fiscal cliff

Wake Up Progressives: the Trillion Dollar Coin Can Be Game-Changing!

Joseph M. Firestone — Thu, 10 Jan 2013 19:33:30 -0500

Well, not really. But if you view the Trillion Dollar Coin (TDC) meme, as I do, as a short-hand for the more general idea of using Platinum Coin Seigniorage (PCS), then yes, it can change the whole political game for progressives if President Obama dares to use it.

Literal TDC proposals would solve the debt-ceiling, but they won't solve the larger problem of defeating the austerity politics that is so close to getting the cuts to social safety net and important discretionary government programs that austerians have long sought. PCS game-changer proposals are the ones calling for, or analyzing the impact of, PCS options aimed at paying off the national debt and covering anticipated federal deficit spending for some years.

PCS options of that kind change the game of fiscal politics by removing the issue of austerity from fiscal policy considerations. With this kind of PCS the national debt and the debt-to-GDP ratio go away as matters of concern. The focus of fiscal policy then becomes the impact of specific policies rather than some overall deficit or debt reducing target. The issue in fiscal policy then becomes public purpose. It becomes what specific impacts, including inflation, and full employment, are anticipated from passing specific legislation, and whether or not those impacts are in line with public purpose. But, when the national debt and the debt-to-GDP ration go away as matters of concern; then the issue of the deficit viewed as something that is draining a limited supply of financial resources goes away, also, because people will understand that using PCS to cover deficits ensures that the US Treasury can never run short of its own fiat currency.

I'm sorry to say that there are few posts of this kind, relatively speaking. I'll list and link to some of those posts later. But first I want to point to what some in the MSM blogosphere are saying right now.

A popular position in the MSM blogosphere

In response to a tweet from the National Republican Congressional Committee (NRCC) yesterday, Jason Linkins at HuffPo repeats Joe Wiesenthal's earlier contention that the platinum coin has nothing to do with additional spending, but only with solving the debt ceiling problem. And Linkins says:

The only role the platinum coin plays, in the scenario described by those who promote the idea, is an emergency measure that protects the United States taxpayer and the global economy from the catastrophic effects of a debt ceiling breach.

Linkins is just wrong about this, some, like myself have been advocating game-changing platinum coin seigniorage since July 2011 to get rid of austerity politics and enable the United States to handle its various problems without progressives having to constantly struggle against memes like “we can't afford it,” “we're running out of money,” “we're going to leave huge financial debts to our grandchildren,” and other nonsense memes along these lines from austerians. Linkins accuses the NRCC of lying about this and says that the idea that some people are advocating using the coin to provide the means for spending is “a myth.”

Well, I don't know whether the NRCC knows the PCS literature well enough to know about game-changing proposals, so they may have been lying about it out of ignorance. But, nevertheless, even though they may have misrepresented the position taken by many in the MSM “liberal” blogosphere, they haven't told an untruth about people like myself who aren't part of the MSM echo chamber, and who think more broadly about the possibility and potential of PCS applications. The real issue here isn't whether the NRCC is lying. It's why people like Wiesenthal, Linkins, Krugman, and Matthew O'Brien of the Atlantic aren't focusing on game-changing PCS. In an earlier post, I pointed out that Wiesenthal was concerned about inflation; and surprise, surprise, it turns out that O'Brien is too. He says;

So why not just mint 16 of these $1 trillion coins and retire the entire national debt, smart guy? Or, even better, create a single $16 trillion coin -- scratch that, make it $100 trillion!

Now that's just crazy talk. Let me be clear: Nobody wants to use platinum coins to eliminate the debt. As http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/ Paul Krugman points out, there's a limit to how much seigniorage a government can extract before hyperinflation sets in, and that's certainly far less than $1 trillion, let alone $16 trillion. . . . .

Can we cut this short? I need to run out and buy some canned food and gold bars to prep for the coming hyperinflation. A trillion dollar coin is only two orders of magnitude away from us matching Zimbabwe for monetary ignominy.

OK. So, it's really about the fear of hyperinflation from a guy who tweets under the name @obsoletedogma, and the reference to Krugman indicates that O'Brien, like Krugman, still goes along with the Quantity Theory of Money (QTOM), which Keynes put to a well-deserved rest during the 1930s. Talk about obsolete dogma, IS-LM and loanable funds models aren't exactly examples of up-to-date economic models.

Here's a good blogosphere refutation for Matt to read to understand that the QTOM dog won't hunt! And that he and the others need a specific analysis of why a $100 T coin would cause inflation including specifying causal transmission mechanisms for causing inflation when the seigniorage profits, including the debt repayment money would be paid out over a period of years, and the immediate money to be paid out, would go only to pay intragovernmental and Fed-held debt.

Before O'Brien, Wiesenthal, Linkins, and others start chanting: Zimbabwe! Weimar! I think they ought to do such an analysis and put off going out for some canned food and gold bars. I've done a fairly detailed analysis of PCS impact showing why it wouldn't be inflationary, whatever the denomination of the coin(s) involved. So has Scott Fullwiler. With so much at stake in the debate over the TDC, I think they should at least read these Posts and tell us why they disagree, before they go off half-cocked about using PCS and getting hyperinflation or even inflation!

Wiesenthal, and Linkins, agree that the Platinum “. . . . coin debate coin could be the most important fiscal policy debate you'll ever see in your life." I agree but, if that's truly the case, then let's see them expand the debate to a serious consideration of game-changing PCS, and get off the shtick of talking only about the TDC as a solution to the debt ceiling problem.

Game-changing Platinum Coin Seigniorage Options and Posts

So, again, PCS game-changer proposals are those calling for, or analyzing, the impact of, PCS options aimed at paying off the national debt and covering anticipated federal deficit spending for some years. They probably start at no less than $30 Trillion, because you need $16. 4 T to set aside for paying off the national debt, and then another 14T, which may cover the next 10 years of needed deficit spending if we can get the economy recovered again and get a better balance of trade than we have now. A $60 T option would cover the debt and deficits for 15 – 25 years, and $100 T would probably work for 40 - 45 years.

The further you go out, the more nominal money value you have to have in the public purse to cover deficit spending. The reason for that is that an economy like the US, which imports more than it exports, needs Government deficit support of full employment of roughly the size of the trade deficit plus the size of the demand leakage to private sector savings per year. Assuming the private sector will want to save 6% of GDP per year and that our trade deficit is likely to continue at 4% per year, we can see that we'll need a Government deficit of about 10% of GDP per year to sustain full employment. This follows from the well-known sectoral financial balances model of macroeconomics. It's an accounting identity and always holds.

Once the savings and trade balances are determined, then the deficit will be the sum of those. The only question is whether the deficit spending will be done well, that is, in such a way that full employment is facilitated along with investments that guarantee a bright economic future, or whether the deficit spending will be ad hoc and strictly dictated by the automatic stabilizers like unemployment insurance payments, food stamps and the like. So, since GDP will be growing throughout this period, the deficit spending we'll need per year also will be growing along with the size of the economy.

Some bloggers have advocated minting a $quadrillion coin, and that is another option for how to proceed with game-changing PCS. I'm not really opposed to that. But I've proposed the $60 T coin, because I think a game-changing PCS solution is a transitional stage preceding the reorganization of the Federal Reserve and its placement under the supervision of the Treasury Department. Since the $60 T coin will cover debt repayment and debt-free deficit spending for 15 - 25 years; it provides enough time to educate people politically about the desirability of such a change, while providing the Executive Branch with the power to fill the public purse while retaining Congressional control over the purse things themselves, as the Constitution requires.

Why do I call options like the ones above game-changing options in contrast to using the $1 T coin? The reason is that they, unlike the $1 T coin option, not only solve the debt ceiling; but also change the way the Treasury gets the credits into its spending account to deficit spend. The Treasury doesn't create those credits directly with the platinum coin; but it does mandate the Fed to use its power to create them in response to depositing the very high value coin. Once the credits are swapped for the very high value coin involved, the national debt subject to the limit can be paid down and eventually off, without severely contracting the economy, and also deficit spending can then proceed using the credits already in the Treasury's spending account. In short, the very high value PCS options fill the public purse with enough credits to take the debt off the table as an issue, and also to make the question of how we're going to pay for the deficit spending we may need to adjust to the sectoral balances irrelevant, because the money will already be there to support that needed deficit spending.

With the debt ceiling, and the “how you gonna pay for it” issues gone from political debate; the foundation for austerity politics is also gone. We can forget about the Washington think tank industry talking about 50 year budget projections, fixing the debt, debating the debt, agonizing over the debt, calling for cuts to the safety net, saying we cannot afford Medicare for All, or programs for facilitating full employment, etc. This would be a new day for progressive and American politics. It would mean goodby to Bowles-Simpson, Maya McGuineas, Pete Peterson, Alice Rivlin, and all their cohorts.And it would mean hello to a new generation of progressives who could aggressively push a movement for social and economic justice for the 99%.

Moving to PCS game-changing posts, there are very few people blogging game-changing PCS until now. I began blogging it on July 21, 2011, during the first wave of mainstream posts on PCS, with a $30 T PCS post, including a speech the President could make announcing it and politically justifying it, and also a pretty detailed discussion of the inflation issue.

I concluded that inflation due to PCS per se wouldn't be an issue, because the $6.4 T in intragovernmental and Fed-held debt wasn't going to get into the economy. The repayment of other debt, gradually, and when it fell due, would have a similar impact on the economy as quantitative easing, already shown not to be inflationary. In addition, there was plenty of evidence to suggest that the reserves swapped for debt instruments when these are retired are less inflationary then the debt instruments, in any event. Finally, the use of PCS for deficit spending, in place of debt instrument sales, also would not be inflationary, because 1) the difference between these two is like QE; and also 2) the net financial assets produced by the deficit spending would be reserves rather than debt instruments, already shown to be less inflationary.

