizen idiots when they try it. They think they can write out a piece of paper by themselves saying they 'don't gotta' live by society's rules. They cudgel together a load of half-ass legal language and think others are going to go along. It's their 'get out of debt free' card.

It's like reinventing the wheel with them. Island Libertarianism doesn't fly anywhere but with the bats in their beffry. Nor should it.

I get kinda sad when I see this stuff posted here, but considering the terrible state of media and internet chicanery, it's totatlly understandable. Also fear makes one go for all kinds of things.

Also, no offense meant, either. There is a popular mythology that all debts can be swept away by just saying some of them are unjust. Not all of them are.

[AgingAmerican]

8. No, he is doing the exact right thing

If he reacts in any way they win.

[Motown_Johnny]

10. That is a debt ceiling tactic, not a budget tactic.... besides that

if you do that then why should they ever raise the debt ceiling again? You would be expected to do the same thing again next time and next time and the time after that.


If you do that you may as well mint 20 trillion in coins and take the big hit to the value of the US dollar all at once, then hope there is enough left to pay off the 16.7 trillion we owe.


Of course you are risking losing the US dollar as the currency used to buy and sell oil worldwide. If that happens then we take another big hit to the value of the US dollar.


Stupid tricks are rarely a good idea and minting coins like that is a stupid trick.

[FourScore]

19. Duh. I know it's a debt ceiling tactic.

That worries me much more than the damn shutdown. I agree it's a trick, and it sounds like it was already ruled out by Obama (even though it was seriously considered at one point).

[North Carolina Knigh]

12. Printing more money is not the solution

If I have to live on a budget, why doesn't the people in Washington have to?

[trumad]

24. The old family budget meme...

Uh--- the Federal Government is not the family budget.

[North Carolina Knigh]

48. There is a finite amount of resources

You just can't print more money to solve the problems. If that were the case there would be no poor countries.

[trumad]

49. Minting the coin doesn't work that way.

It is a temp loan until the congress raises the limit. nce they do the coin is returned, melted, and gone

Read up about it---you might learn something.

[North Carolina Knigh]

50. I hardly doubt I would learn something from such a foolish answer

Keep raising the debt ceiling, where does it end. I have no problem raising taxes on the rich but stop the spending and actually balance the budget. As I said, there is a finite amount of money and printing it just devalues what we all work our butts off to make.

[trumad]

51. then read Krugman

Or other top economists about it.

[North Carolina Knigh]

52. Don't need to

I don't need anyone to tell me that there is not a finite amount of resources.

[trumad]

53. oh ok

Didn't know you knew it all.

[North Carolina Knigh]

56. Experience

I've run a division for a Fortune 500 company for over ten years. I know a thing or two about budgets, I don't need someone who speaks for a living telling me about theory when I actually experience real life everyday.

[trumad]

57. Oh please---

Last edited Sat Oct 12, 2013, 09:42 AM - Edit history (1)

The deficit is less by a 3rd and dropping fast.

I'll take the word over economists that some keyboard warrior.

On edit: Take a read here---you might learn something other than right wing talking points:


http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/11/here-are-three-options-for-ending-the-debt-ceiling-crisis-forever/

[PETRUS]

54. Money is not finite.

Brains, brawn and natural resources on the one hand, and inflation on the other, are limiting factors. But money is just an abstraction.

[Bjorn Against]

25. They do live on a budget for the most part, often a very tight budget

Government programs have been slashed in recent years, while there is waste in some areas especially the Pentagon, many other government agencies are operating on a shoestring budget. The Republican slash and burn tactics are causing great harm to this nation, when you look at areas like transportation, environmental protection, education and health care our government is being starved.

[MFrohike]

29. Easy

You don't control your own floating currency. When you start printing your own bucks, you get to define your budget how you like.

[Sgent]

37. I assume your referring to a balanced

budget.

The simple answer is that governments are different -- they take a longer view, often times a view of decades or longer.

In general, transfer payments (social security, medicare, medicaid, VA benefits, etc.) and operating expenses (military, etc.) should be funded from current receipts or past savings.

That being said, there are two times when its reasonable to enter into debt:

1) Investment in productive assets -- this could be everything from building new bridges, developing internet infrastructure, or even investment in human capital (college expenses, education). The idea is that the economy as a whole will benefit more than the interest rate which the government pays. Since government receipts go up with the economy, this means the government will have more than enough money to pay the interest and debt.

2) Economic stimulus. The government has the ability to borrow (or print) money when the economy is slumping, and acts as a last resort for funding. In general this should go into areas which fit #1 above, but its not required when the economy is in a cyclic depression or recession.

One final note -- the debt the government owes never really has to be paid back. Assuming the interest payments are made, the debt will effectively shrink annually by the rate of inflation. That means that we can grow our nominal debt by approximately 510 billion this year with no change in our real debt (assuming 3% inflation).

[Jenoch]

15. A trillion dollar coin would cause the DOW to drop to about 4,000.

The devaluation of the American economy and the resulting chaos in the rest of the world's economies would make The Great Depression look like a simple correction in the stock market.

[LittleBlue]

22. indeed

People need to understand that there must be lending to back this money printing, otherwise we give the impression of a hyperinflationary banana republic.

[Jenoch]

23. The Chinese have been buying up our T-bills like mad for over a decade.

[phleshdef]

17. It would be pointless. If we have to start doing shit like that, all faith is lost in our credit.

The President explained this today during the presser. If a President has to start searching for loopholes to pay off debt, creditors are gonna lose confidence, in which case it would be all for nothing.

[Squinch]

27. Yes. But I voted for him because he's smarter that I am. This is one area where that's evident.

[babylonsister]

30. No. This is a fight we need to have now with these whackjobs. nt

[Uncle Joe]

31. They need to make it large enough so that someone doesn't put it in a vending machine by mistake.

Thanks for the thread, FourScore.

[FourScore]

45. LOL! n/t

[struggle4progress]

32. Where can you spend a trillion-dollar coin? Who's actually going to give you change for it?

If Obama can mint one, why can't the next President mint ten billion of them? How about we pay off our debt to China by printing million and billion dollar bills?

[Hekate]

46. No

[DonCoquixote]

55. problem is

The soctus would shoot it down, you know Fat Tony wants to do it.