New MSM Trillion Dollar Coin Wave Misses the Big Story: Hayes and Carney

Did the MSM's new wave of commentaries on platinum coin seigniorage (PCS) miss the really big story about it? Of course, I think it did, and I'll continue my review of the MSM commentaries with the efforts of Chris Hayes at MSNBC, [1] substituting as host on the Rachel Maddow show (12/05 at 9:20 PM); and John Carney at CNBC [2] (12/06 at 11:54 AM). This is my second review post on this subject.

Chris Hayes

Chris Hayes's coverage of PCS was an MSNBC "breakthrough" cable segment on the subject, since it was the first, not a blog post per se. But I'm covering it here, because it, arguably, fueled the new wave of PCS blogs. Chris gave a creditable brief summary of the idea behind PCS, with a reference to US code Section 5112k, [3] then he went on to focus on the Trillion Dollar Coin (TDC) proposal as an example, and transitioned to bringing up the debt ceiling problem. During that discussion he emphasizes the damage that could be caused by another debt ceiling crisis, including the damage to the US credit rating, while also making the point very clearly that Congress has already approved the spending that is creating the crisis and that refusing to raise the debt ceiling is equivalent to not paying your credit card bill.

Up to this point I found Chris's presentation very clear and was happy to see the coverage of PCS. But, a couple of comments are worth noting. Due to the debt ceiling context which he assumes is the problem, Chris focuses on the TDC solution and talks about that PCS solution, only. No other PCS possibilities see the light of day in his coverage. Is it possible he hasn't thought about them?

Also when he talks about damage to our credit rating as a serious consequence of our debt ceiling crisis, he fails to mention that previous ratings agency actions against nations like the US that have non-convertible fiat currencies with floating exchange rates and no debts in currencies not their own haven't resulted in increasing rates on their debt; but in decreasing interest rates, indicating that the credit agencies and their ratings aren't in a position to cause any economic damage to the United States.

Chris then continues:

. . . The odds are pretty close to zero that we mint a $1 trillion coin in order to pay off some of the debt. but there's striking movement in the direction of changing the rules so we don't ever have to fight over this completely unnecessary issue ever again. Remember, this is important. The debt ceiling isn't about incurring future debt. It's about the money congress has already duly authorized and appropriated and voted to spend. It's not a fight about whether or not to spend money; it's a fight about whether or not to pay your credit card bill. Today. The President basically said, no more. I'm done having this dumb fight. I am not going to do it again.

And then, after playing a video clip of the President saying he's done, Chris continues with:

. . . okay. so the McConnell rule isn't exactly the super awesome trillion- dollar coin idea that I kind of love, but it's not half bad. The president has the power to raise the debt ceiling in order to pay for the things that congress has already agreed to pay for, and if congress wants to stop it, they need a two-thirds majority to do it. I am generally pretty wary of increases in Executive authority and decreases in Congressional oversight, but in the case of the debt ceiling, there's just no argument for it. The money has already been spent. Congress has already spent it. It's just a matter of whether or not you pay the bills. And if all else fails, President Bbama and Tim Geithner should start deciding whose face that is they want to put on the new $1 trillion coin. I vote for John Boehner!

Nice touch, that!

So, how does Chris know that the odds are pretty close to zero that the President won't use some variation of the PCS option? Whether he does or not is his decision. Is it even proper to talk about “odds” in the case of an individual decision? Shouldn't he be talking about “likelihood” [4] and doesn't likelihood depend on the circumstances surrounding the decision and the President's psychological makeup?

Also, was the main point of Chris's piece to let John Boehner and the Republicans, and maybe the President, know that there is an alternative to compromising with the Republicans for the President, other than shutting down the Government: the TDC? If so, then isn't Chris, usually one of the “progressive” voices in the mainstream, just adopting a conservative solution, supported by a conservative meme; [5] which only seems, on the surface to be progressive, because PCS is a new idea?

After all, what does the TDC solution do? It kicks the can down the road by about a year, and maybe a little more depending on events. But it doesn't solve the debt ceiling problem; or the even larger problem that the Treasury must incur debt when it wants to deficit spend.

Not that the size of the debt in any way deceases the fiscal sustainability of Government deficit spending, [6] as the austerians claim; but the politics of the debt issue is usually toxic for progressives and their solutions. So, for us, the best PCS solution to the debt ceiling crisis would be one that provides for paying down the debt out of seigniorage profits until it's gone; since that would take the debt issue off the table, and be a game-changer, [7] when we are debating full employment, Medicare for All, increased Social Security benefits, and other things we need done.

John Carney

Carney starts out his post with references to Pethokoukis's post [8] and Krueger's report, and with the quote from Krueger on the PCS option we've seen already. He then says:

As Joe Weisenthal points out, [8] this idea originated last July with a commenter called "Beowulf" at Cullen Roche's Pragmatic Capitalism blog. [9] Beowulf pointed out that although there are statutory limits that prevent the Treasury from printing paper currency to fund its operations, there's a quirk in the law that allows the Treasury to print platinum coins of any denomination.

So, Carney takes Wiesenthal's distortion even further, saying that the PCS idea originated on July 7, 2011 (the date of Cullen Roche's post), and, as we've seen, beowulf originated the idea, but this date is off by at least 8 months. [10] Carney probably picked this up from Wiesenthal, because he neither bothered to check it by searching the web, nor even re-read Cullen Roche's post; where the updates indicate prior posts on PCS to that one.

Carney goes on to point out that he's changed his mind about the inflationary impact of the trillion dollar coin saying:

This concern now seems to me to be seriously misplaced. There would really not be any additional inflationary pressures caused by a trillion coin

The key point here is that the government would not be throwing an extra trillion dollars into the economy. It would, rather, be spending exactly how much it planned to spend anyway. It would not be issuing bonds to cover some of that spending but bond issuance by the Treasury does not do very much (probably nothing at all) to combat inflation anyway. The amount of government issued financial assets remains the same, even though the composition of dollars and Treasury bonds changes.

This is exactly the position of Modern Money Theory [11] (MMT), as articulated by Scott Fullwiler. And Carney adds:

There could a long-term inflationary problem, I suppose, if the government fell in love with the idea and used platinum coins to finance ever larger deficits. But that seems unlikely. And, in any case, the Fed could step in and use its monetary policy tools to counteract the spendthrift coiners.

That's not quite the MMT position, which is that deficits wouldn't cause inflation unless the government continued deficit spending past the point of full employment. In any event, Carney provides no reason for thinking that there might be a long-term inflationary problem absent Fed intervention.

Carney's post is an improvement on the first two. It identifies beowulf by name (or handle, anyway). And it indicates that there would be no inflation if the option were used because it doesn't involve any more spending than before. On the other hand, his provenance of the idea is false, and he's not clear about why long-term inflation may be a prospect.

Neither Chris Hayes's post, nor Carney's considers PCS solutions other than TDC ones. They both see PCS as essentially a band-aid we can put on the debt ceiling problem. They don't see it as something that could introduce a profound change in the background of fiscal policy. My next post will cover the efforts of Matthew Yglesias and Kevin Drum.

(Cross-posted from New Economic Perspectives [12].)