I followed that one on July 25, 2011, with an open letter to the President and Congress using the $30 T PCS proposal, and followed those posts with two more mentioning high value PCS on the 26th and 29th. At that point, on July 30, a popular blogger at DailyKos, Seneca Doane, wrote a blockbuster post on high value PCS that received 569 comments there, a large amount for DailyKos. It was a one-off thing for Seneca, but nevertheless did a lot to establish blogging about PCS at DailyKos, and also, Seneca was the first to mention the $quadrillion platinum coin in one his comments.

After Seneca's post I kept blogging about high value PCS, routinely including it in my posts. Then on August 2nd, the day after the debt ceiling settlement Scott Fullwiler published his post on coinseigniorage and inflation. This was a comprehensive analysis of the types of payments that might be made using coin seigniorage funds. Scott, a top-level MMT economist showed that 5 different types of payments would not be inflationary, regardless of the face value of the coins that were minted.

After August 1, 2011, mainstream bloggers dropped PCS like a hot potato since the debt ceiling was no longer in the news. But I kept blogging about it because I knew the debt ceiling would be coming back, and also because I had become far more interested in game-changing PCS than in the Trillion Dollar Coin itself.

On August 3, 2011, I blogged “Proof Platinum Coin Seigiorage: A Political Game-Changer for Progressives,” along with the $30 T post, I consider this post to be one of my most important ones. For one thing it introduced the $60 T alternative for the first time. For another, it made very clear the idea that minting such a coin would change the political context and also the terms of political debate. I still think that post is the most compelling one I've done for high value PCS. On August 5th I followed with “Mint the Platinum Coin: End the Austerity War Against the People” which urged the President to implement high value PCS ($60 T) immediately. It outlined a scenario, in which the President minted a $60 T coin and then had to cope with the results of his action.

I continued blogging on the $60 T option bringing it up in the context of various issues throughout the rest of August and most of September 2011. Then on September 26, I posted “Filling the Public Purse and Getting the Public Spending We Need.” Another one, I consider very important. That post emphasized the distinction between filling the public purse and opening the purse strings. It made the point that while PCS gives power to the President to get the public purse filled; it doesn't open the purse strings for deficit spending. It's still up to Congress to do that, showing that PCS DOES NOT interfere with the constitutional power and duty of Congress to appropriate Government spending. Throughout the rest of 2011 and the first half of 2012, I blogged on PCS in the context of other issues. During the second half of 2012, I blogged about it in defending entitlements, on debt/deficit issues, and the debt ceiling and fiscal cliff issues. I also updated my $30 T post to a $60 T post and started a petition on $60 T PCS which has gotten very little support so far.

That pattern of blogging relating high value PCS to other issues like unemployment, the fiscal cliff, health care etc. continued until December of 2012, when the Second Wave of MSM posts about PCS broke on December 3. At that point I began a series of posts you can find at, among other places, New Economic Perspectives (NEP) and Correntewire. The posts at NEP will be found on my page there. The posts at Correntewire are related to one another through a handy link structure which forms “a book” over there. The book begins with a history post and then considers various aspects of PCS including reviews of posts in the current debate. One post in the series extends Scott Fullwiler's analysis of PCS and inflation further. This post is part of the developing book on high value PCS.

Most recently, apart from from my own posts, other bloggers at DailyKos are starting to support High value PCS. These include: a post by priceman, one by bunnygirl60, and, a third by NBBooks.

Conclusion

So, that's it! What the mainstream blogs are missing in their discussions of PCS is game-changing PCS, because their posts are overwhelmingly focused on the TDC. They dismiss game-changing PCS, when they recognize it at all by saying, of course PCS isn't about that; it's only about getting around the debt ceiling, and anything beyond the TDC intended to do much more would be inflationary, and a great and unwelcome disturbance in the normal way of doing things of developed nations. However, when the likelihood of inflation and hyperinflation is analyzed as in posts written by myself, and Scott Fullwiler, it becomes clear that claims about hyperinflation and inflation are very stereotypical and are based on either no analysis or very primitive notions about the QTOM.

The importance of the high value PCS the MSM bloggers won't talk about, meanwhile, is that if tried it promises to end austerity and usher in a new era of progressive, even Green New Deal Politics, because the ideological basis of austerity politics which is the growing national debt would be gone. There are very few people blogging about this so far. But I've completed many blogs on $30 T and $60 T PCS which have discussed the major issues involved in high value PCS, and which have certainly provided a better basis for more extended discussion of it than the mainstream has so attempted. Whether they will ever go beyond the TDC, I don't know; but hopefully this and other posts I've completed in past weeks will challenge the more curious among mainstream bloggers to begin to write about game-changing PCS and leave the small-ball TDC behind.

(Cross-posted from New Economic Perspectives.)

Wake Up Progressives: Bad Guys Are Trying To Steal the $Trillion Coin

Joseph M. Firestone — Tue, 08 Jan 2013 00:44:23 -0500

Wake Up Progressives: The Bad Guys Are Trying To Steal the Trillion Dollar Coin to Save the Financial Status Quo!

Among the many posts on the Trillion Dollar Coin (TDC) and Platinum Coin Seigniorage (PCS) we're seeing this week, is a category of posts favoring using PCS in a limited way to avoid the debt ceiling crisis, rather than using it in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.”

The Trillion Dollar Coin, as in #TDC and #mintthecoin is a meme representing more than a Trillion Dollar Coin. It represents, instead, the general capability of the Treasury Department under 31USC5112(k) to mint platinum coins of whatever face value the Secretary cares to specify.

The coins involved could have $1,000, or $1 million, or $1 Billion, or $1 Trillion, or $60 Trillion, or $100 Trillion, or even $1 Quadrillion face values. So, an issue immediately raised is what platinum coin denomination(s) should be minted by the Treasury Department if it decides it wants to use PCS to help fill the Treasury General Account (TGA) with enough electronic credits to fulfill its objectives?

Of course, the answer to this question is inherent in the way I posed it. It depends on the objectives involved, and these objectives will not and should not be merely narrowly financial or technical. They will and should be political.

And the two main political objectives associated with PCS and the TDC up to this time have been a) remove the risk of a politically induced default on the debts of the US Government caused by a refusal of the Radical Republicans to raise the debt ceiling to accommodate deficit spending appropriations Congress has already made; and b) to end the political context of austerity which has constrained and limited government activity in the service of public purpose, since the “fiscally responsible” (really stupidly fiscally irresponsible) Democrats gained control of the Executive Branch of government in 2009.

In the latest outburst of posts, tweets, articles, and videos about the TDC, we're beginning to see, a feeding frenzy in which the participants self-organize around the TDC meme AND the objective of avoiding the debt ceiling, but without providing any consideration at all to higher value PCS options that could both make the debt ceiling a dead letter and also remove the driving force for austerity politics. This focus on the bare TDC and its application to the debt ceiling is “small ball” policy analysis that ignores larger issues related to PCS. It needs to stop before it totally drives PCS into a defend the status quo solution, that may defuse the debt ceiling, but still leave us in the sorry state of austerity-driven politics

The focus on “small ball” policy analysis of PCS is emblematic of the superficiality of media outlets and what passes for “journalism” in the early 21st century. Too many content professionals are no more than marketers and propagandists, and don't make even minimal attempts to get at the heart of the larger PCS news story.

If the small ballers get to control the PCS debate it will result in the waste of a remarkable opportunity to change the whole direction of American politics. Progressives need to wake up and try to grasp this opportunity, before the fiscal conservatives save their version of the financial system with its increasing tendency to impose austerity on the rest of us while the 1% get more and more wealthy.

Let's review the pattern of those recent “small ball” PCS posts (each one summarized in the Appendix), and the significance of the position they take on PCS, then in my next post, I'll deal with an exception to the “small-ball” pattern. And in the Post after that I'll compare the small ball position with the one taken in the relatively few PCS “game-changer” posts.

The “Small Ball” Pattern

The primary characteristics of the small ball posting pattern are:

-- They generally don't consider any other options but the “TDC” option. They take the TDC meme literally and address their description, analysis, and advocacy to the TDC option, and its ability to end the debt ceiling crisis, and not to any of the other Platinum Coin Seigniorage variations, and what they may be able to do.

-- They view the TDC option as somehow screwy, outrageous, ridiculous, looney, bizarre, or highly inappropriate, even though they acknowledge that it is legal, and probably would not be inflationary.

-- They also believe that debt issuance prior to deficit spending, the way things are now done, is preferable to issuing platinum coins and then spending without debt issuance. So, some are concerned about the impact the TDC will have on the Federal Reserve's control of monetary policy and its independence and most are advocating Josh Barro's idea of swapping PCS capability for repeal of the debt ceiling legislation.

-- They favor the TDC, however, despite its negative characteristics, for one very good reason: using it is preferable to defaulting, in violation of the Constitution, when the debt ceiling is reached, and, again, according to Josh Barro's proposal, the capability to make TDCs can be traded for debt ceiling repeal, once it's shown that it can be used to avoid the debt ceiling and prevent default.

Let's evaluate this pattern. First, the idea that we have only one problem to deal with and that's the debt ceiling problem is short-sighted and narrow, and reflects the bias of small-ball writers towards the economic and political status quo. What they all want is for the debt ceiling crises to be over, for it to go away, and for the political system to return to normal.

Well, that may be what these writers want; but “normal” in the current political system is austerity politics, a politics in which “the fiscally responsible” people in both parties are about to agree on severe cuts to discretionary spending and the social safety net, and also, perhaps to increasing tax revenue, which will extract further money from the economy. The cuts in deficit spending being planned, with or without any debt ceiling crisis, will severely reduce aggregate demand, and will do that for years to come; condemning American to a depressed and stagnant economy for several more years and perhaps beyond. That situation's not much good for most of us, but it would be the result of the failure to end austerity resulting from viewing PCS as just an expedient for solving the debt ceiling crisis.

Second, I know it's fashionable for the Very Serious People (VSP) who comprise the New York/Washington policy/financial axis to view PCS as silly, ludicrous, and all the other various epithets they've seen fit to bestow on it. But. In doing so, they reveal their ignorance of the history of fiat money issuance and coin seigiorage unaccompanied by debt issuance in the United States and elsewhere.

Lincoln's Greenbacks funded the Civil War without ruinous inflation, and many nations funded their spending in World War I without debt issuance, and Nazi Germany, even if we hate the example, used it without issuing debt and without inflation in the pre-World War II period. Platinum Coin Seigniorage is not a priori silly. It is just not the way things have been done before, and if used in high denominations, it would require adjustments by the Federal Reserve. That does not make it silly, or looney, or ludicrous, or any such thing. It just makes it new and untried. That may be a problem for conservatives, and members of the MSM village, who, above all, want to be viewed as among the VSP; but it should not be one for progressives.

Third, the belief that deficit spending preceded by debt issuance is preferable to using PCS to close the gap between tax revenues and government spending is a belief I don't share. The basis of it, apart from some of its advocates benefiting from current arrangements in some way, is the belief, that Treasury issued reserves in the process of spending without debt issuance are more inflationary; than reserves added only after debt issuance. This, in turn, requires assuming that debt instruments added to the economy as net financial assets are less inflationary than reserves added when unaccompanied by debt instrument sales. This assumption is false.

Debt financing is accompanied by interest payments into the economy of some $245 Billion at present. In addition, debt instruments can be sold anytime reserves are needed, and also, debt instruments can be leveraged multiple times when used as collateral in credit transactions. Reserves do receive Interest-On-Reserves (IOR) from the Fed these days. But the rate paid is lower than on Treasuries and also the payments are made by the Fed and are not a cost to the Treasury. Finally, since reserves injected into the economy through deficit spending cannot be leveraged as effectively as debt instruments, they are not as potentially inflationary in a financial system where private banks and the Fed, based on credit, routinely create money out of thin air, whether the Treasury deficit spends or not.

Believing that it's preferable to have debt issuance precede deficit spending, rather than to use PCS prior to it, also is accompanied by concern about the impact of use of massive PCS would have on Federal Reserve control of monetary policy. PCS, in fact, is likely to result in the Federal Reserve's having to adjust whatever it wants to do in response to deficit spending. Is this a problem, or a bad thing? Does that compromise the Fed's independence? Doesn't the Fed now formulate its monetary policy based on the assumption that the Treasury will issue debt?

Of course, it does. So, what the Fed does now is already impacted by what the Treasury does. It is already reacting to what the Treasury and Congress do, and we also know very well that it reacts to what Wall Street does. And the change that would be introduced by using PCS as the basis of all deficit spending would do no more than cause the Federal Reserve to make some different assumptions before it reacted to these various forces.

The idea that this is destroying the Fed's vaunted independence, and that this makes it impossible to consider very high value PCS, is no more than a bias that prefers the status quo, and the way things are done now, where the predominant influence at the Fed is from the big banks and Wall Street. It is just conservatism talking again. Just a willingness to avoid changing how we do things to take austerity off the table, and make a better life for everyone out of fear of the new, the strange, and the unknown.

Fourth, even though the “small ball” writers are for using the TDC as a last resort, most of them endorsed Josh Barro's idea of making a deal to swap the PCS capability in return for repeal of the debt ceiling law. This idea is a terrible one, and if progressives support it or even accept such a trade, then that would a perfect example of “loser liberalism.”

It's essential to understand that if the Treasury uses PCS and continues to have the PCS capability, then the debt ceiling legislation is already a dead letter. It doesn't matter if it exists, since the outstanding debt can be paid using PCS, and all future deficit spending can be covered by credits generated by the Fed in the course of using PCS.

Since that's the case, a trade of the PCS capability for repeal of the debt ceiling legislation is a trade of something potentially very, very valuable as an enabler of progressive politics in return for nothing at all. It would be a bizarre trade. A silly trade. It would be a moronic trade. A trade made for no purpose at all.

Conclusion

Only a person who wants to keep the system of government deficit spending exactly as it is today can possibly advocate such a trade. But why would people want to keep it the same as it is now, since the political impact of such a system is so disastrous for progressive politics and for government efforts to achieve the public purpose? Why would people want to preserve a system that constantly sets the political table for austerity by constantly increasing something called “the national debt?”

What do austerity advocates now use to justify the policies they prefer? The answer is that they use the existence of the debt. And then they talk about fiscal responsibility, and the grandchildren, and the markets driving interest rates up, and the possibility of running out of money, and about cutting Social Security, Medicare, Medicaid, discretionary programs that people need, and then they go on to talk about this thing we need that we can't pay for, and that thing we need that we can't pay for, and all the financial limitations we have in doing things that we desperately need to do to make our country viable again.

We need to put an end to all that. And we can do that if the PCS capability is maintained; and if we can find a President who will use its power to its full extent. That's why progressives need to wake up, and not only defend PCS against a Republican attack that has already begun; but also come forward with their own PCS proposals that will go beyond the TDC and offer PCS options that will put an end to the political basis of austerity!

Appendix: ”Small Ball” Views on the Trillion Dollar Coin

This survey summarizes what each of the pieces on the Trillion Dollar Coin appearing in the last few days I had the opportunity to review had to say. They served as the foundation for the above analysis. The dominant pattern is established by the Wiesenthal and Barro posts, and then is replicated by pretty much what looks like an MSM-based echo chamber. Not every post appearing in this time frame is replicated here. And some posts on the TDC were opposed to the idea and so, are not part of the 'small-ball” category. Nevertheless, I think the posts and the video segment reviewed here are representative and that they served as a good basis for the pattern I identify in the Post.

Joe Wiesenthal: Minting the Trillion Dollar Coin won't cause massive hyperinflation because: the money from a TDC wouldn't go into the economy since it wouldn't be used to pay back the debt; and even if some of it did go into the economy, the Fed could “sterilize” that by selling enough of the Treasuries it's holding to get money out of the system.

The TDC won't destroy the dollar because: the money won't be just poured into the economy like “a helicopter drop” of money to people would be. It's just a stop-gap to get by the debt ceiling and keep services going.

People who say we should mint a $16 Trillion coin or a $100 Trillion coin are missing the point. The point isn't to pay off our debt. It's to get by the debt ceiling. If we did try to pay off the debt with a minted coin we'd get inflation or hyperinflation because of the massive expansion of money.

Joe Wiesenthal2: Wiesenthal points out that Paul Krugman, Jerry Nadler (D-NY), and Josh Barro of Bloomberg News have endorsed it. Barro proposes an agreement in which the Republicans give up the debt ceiling and Obama gives up the PCS capability. Wiesenthal then says that it's silly to think of funding the Treasury with a coin, but even sillier to think that defaulting is a good idea. So, let's do the lesser silly (my paraphrase).

He also thinks that minting a TDC would not result in massive inflation because that results only from a massive injection of new money into the system, and a TDC could result only in spending conforming to Congressional appropriations. Also, we should not mint a $100 Trillion coin because: the current economic constraint is not about money, it's about law and getting around the debt ceiling, and a $1 T coin gets around that just as well as a $100 T coin.

Josh Barro: The Treasury has the authority to mint large denomination platinum coins and deposit them at the Fed to finance payments of the Government's bills in lieu of issuing debt. If the Republicans offer a list of demands to be met before they vote to increase the debt ceiling then the President should should simply say that he will mint platinum coins to pay the Government's bills until the debt ceiling is raised. And he should also promise that as soon as the debt ceiling is raised he will have Treasury issue bonds to drain the economy of currency equal to the value of the platinum coins in order to dampen down inflationary expectations. Josh Barro then says:

And then he should offer to sign a bill revoking his authority to issue platinum coins -- so long as that bill also abolishes the debt ceiling. The executive branch will give up its unwarranted power to print if the legislative branch will give up its unwarranted restriction on borrowing to cover already appropriated obligations.

He goes on to say that debt ceiling coercion is no way to run a country and neither is “. . . . monetizing deficits through direct presidential of the currency, in lieu of borrowing.” So, the ideal “concession” for Obama to offer is to trade this power for repeal of the debt ceiling legislation.

Matthew Yglesias: Platinum Coin finance would create new spending capacity, but no new spending authority. But because “it's mighty silly” he supports Josh Barro's call for legislation that would trade platinum coin financing authority for repealing the debt ceiling.

Joshua Holland, a progressive writer, likes the idea of using the TDC. He cites Josh Barro's post and also Jerry Nadler's support of the TDC idea, and then brings in Kevin Drum's legal qualms about the platinum coin legislation which I've reviewed earlier. But then he concludes that he'd just use the coin and let the chips fall where they may. He grants that there may be law suits, but says he still thinks it's a good idea because there's “. . . nothing more ridiculous than a Congressional minority threatening the economy by trying to extract unpopular concessions in exchange for paying the bills that Congress itself already ran up. Let's not pretend this is normal behavior we're dealing with.”

And then he points out we should not pretend that the behavior of hostage taking using the debt ceiling is constitutional behavior and then cites the 14th Amendment Section 4, and the oath of office to strengthen his case.

William Wei at Business Insider produced a youtube explaining the mechanics of the TDC, inaccurately, in the interests of brevity I suppose, lets people know about the #mintthecoin movement, and then asks people to choose which is more silly, minting the TDC and paying your bills; or not minting it and going to default.

The #mintthecoinpetition asks the White House to direct the Mint to make a single platinum trillion dollar coin! It asks for this simple solution to avoid playing political football with the US and global economies.

Charles Riley of CNN also writes about the TDC. He says it's not going to happen because it could lead to even people worrying about inflation and to critics of Federal reserve QE being apoplectic if the Treasury Department did a further “helicopter drop” of $1 Trillion. But later after outlining the solution, he refers to it as “elegant,” and points out that Jerry Nadler supports it as do many on twitter.

Alex Hern put together piece which combines the Wiesenthal and Barro posts and follows Barro down the road of advocating the swap I outlined earlier. He also repeats Wiesenthal's statement that the TDC idea was first suggested by Cullen Roche on July 7, 2011. So clearly Hern did no research of his own on the coin and its origin.

Connor Simpson at the Atlantic Wire is another participant in the echo chamber generated by Joe Wiesenthal. Connor mentions the platinum coin, links to all the names I've mentioned above, repeats Wiesenthal's viral error about the origins of the TDC movement, mentions the #mintthecoin petition, and then follows Barro down the line about what ought to be done, but also emphasizes using the coin as a negotiating tool to get the debt ceiling leverage off the back of the President in the negotiations over the budget. Then he asks why Obama didn't think of this before? And answers: “Because no one's first resort to a debt ceiling fight is to create what is essentially a loonie on horse steroids, duh.” He then concludes by presenting various humorous tweets on the subject by way of agreeing with the position that the move would not damage the economy much.

Bonnie Kavoussi of The Huffington Post provides a piece on the #mintthecoin petition. She calls attention to the debt ceiling and the possible dangerous consequences of default and then refers to the concerns of some that using the TDC may “could be a slippery slope to hyperinflation.” The piece also contains a video explaining the TDC, and reproduces a number tweets about the #mintthecoin petition drive. Everything is focused around the TDC and the debt ceiling problem.

Rachelle Younglai of Reuters This article just reports on the coin proposal, the #mintthecoin petition drive, and the context in the debt ceiling crisis. It doesn't question the legality of platinum coin seigniorage, and doesn't suggest that the proposal is “wacky” or “silly” or “ludicrous.” It mentions the likelihood of Congressional opposition from members trying to reduce deficits, and also mentions that using the coin would compromise the independence of the Fed.

Cullen Roche joined the small-ball party with a brief post at Pragmatic Capitalism. The debt ceiling is silly. The platinum coin solution is silly. The US government has no solvency constraint, and “Willingly defaulting on US debt by using the debt ceiling as a threat is pure madness. I can’t think of many things that would be more reckless than this.” The platinum coin is a legal workaround for the debt ceiling problem first discussed in a web comment by Carlos Mucha (beowulf). Mint the TDC. Deposit it at the Fed. Use the proceeds to pay down debt and it functions like raising the debt ceiling by $1T. It's not inflationary because it's not new spending. It's an accounting gimmick and shouldn't be used. But if the choice is between the coin and default, then “. . . then the decision is a no-brainer. It would be unpatriotic to default. Even more unpatriotic for leaders to allow default when they could mint the coin.” And then he endorses the Josh Barro solution of swapping the PCS capability for repeal of the debt ceiling.

Steve Randy Waldman also weighs in on the controversy. SRW thinks “The benefit of the plan (depending on your politics) is that it circumvents an institutional quirk, the debt ceiling. The cost of the plan is that it would inflame US politics, and there is a slim chance that it would make Paul Krugman’s “confidence fairies” suddenly become real. But note that both of these costs are matters of perception.” He thinks Treasury will reluctantly issue coins in the Million Dollar, rather than the Trillion Dollar range, to continue spending, and that the Fed will “sterilize” this spending selling assets to absorb an equal amount of money in the private sector. He thinks that's all that would happen and that it would be a “big nothingburger.”

Chris Hayes segment with Jerrold Nadler (D-NY) and others on video.

Visit NBCNews.com for breaking news, world news, and news about the economy

This segment reflects the dominant pattern discussed in the text perfectly. The segment poses the issue as a trade-off between using the TDC and default due to the debt ceiling. Notice how Veronique De Rugy defends Republican debt ceiling tactics. Notice, also, that Chris Hayes appears not to have thought beyond the TDC idea as a solution to the debt ceiling.

Today, Paul Krugman weighed in with a very specific statement advising the Administration to be ready to mint the TDC immediately to take the debt ceiling issue off the table. He says: “Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.”

(Cross-posted from New Economic Perspectives.)

Paul Goes Platinum!

Joseph M. Firestone — Thu, 03 Jan 2013 22:53:10 -0500

Another platinum coin surge in the Second Wave rippled through the mainstream media yesterday and this time hit the Congressional Progressive Caucus. Domenico Mantanaro of MSNBC kicked things off on one of the morning shows by mentioning the Trillion Dollar Coin (TDC) as a possible solution to the debt ceiling problem. Then, in the afternoon, on MSNBC's the cycle, Krystal Ball, and Steve Kornacke, in discussing the coming debt ceiling conflict talked rather matter-of-factly, I thought, about minting some TDCs to get around the debt ceiling.

Then Paul Krugman blogged about platinum coins. In the context of answering a question about whether we can “print money,” to get around the debt ceiling, he answers no, and then says:

The peculiar exception is that clause allowing the Treasury to mint platinum coins in any denomination it chooses. Of course this was intended as a way to issue commemorative coins and stuff, not as a fiscal measure; but at least as I understand it, the letter of the law would allow Treasury to stamp out a platinum coin, say it’s worth a trillion dollars, and deposit it at the Fed — thereby avoiding the need to issue debt.

An admirably brief statement of the basic idea, but followed then by this puzzler:

In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. So this is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand.

So, it's gimmicks for gimmicks to get around the debt ceiling, and no notion on Paul Krugman's part that Platinum Coin Seigniorage (PCS) might have a much broader use than simply countering a gimmick the Republicans are using to try to trash the social safety net and drown the Government in a bathtub.

Apart from that, however, this “. . . the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back” is a bit strange. A very high value platinum coin deposited by the Mint in its account at the Fed would have its value credited to the Mint's account in the form of electronic credits. The Fed would then keep the coin in a vault forever, as an asset on its balance sheet, and the seigniorage profits from the deposit of the coin would be swept into the Treasury General Account (TGA) where it would be used for repaying debt or other spending appropriated by Congress. So why would the Treasury ever want or need to buy that coin back from the Fed? And why would the coin be a Federal debt that the Treasury must repay?

It's true that base money issued by the Federal Government is a Federal debt in the sense that the Government has an obligation to accept it in payment of taxes. But in this case, the Fed holds the coin and it has no taxes to pay. Also, the coin never goes into circulation, but sits in a Fed vault, so where does a debt that the Treasury must repay come into this picture and why?

Paul Krugman goes on to make a number of comments about the Fed printing money and the need for the Fed to pull that money back by selling its Treasury debt at some future time when the economy is growing rapidly to prevent inflation. But these comments aren't directly relevant to using PCS, since using it is no more, and perhaps less, inflationary than using debt financing.

The appearance of PCS in Paul Krugman's blog apparently had an immediate impact. Congressman Jerrold Nadler (D-NY), in an interview reported in Capital New York said:

"There is specific statutory authority that says that the Federal Reserve can mint any non-gold or -silver coin in any denomination, so all you do is you tell the Federal Reserve to make a platinum coin for one trillion dollars, and then you deposit it in the Treasury account, and you pay your bills,"

Well, that's a little garbled, since it's the Treasury that orders the Mint to create the coin which is then deposited in the Mint's account, which is then credited by the Fed with electronic credits because the coin is legal tender, and is then swept by the Treasury for the seigniorage profits which end up in the Treasury Account, and then you pay your bills. But, regardless, Congressman Nadler has the right idea. It is legal for Treasury to make platinum coins with arbitrary face values and to use the seigniorage to pay bills.

In the same interview, the Congressman also refers to invoking the 14th amendment as a way in which the President could justify not complying with the debt ceiling. But, I think, this is not as good a solution as using PCS. The reason why, is that the debt ceiling isn't unconstitutional as long as Congress has provided alternative ways for Treasury to meet its obligations. PCS is such an alternative, so, as long as it is legal, I think the President is obligated to use it and not the 14th amendment to defeat the debt ceiling constraint.

Mike Sankowski at Monetary Realism, also reviews Krugman's views and Nadler's interview and points out that:

I don’t think the coin will be used, but the idea of the coin has now hit critical mass. He’s a congressperson, so he only knows what his aides are telling him. If his aides are talking about it, you can be sure all of the democratic aides are talking about it over drinks. It’s just part of the everyday conversation in the support staff of congress.
Nadler is right – it’s not normally proper to consider such an extreme tactic. It is terrible it had to come to this, but here we are. It would be good if we just didn’t have a debt ceiling at all. Then, it would be so much nicer if the government had a well established, and commonsensical method to allow for the Treasury to print money directly – along with rules on how much and when this could be done.

I think Mike is right about the coin reaching critical mass and now being a topic of conversation among Congressional Staff. Even more, since the coin reference comes from Jerry Nadler, we can suppose that PCS is making the rounds within the Congressional Progressive Caucus (CPC) specifically, and may become a key element in stiffening their spines during the debt ceiling fight. The CPC is much less likely to accept a lousy deal from the Republicans and the President if they know very well that the President can rise above the whole debt ceiling crisis by minting a very high value platinum coin.

Mike Sankowski voices misgivings about the coin. Above he calls it an “extreme tactic” and later on in his post he talks about the problem of giving politicians the power to print money. On the last point, I think the Constitution has already given the politicians the power to “print money.” And it's a wonder that instead of grasping that power more firmly, they've constructed all kinds of constraints preventing them just issuing it.

Until 1971, they constrained themselves with the gold standard. And from then until the present, they've constrained themselves by insisting that deficit spending be preceded by debt issuance even though there's no reason to believe, except the discredited Quantity Theory of Money (QTM), that issuing fiat money in the act of spending is any less or more inflationary if it's preceded by issuing debt than if it's not.

Commenter Robert Rice answered Mike's misgivings about the power to print money, by pointing out that every power of Government is subject to abuse and that this is no reason not to have government and to use its powers for public purpose. And I agree, Mike Sankowki's misgivings about the “printing money” power are no more than the usual conservative disposition to always mistrust government.

It's wise to do that, since one must never cease to look gift horses in the mouth. But it's not wise to let one's mistrust cripple one's government and, as a result, arrive at the kinds of conditions we are finding ourselves in right now. After all, what is the debt ceiling legislation itself, but an expression of the same conservative impulse that Mike is voicing? Listening to it is what has caused the mess we're in. To get out of it, we have go onto a new track. That track is using Platinum Coin Seigniorage as our primary tool when deficit spending.

As for PCS being an “extreme tactic.” I'm afraid, I think that's just labeling. Wigwam, a blogger at FDL and DailyKos, had this answer for people who label PCS as “weird,” a very similar label to “extreme.” He said:

Such coins are “legal tender” and can therefore be deposited into the Treasury’s General Account at the Fed, from which the Nation’s bills are ultimately paid. Therefore, there is no need for the Treasury to borrow money to meet the obligations of the United States. But, and this is critical, none of that money can be withdrawn except for congressionally appropriated expenditures; e.g., the Treasury cannot monetize the national debt except insofar as such expenditures are appropriated by Congress.

For the past 220 years, the Treasury has been paying a portion of each year’s expenditures via the markup (seigniorage) on the minting of coins — last year coin seigniorage covered about 1% of the tax deficit — Abraham Lincoln went even further and paid for the Civil War with printed fiat money (“Greenbacks”), as did the European powers to finance WW I, and as did Germany to finance its part in WW II.

All of the above is background to keep in mind the next time you read a financial/economic pundit declare that it would be “weird” for the Secretary of the Treasury to exercise his powers under 31USC5112(k) and recommend that he instead foment a constitutional crises by directly violating 31USC3101(b), which I think would be “weird” at best.

And further, how much “weirder” or “more extreme” is it for a government with a sovereign fiat currency system to deficit spend only after it borrows back its own currency, than it would be for that same government just to forget about borrowing and paying interest to rich investors and foreign nations on what it can create in unlimited quantities itself. In short, what we're doing now is a lot more “weird” and “extreme” than just using existing legal authority fill the public purse to spend what Congress has already appropriated.

(Cross-posted from New Economic Perspectives.)

Beyond the MSM: the New Wave of Brief Blog Posts on the Platinum Coin

Joseph M. Firestone — Mon, 31 Dec 2012 13:19:18 -0500

Introduction

MSM bloggers and cable hosts weren't alone in creating the new wave of posts and video segments on Platinum Coin Seigniorage (PCS) at the beginning of December. The blogosphere also produced brief posts from a number of bloggers, as well as a few more substantial ones. I'll review the brief ones in this post, and the more substantial ones in future posts, but won't include my own recent posts on PCS during December.

Reviewing the Posts

First off the mark on December 3, was David Dayen at FireDogLake who mentioned the “trillion dollar coin” as something thee President could do to strengthen his hand in dealing with the Republicans. His mentioned was quickly followed by Atrios, later in the morning, who wrote a very short post saying:

I really don't know why the administration doesn't take the "mint the trillion dollar platinum coin" option seriously. It is, as far as I can tell, perfectly legal.

This triggered a post by Michael Sankowski at Monetary Realism announcing that the “Trillion Dollar Coin Goes Mainstream” which says that if Atrios knows about the coin that everyone on “the smart left” knows about it!

Mike Sankowski then blogged again on December 6, wondering out loud where Zerohedge's rant on the Trillion Dollar Coin (TDC) was? In that one Mike refers to the mainstream blogs by Yglesias, Drum, and Carney all on the TDC and then makes fun of Zerohedge for not picking up on the subject.

Cullen Roche at Pragmatic Capitalism, then blogged on the TDC on December 7, in a piece called “Platinum Coin Easing,” which draws its title from some views of JKH's I'll be reviewing in a future post. Cullen railed against the debt ceiling conflict calling it “stupid,” and also says that while PCS may look “Zimbabwean” it does solve the debt ceiling problem. Cullen points to JKH's post and says:

“The coin would replace some of the bonds that the Fed currently holds solving three issues:
1) A non-inflationary way for the US Government to spend.
2) It circumvents the debt ceiling by effectively reducing the debt balance by $1T.
3) It’s a completely legal workaround.”

Donald McClarey at The American Catholic blog also posted on December 7, on “Of Trillion Dollar Coins and Fiscal Lunacy.” calls it a lunatic nostrum, quotes the WaPo article by Plumer, and refers to the “wacked out left.” That's right, he offers no reasoning at all. Just name-calling and this:

“The country is in debt sixteen trillion dollars. By the time Obama finally leaves office we will probably be at least 20 trillion in debt. Of course this does not take into account dozens of trillions of debt in entitlement obligations coming due over the next few decades. We are rapidly reaching the point where it is mathematically impossible to ever pay off this debt without currency depreciation and/or hyper inflation. This scheme is basically currency depreciation as the US currency swells by two trillion dollars in a year’s time. If attempted I think it would lead ultimately to hyperinflation. The left are not all loons. Something like this will eventually be done by people who realize it is economic poison, but who are willing to do it anyway to get out of dealing with an unpayable debt. The impact on our economy would be likely catastrophic.“

Of course, McClarey, was in too much of a hurry ranting against the coin to notice that the first nearly $6.5 trillion of debt paid off using PCS couldn't cause currency depreciation because it would not enter the economy at all, since it would be used to pay interagency debt and Fed-held debt. Nor does any other seigniorage spending need to be happen except when debt instruments fall due, and Congress appropriates deficit spending. So, to back his hyperinflation currency depreciation rant, McClarey has to show that PCS-based spending would be more inflationary than normal spending after debt issuance, along with normal scheduled repayment of debt. Of course, he does not, and, I think, cannot show this.

Next, brief mention needs to be made of a post at “Twitchy – Tweet on the Platinum coin.” This post also happened on December 7. The tweets are entertaining but contribute little, if anything to the debate. On the other hand, they do make more sense than McClarey's post on PCS.

On December 8, James Hamilton at Econobrowser offered a post objecting to using the coin “from an institutional perspective.”

It basically amounts to the assertion that the Treasury Secretary has the unilateral power at any time to monetize completely the entire U.S. debt. The Treasury could issue a dozen or so of these coins and then pay off the Treasury's debtors at maturity just by writing a check written on its resulting ginormous account with the Fed. The creation of this power is I suspect something that Joe and every other sensible economist would view with abhorrence.

It's good that Hamilton sees the implications of the coin so clearly, but he fails to explain why Joe Gagnon of the Peterson Institute, and “sensible” economists would object so strongly to the Treasury being able to fill the public purse so that the debt could be paid off without throwing the economy into a decade of recession, depression, or stagnation due to running continuous surpluses to “fix the debt.” If there are any economists who prefer this way of “fixing the debt” to PCS, then I think the proper label for them is “insane” rather than “sensible.”

Hamilton goes on:

The plan requires the Fed and courts to play along. The Fed would need to agree to credit the Treasury's account for the deposit of the coins. I doubt the Fed would voluntarily hand over complete control of the nation's money supply to the Treasury in this manner. And the courts would be asked to confirm that legislation originally intended to satisfy a small group of numismatists in fact ceded authority to the President to monetize the entire outstanding debt of the U.S. Government.

This is, unfortunately, a highly questionable argument. Its first problem is that the Fed would have no choice because 1) the coin is legal tender; and also 2) the law says that in case any power of the Fed appears to conflict with the powers of the Secretary of the Treasury, then the Fed powers shall be subject to the supervision and control of the Secretary. So, the Fed couldn't even take this Court over the objections of the Secretary. See also beowulf's more detailed comment.

More generally, any law suit by anyone objecting to the use of the coin, on grounds of the intent of the law, would require the Court to grant standing to the plaintiff. But what would be the grounds for such standing? We already know that for Congress to have standing to sue, it's not enough to have a member of each House bring a suit to the Supreme Count because during the 1970s two progressives Sen. Phil Hart (D-MI), and Rep. Henry Reuss (D-WI), brought a case to the Supreme Court challenging the Constitutionality of the Fed, and were denied standing by the Supreme Court. So, both Houses would have to agree on an action. That won't happen.

So, both Congress and the Fed are out as plaintiffs, and anyone else would have to show that they were damaged by the use of PCS to acquire standing. No holders of intra-governmental debt could show that, or would be allowed by the President to pursue such a case. And no non-government holders could claim they were damaged by the Treasury's payoff of the debt they hold on schedule. So, again, who would have standing?

The next brief posts appeared on December 10. Louis Golino at CoinWeek posted on “Trillion Dollar Coins?” Golino follows the main line of mainstream bloggers saying that PCS is legal, but other alternatives would be tried first including the 14th Amendment and shutting down the Government gradually.

However, I've never thought that this is a sensible opening position, even though it's not an unusual one. First, because I don't think a 14th Amendment challenge to the debt ceiling law is viable as long as other alternatives exist for spending appropriations mandated by Congress, and one of these is Platinum Coin Seigniorage. And second, shutting down the Government without using an alternative that would avoid such a shutdown by allowing the President to spend Congressional Appropriations would leave him in violation of his oath of office, and potentially open to an impeachment action in the House.

Golino, and others, seem to think that all the options open to the President in a debt ceiling crisis are on all fours, so to to speak, and that he is free to select whichever option makes the most sense to him politically. But legally, if he can continue to spend Congressional appropriations without violating both the debt ceiling, and his obligations under the 14th amendment, then he's legally obligated to use an option that allows him to do that. PCS is the best of those options.

Jim McCraigh, of Precious Metals Digest, in “Trillion Dollar Platinum Coins and Other Dumb Ideas” is another blogger who worries about Zimbabwe and hyperinflation. He thinks the idea would be laughable if the “illiterate”people advancing it weren't “held out as so-called experts.”

… simply failing to understand one of the most basic economic truths… that a critical attribute of real money is as a store of value that remains stable over time. These ersatz coins would not be real money, but a super-sized fiat monetary fiasco sure to lead to political and financial chaos. Our national debt must be paid back the old fashioned way… by earning it through the creation of real wealth and not through the creation of more funny money.”

Unfortunately, for McCraigh, he has yet to adjust to the fact, that all our money these days, is fiat money, and that we can only pay back the national debt by using fiat money because it's the only kind, just as he must pay taxes using that same fiat money. The creation of real wealth is important and necessary for keeping the economy strong and for ensuring price stability; but our national debt can't be repaid with real wealth. It can be only be paid using fiat money. And from the viewpoint of its being paid when it falls due; it doesn't matter whether it's paid by fiat money acquired through taxing, borrowing, or seigniorage.

Dorothy Kosich at Mineweb also wrote a post on December 10: “Can trillion dollar platinum coins solve the US Debt Ceiling Problem?” This one was a “he said, she said” post linking to and citing Chris Krueger, myself, Jack Balkin, Pethokoukis of AEI, Joe Gagnon of Peterson Institute, Brad Plumer, and John Carney. It offers no new interpretations, but just the author's selection of the most important points from previous authors without using specific links to the posts or other documents cited.

In December 11, The MomCat at docudharma offered “The Debt Ceiling Myth and the Platinum Coin.” She reviews PCS and what it does with a focus on some posts of mine. She mentions my $60 T coin post and the distinction between the contents of the public purse and the purse strings. She also notes the difficulty of impeaching the President if he uses PCS, and quotes Jack Balkin on the possible use of the14th amendment and the likelihood of a conviction of the President in case of impeachment.

The platinum coin made The Daily Beast on December 11, with a post by Matthew Zeitlin called: “How a Platinum Coin Could Solve the Debt-ceiling Problem!” Zeitlin reviews the usual background on the TDC and then asks whether “. . . isn’t this what banana republics do, print money to fund the government when they can’t collect enough in taxes or sell their debt at a reasonable rate?”

And he answers the question yes, but also thinks it only becomes a problem when “printing money” is used regularly to cover the gap between tax revenues and spending. And he ends by saying that the platinum coin option really shows how odd the debt ceiling legislation is in applying a constraint to the Government spending on what has already been approved, and on interest payments it is already obligated to pay. He says that's a legal limit on spending and not an economic one, and that that is “the real joke,” rather than the platinum coin itself. In short, Zeitlin says nothing very different from other commentators and contributes very little to the earlier MSM discussion.

After December 11, brief replies to the PCS MSM posts seem to quiet down somewhat. But on December 17, two more appeared. One was by Fred E. Foldvary at Foldvary calls the TDC a joke, and says it would be inflationary; but he fails to specify any kind of causal mechanism for showing that this would be the case. Instead, he basically repeats the increasing the money supply leads to money inflation which leads to real inflation, Quantity Theory of Money (QTM) meme. In doing this, he ignores discussions about why QTM isn't applicable to economies like ours experiencing output gaps. He also ignores specific posts analyzing the relationship of PCS to inflation which focus on types of PCS spending, and show that these would not be any more inflationary than spending accompanied by sale of debt instruments.

A second brief reply to the MSM new wave on December 17 is from John Slater at Seeking Alpha and is called: “Balanced Budgets, Seigniorage And The Strange Case Of The Trillion Dollar Coin.”

“It appears that there is serious discussion afoot aimed at pressuring President Obama to engineer a transfer of power to the federal executive branch comparable in scope to the historical shifts engineered by Lincoln and Franklin Roosevelt during previous times of great crisis in America. This topic has gotten little coverage to date in the serious economic and political press.

“Don't doubt for a minute that we will begin to see such suggestions in spades should the Republicans stand firm when the debt ceiling issue again comes to the fore in early 2013. There will be tremendous pressure to give the President unfettered authority to spend all budgeted funds. Since the Congress seems incapable of adopting a budget, does this mean that all de facto spending authority will soon be transferred to the executive branch? The implications for the debt (TNX), foreign exchange (DXY) and equity markets (SPX) of such a transfer of power are more significant than any single factor currently driving the markets.”

I find Slater's reasoning here, a bit slippery. Congress may be avoiding doing formal budgets, but it's still appropriating money for deficit spending under continuing resolutions. So, Congress still has the purse strings in its hands, and the President won't be able to deficit spend any seigniorage profits without Congressional approval, which it can refuse to give whenever a CR comes up. In addition, of course, it could decide to do its job and arrive at a budget. Insofar, as PCS facilitates that, which it would if a $60 T coin showing that the US isn't running out of money were minted, then this is an advantage and not a disadvantage of that PCS option.

Conclusion

The brief posts on PCS don't add very much to the picture, Many of them just reflect stereotypical fears about inflation. Others review previous literature just spreading the news as it were. Still others attack the idea as silly, pretty much based on a psychological reaction rather than on any reasoned critique of the PCS idea.

The best understanding of the idea is in Cullen Roche's post. The best review of PCS posts is probably MomCat's. The posts by Hamilton and Slater bring forth legitimate institutional concerns. But to take Hamilton's seriously; you have to be supportive of the Fed's independence, which some, like myself, do not support because we view that “independence” as, in practice, subordination to Wall Street. Slater's post, voices the different concern that more de facto power still, will be shifted over to the presidency and away from Congress by PCS.

About that, I can only say that PCS gives to the presidency the power to prevent an abuse of power by the Congress, namely the debt ceiling legislation itself, and also gives the President the power to avoid interest bearing debt instrument-based financing of Congressional deficit spending appropriations if he/she desires. I think both of these are very good things, especially since the key power of controlling the purse strings still remains with the Congress, and not with the President. It seems to me that any greater leverage that falls to the President as a result of using PCS is leverage that can always seized back by Congress anytime it wants to do its collective job and represent the majority of the American people. On the other hand, if it wants to continue to represent narrow and plutocratic interests seeking to block any Federal spending that doesn't directly benefit them, then PCS profits may be viewed as a check on such an abuse of power by the Congress, and a reminder to Congress that the "how are we gonna pay for it" excuse for not legislating Federal programs people desperately need won't work anymore!

(Cross-posted from New Economic Perspectives.)

Richard Eskow Asks: Which Side Are You On?

Joseph M. Firestone — Sun, 23 Dec 2012 01:26:14 -0500

Richard Eskow of the Center for the American Future, posted a very good one a couple of days ago. He used the old union meme “which side are you on” to beat up the President and Congress about Social Security being placed on the negotiating table. I thought his writing on it was striking. Here's some of it:

“This is a moment of moral clarity. Right now there are only two sides in the Social Security debate: the side that says it’s acceptable to cut benefits – in a way that raises taxes for all income except the highest – and the side that says it isn’t.

“It’s time to ask our leaders – and ourselves – a simple question: Which side are you on?”

"Nancy Pelosi says she can convince most Congressional Democrats to “stick with the President” as he pursues his gratuitous and callous plan to cut Social Security benefits as part of a deficit deal – even though Social Security does not contribute to the deficit.”

I certainly hope that Nancy Pelosi cannot convince most Democrats to risk their seats and prepare the way for a Republican sweep in 2014 by voting to cut SS. The Republicans will respond to this by casting themselves as the protectors of SS, and while this is ridiculous, the Democrats will not be credible in claiming that they are its protectors, and they will lose their identity as the protectors of the safety net, a very high price to pay for the sake of raising taxes on the rich by an amount that is insignificant in the greater scheme of things. Eskow goes on:

“Excuse me: Stick with the President? What about sticking with our seniors and our veterans? What about sticking with our disabled fellow Americans? What What about sticking with the more than 4,000 children on Social Security who lost a parent in the Iraq War?

“If you want to “stick with” Americans on Social Security, it’s time to call everybody who represents you in Washington – your Representative, your Senator, your President – and tell them that they’ll lose your support if they do this deal.

“It’s time for an end to the Orwellian doublespeak. Cutting benefits won’t “strengthen” Social Security, as Nancy Pelosi claims. Cuts of 6.5 percent for a 75 year old and 9.2 percent for a 95 year old aren’t so small that “folks won’t even notice ‘em,” as President Obama claimed. They’re not a “technical” adjustment, as his press secretary argued, nor do “most economists believe … this about getting a proper measure of inflation.

“The smart economists know that even today’s cost of living formula isn’t enough. It undercounts the things older and disabled people use the most, like health care and public transportation. Some other people know the formula’s inadequate, too: Seniors. They live with the costs every day.

“So let’s stop all the double-talk and get down to the real question at hand: Which side are you on?”

The framing is “which side are you on”? Will you stick with the President and the people, who will do a deal at any costs, or will you stick with seniors and the American people. This reminds me of the frame Randy Wray recently used in one of his posts on re-framing MMT. That framing came from Bruce Springsteen:

We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own

And it's amplified by Randy Wray this way:

“. . . We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

“We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own. . . .

“We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own. . . .

“Sovereign government cannot be forced into involuntary insolvency. It can always afford to make all payments as they come due. It can always afford to buy anything that is for sale for its own currency. It can always financially afford any spending that is in the public interest. It can always afford to take care of its own.

“Anything that is technologically feasible is financially affordable for the sovereign issuer of the currency. It comes down to technology, resources, and political will. We’ve got the technology to take care of our own. We’ve got the resources to take care of our own. All that is missing is the political will.”

So, which side are you on? Are you on the side of most of us who want to take care of our own, wherever our flag's flown; or are you on the side of people who believe that the US Government's fiat money financial resources are necessarily constrained, so that we must choose between taking care of our own and making sure that our wealthy people and large corporations don't have to risk any of their wealth by giving their due to our country?

Don't get me wrong, I know the Federal Government doesn't need tax revenue from the wealthy or anyone to fund anything, because it's false that the Federal Government must spend only after it taxes or borrows. But there are still at least three good reasons to tax. First, the value of our fiat money is driven by the need to have enough to pay taxes. Second, taxing is needed to regulate and manage inflation. And third, taxing is needed to lessen economic inequality so that political inequality does not become so extreme that it poses a danger to democracy. All three reasons are ultimately about taking care of our own.

Eskow ends with:

“Tell the President you’re against the chained CPI. Tell your Senators and your Representative to declare their unequivocal opposition to it like Grijalva and Ellison and the others did, and to vote accordingly.

“And ask them that simple question: Which side are you on?”

I agree, and I'd also add:

Tell them that SS, Medicare, and Medicaid are litmus tests for them. Vote to cut them and you're gone after the next election. It will be “Bye Bye Marjorie” or whatever your name happens to be, for you!

More and more of us know the dirty big secret that there is no debt/deficit crisis. That the Government isn't constrained in the amount of fiat financial resources it can create.

So, we know that we can afford the cost of the social safety net, and even a lot more generous one than we have today. We also know that the Government has the financial capability to underwrite full employment, Medicare for All, a first class educational system, alternative energy development, infrastructure reinvention, programs to counter and reverse climate change, and whatever else we need to do to solve our problems.

So, don't you go telling us any longer about the fiscal constraints that excuse your not doing your jobs. We know those don't exist. We know you have no excuses.

So, get off it, and represent us! Help us take care of our own and each other, or resign from public office!

And that goes for the most junior Congressperson and also for the President of the United States! If you're not on our side and you don't want to help us take care of our own, then get out of our way and give somebody else a chance who's patriotic enough to serve!

(Cross-posted from New Economic Perspectives.)

Platinum Coins, Issuing Debt, Keystroking Deficit Spending, and Inflation

Joseph M. Firestone — Mon, 17 Dec 2012 00:29:37 -0500

The most frequent objections to proposals that we use Platinum Coin Seigniorage (PCS) to create reserves for debt repayment and deficit spending, frequently come back to inflation. Perhaps people can't get over the association they learned in high school Social Studies, or perhaps in American History, or Economics 101, that when Governments create money and then just spend it without any compensating deflationary action, inflation or hyperinflation happens. Maybe they can't forget those cartoons about people in Weimar Republic days pushing wheelbarrows full of money to the market to buy some bread. So, I've been promising for about a week now, to blog about the likely expected relationship between the different PCS options and inflation using the framework laid out by Scott Fullwiler!

Types of Spending, Methods of Filling the Public Purse and Inflation/Deflation

That framework is reflected in the first column of the table where all but the top row names the categories in Scott's framework. The table also expands the framework a bit, however. Scott's post compares using PCS to using debt instruments to add reserves to the Treasury General Account (TGA), the Treasury's spending account, to make the case that PCS, in, and of itself, won't add to inflation. I want to expand the perspective a bit by adding a comparison of both these alternatives with the alternative of allowing Treasury to close any gap between the tax credits it receives and the spending appropriated by Congress by creating in its own reserves in the TGA, either directly, or by sending an instruction to the Fed to credit the TGA with the particular amount of reserves necessary to do the deficit spending. So, here's the table.

Table – Likely Inflationary or Deflationary Impact of Debt Repayment and Government Deficit Spending By Type of Method Used To Credit the Treasury's Spending Account

The conclusions in this table are based on very few ideas:

1. There's no way reserves paid by the Treasury to redeem old debt can be inflationary unless it is spent into the economy, because there's no channel for causal impact at all.

2. So, debt repaid to other Government agencies and to the Federal Reserve Banks cannot be inflationary beyond inflation tendencies already built into the regularly scheduled spending into the economy of the agencies involved.

At the end of the 2012 fiscal year the total of Federal Reserve and Federal Agency held debt including Trust Funds was $6.4 Trillion (p. 51). So immediate redemption of that debt would reduce the debt subject to the limit by just under 40%.

3. Debt instruments in the private sector are a form of financial asset that is more inflationary than reserves in checking or savings accounts.

The classical Quantity Theory of Money (QTM) says that increasing the amount of money in circulation is inflationary. But, much empirical evidence shows that this is wrong, and that the expansionary factor in modern economies is increasing Net Financial Assets leading to increased demand beyond the productive capacity of the economy to absorb. NFAs can include income in the form money; but when money is exchanged for an asset of equal value as happens when a security is redeemed, then that's not inflationary, and may even be deflationary because of the ending of interest payments and securities leveraging that follows if no compensating debt issuance happens.

Here's Scott Fullwiler's reasoning on why this is so:

As I previously explained, this is the operational equivalent of quantitative easing (QE). The purchase of Treasury securities by the Treasury would retire the securities and leave banks holding reserve balances. But, as I explained in the previous post, “Banks can’t ‘do’ anything with all the extra reserve balances. Loans create deposits—reserve balances don’t finance lending or add any ‘fuel’ to the economy. Banks don’t lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its target—that’s what it means to set an interest rate target.

And on the subject of the deposits created by the debt redemptions he goes on to quote his previous post on QE3: linked just above:

“First, sellers of bonds were always able to sell their securities for deposits with or without the Treasury’s intervention given that there are around 20 dealers posting bids at all times. Anyone holding a Treasury Security and desiring to sell it in order to spend more out of current income can do so easily; holders of Treasury Securities are never constrained in spending by the fact that they hold the security instead of a deposit. Further, dealers finance purchases of securities from both the private sector and the Treasury by borrowing in the repo market—that is, via credit creation using securities as collateral. This means there is no ‘taking money from one person to give it to another’ zero sum game when bonds are issued (banks can similarly purchase securities by taking an overdraft in reserve accounts and clearing it at the end of the day in the federal funds market), as what in fact happens is that the existence of the security actually enables more credit creation and is known to regularly facilitate credit creation in money markets that are a multiple of face value. Removing the security from circulation eliminates the ability for it to be leveraged many times over in money markets.

“Second, the seller of the security now holding a deposit is earning less interest and can convert the deposit to an interest earning balance. Just as one holding a Treasury can easily sell, one holding a deposit can easily find interest earning alternatives. Some make the argument that the security can decline in value and so this is not the same as holding a deposit, but this unwittingly supports my point that holders of deposits aren’t necessarily doing so to spend. Deposits don’t spend themselves, after all.

“Third, these operations by the Treasury create no new net financial assets for the non-government sector (and can in fact reduce its net saving by reducing interest paid on the national debt as bonds are replaced by reserve balances earning 0.25%). Any increase in aggregate spending would thereby require the private sector to spend more out of existing income, or to dis-save, as opposed to doing additional spending out of additional income. The commonly held view that ‘more money’ necessarily creates spending confuses ‘more money’ with ‘more income.’ QE—whether ‘Fed style’ or ‘Treasury style’—creates the former via an asset swap; on the other hand, a true helicopter drop would create the latter as it raises the net financial assets of the private sector. Again, ‘money’ doesn’t spend itself. . . .

4. Demand-pull inflation cannot be caused by Government deficit spending, unless Congress appropriates and the Treasury spends, past the point of full employment. Whether inflation or hyperinflation happens generally has nothing to do with the method used to add electronic reserves to the TGA; but as one approaches full employment Federal interest payments and private leveraging of Federal securities resulting from debt instruments are more likely to initiate inflation than using either of the other two methods.

5. Using PCS to fill the TGA with reserves is very similar to the third method of giving the Treasury the authority to mandate the Fed to add reserves to the TGA upon instruction from the Treasury. In fact, functionally, depositing a high value platinum coin into the US Mint's Public Enterprise Fund Account, and then “sweeping” the seigniorage into the TGA is virtually equivalent to instructing the Fed to add reserves to the TGA. The “big coins” are just a different form of message than a Treasury instruction would be. But the functional financial content of the different kinds of messages is virtually the same. They both mandate the Fed to create the amount reserves specified in the message.

At Bottom A Political Choice

Some readers may look at this argument and agree with everything I've said and still prefer to deficit spend only after issuing and selling debt, rather than using either PCS or direct Treasury instructions. They might argue that even if it is true that the other methods are less inflationary, the method of debt issuance 1) is not so inflationary as to create a problem and 2) creates a political climate among the public and in Congress, that restricts government deficit spending, and keeps it sufficiently in check, that we almost always have a good deal less than full employment, and therefore never risk serious demand-pull inflation. And that's just the way they like it!

That, of course, is a political choice, and the people who make it, knowing that the Administration can use PCS to fill the public purse now, and also that Congress can authorize the third method of direct Treasury instruction if it wants to, are saying that they choose inflation control through using a method that fools most Americans into thinking that we are running out of nominal financial resources, even at the expense of having 28.5 million Americans who want full-time jobs not being able to get them, and even at the expense of having more than 50,000 fatalities per year due to lack of health insurance, and even at the expense of blighted futures for a generation of American young people, and the prospect of increasing poverty for many old people, and even at the expense of : and on and on.

Then I have an answer for them. And I'll begin by quoting Bruce Springsteen and Randy Wray.

We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own

That's Springsteen; and here's Wray:

. . . We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own. . . .

We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own. . . .

Sovereign government cannot be forced into involuntary insolvency. It can always afford to make all payments as they come due. It can always afford to buy anything that is for sale for its own currency. It can always financially afford any spending that is in the public interest. It can always afford to take care of its own.

Anything that is technologically feasible is financially affordable for the sovereign issuer of the currency. It comes down to technology, resources, and political will. We’ve got the technology to take care of our own. We’ve got the resources to take care of our own. All that is missing is the political will.

And then I'd go on to say this.

Your method of filling the public purse through selling debt to accumulate credits in the TGA, may provide an extra hedge against inflation by fooling people into thinking we are running out of money and that unemployment and austerity are just the price we have to pay for insuring ourselves against inflation, but that method is anathema to me because it creates a political barrier to taking care of own, and undermines our political will to take care of our own and one another.

The 28.5 million who want full-time jobs at a living wage are our own, as much as you. And they have a right to a Federal Government that will use its full power to see to it that they have full time job offers at a living wage that they can be proud of. And that, in the final analysis is why PCS, and direct Treasury instruction of the Fed, are better methods of filling the public purse than your method of using debt instruments.

The method of direct Treasury instruction of the Fed, isn't open to us without legislation. But PCS is available now to fill the public purse. We ought to fill it, the TGA, using PCS, with $60 T in electronic credits immediately, so no one can be fooled again by people saying that we can't afford something for sale in our own currency.

We don't need to have any public debt subject to the limit if we don't want it. And we always can have enough money in the public purse to afford to take care of our own, if Congress will only represent most Americans and legislate the necessary programs, while appropriating the necessary funds to open the purse strings of that full purse the Treasury will have! At bottom, it's a political choice; and, if we want to be real Americans, then we must choose to take care of our own!

(Cross-posted from New Economic Perspectives.)

New MSM Trillion Dollar Coin Wave: Here's The Big Story

Joseph M. Firestone — Fri, 14 Dec 2012 20:13:02 -0500

The one thing that jumps out at you when reading the mainstream posts of the past week-and-a-half bringing Platinum Coin Seigniorage (PCS) into the forefront of attention again, for the first time since last year's debt ceiling crisis, is that every mainstream blogger or commentator is telling a story about minting a Trillion Dollar Coin (TDC), or a few trillion dollar coins as an option the President can either use or not to get around the debt ceiling. But no one is telling us the much bigger story of the enormously increased authority to cause the creation of fiat money, delegated to the Executive Branch by the Congress in the 1996 legislation enabling PCS. And no one is telling us what the possible implications of this change are for our political and economic systems.

I've reviewed these posts, as well as a cable segment, in the four earlier installments of this series. The installments, beginning with this one, are here. The posts and the cable segment are by: Pethokoukis, Wiesenthal, Carney, Drum, Yglesias, Yglesias, Harry Bradford, Brad Plumer. and Chris Hayes.

Background: Moving off the Gold Standard

This is reminiscent of the situation with the system of fiat currency itself in 1971, when President Nixon, took us off the gold standard for purposes of international trade. After Nixon's action there were no good treatments in the Press, or by economists, about how the move to a non-convertible fiat currency with a floating exchange rate ,and no international debts denominated in any other currency, had changed the financial system by removing the possibility that the Government could become involuntarily insolvent (“run out of money” except through its own choice not to create more).

Before Nixon's big change, the amount of US currency and reserves was limited by the amount of our gold reserves, because it was possible for other nations to demand payment in gold in return for the dollars they held in their accounts at the Federal Reserve. In fact, Nixon closed the gold convertibility window, because France had started what looked like might be a multinational run on the gold reserves of the United States, jeopardizing the stability of the dollar in international trade, and threatening its role as the reserve currency in the middle of the Vietnam War.

After the window was closed however, other nations followed the United States in leaving the gold standard, with the result that now we have a world of nations with fiat currencies, though many nations aren't “sovereign” in their own currencies because they've incurred debts in other currencies, or have pegged their currencies to the dollar, or, in the case of the Eurozone nations have, like the American States, given up their power to issue currency, and become currency users of the Euro (or the dollar, as the case may be).

Nixon's ending of the gold standard was enormously significant because it removed the gold supply solvency constraint on the United States. And it restored the powers of the Government given it by the Constitution to issue money as needed to provide for the common defense and the general welfare (today we might say fulfill the public purpose).

The Gold Standard Hangover and Progressive Fiscal Policy

But the full significance of this event wasn't understood by most government officials or the public, both here and in other nations. Constraints on spending that were appropriate for a gold standard-based financial system were never repealed. They persist to this very day in our institutions, in our minds, in our economic systems, and in our politics.

These included: 1) Congress dividing the financial functions of the Government between the Federal Reserve and the Treasury; 2) Congress prohibiting the Fed from directly buying Treasury-issued debt; 3) Congress's ceiling on debt subject to the limit; 4) Congress's prohibiting the Fed from issuing credits directly to the Treasury to implement deficit spending, forcing it to issue debt and making the terms deficit and debt close to synonymous in the public's mind; 5) Congress's delegating its currency power primarily to the Fed; while leaving its delegation of the power to coin money with the Treasury; and 6) Congress leaving the Fed, the Central Bank, independent of the Executive Branch and the Treasury, but, at the same time closely associated with the Banking and Wall Street interests that own the regional banks, and sit on the Federal Open Market Committee (FOMC).

These constraints have divided the sovereign currency power of the Government and weakened the President's power to implement spending appropriated by Congress, when that spending involves deficits, even though that deficit spending was previously approved by Congress in its appropriations process. They have also perpetuated the previous gold standard-based understanding of deficit spending as closely associated with the national debt and the further understanding of the debt as a threat to government solvency, the international credit of the United States, “our grandchildren,” our standing with “the bond vigilantes,” fiscal sustainability, and fiscal responsibility.

So, these constraints have mired us down in the deficit/debt cluster of issues, self-imposed chains that prevent us from using Federal fiscal policy to meet our many problems. They have been the worst enemy of economic progressivism over the past 40 or so years, and have prevented us from responding strongly enough to the crash of 2008 to create a robust, full employment economy.

And, perhaps worse, the thinking that arises out of them now rationalizes the policies of austerity and deficit reduction that threaten to destroy the social safety net and bring our economy down again into recession or depression, or at least into a decade or more of future stagnation. These austerity policies will ruin the economic lives and prospects of a generation of Americans, and will place increasing burdens driving more and more older people into poverty, for the sake of false gold-standard based theories about how to run fiscal policy in what has become a sovereign fiat currency-based financial system.

PCS Creates a Great Crack in Gold Standard Constraints and Austerity Justifications

The big story about Platinum Coin Seigniorage is not the Trillion Dollar Coin and its possible implications for solving the debt ceiling crisis, as the mainstream has been telling us. Instead it is the great crack it creates in the wall of gold standard-based constraints still hanging over our politics and economics, and the increased fiscal and policy space this gives us to use to solve our various national problems. It is the authority the Executive Branch of Government now has to break through these constraints, and begin to unify the financial functions of government behind the public purpose. Let's look at those constraints again, and see what PCS, if used vigorously by the President, can do to weaken them or make them irrelevant.

-- Congress dividing the financial functions of the Government between the Federal Reserve and the Treasury: PCS enables the Treasury to commandeer the power of the Fed to create unlimited reserves to fill the Treasury General Account (TGA); the public spending purse, to cover debt repayment and deficit spending for years to come. The Treasury can use this power to demonstrate to the public that there is no Federal solvency problem, and no need for austerity or deficit reduction, because many trillions of dollars fill the public purse.

Another implication of this power is that it would add greatly to the amount of reserves in the banking system as the Treasury adds reserves through debt repayment and deficit spending without destroying them through a corresponding amount of debt issuance. To compensate for Treasury's reserve adds, the Fed, if it wants to keep the Federal Funds Rate at a target level above zero, would have to pay interest on reserves (IOR) shifting the interest paying function from the Treasury to the Fed.

-- Congress prohibiting the Fed from directly buying Treasury-issued debt: PCS, if used to produce coins with face values high enough to repay the debt subject to the limit and also pay for future deficit spending appropriations for some years, enables the Treasury to get along without issuing debt. So, it would need no one including the Fed to buy Treasury debt.

-- Congress's ceiling on debt subject to the limit: PCS, if used to produce coins with face values high enough to repay the debt subject to the limit and also pay for future deficit spending appropriations for some years, would make the debt ceiling a dead letter for some time to come, even if the PCS authority were repealed. The law would be still be there; but it would have no effect on politics or fiscal policy because there would be no, or at least very little, debt. And there would also be no political issue due to the presence of public debt.

-- Congress's prohibiting the Fed from issuing credits directly to the Treasury to implement deficit spending, forcing it to issue debt and making the terms deficit and debt close to synonymous in the public's mind: This constraint arises from the prohibition against the Fed granting credit to the Treasury. PCS however, involves the Fed exchanging reserves for a legal tender coin produced by the Treasury. Technically this isn't granting credit to Treasury; but just the Fed accepting a deposit of legal tender into the Mint's account, crediting that deposit as reserves, and then transferring most of the reserves created into the TGA as seigniorage. So, PCS produces revenue for the Treasury without violating this constraint, and also renders the constraint unimportant.

-- Congress's delegating its currency power primarily to the Fed; while leaving its delegation of the power to coin money with the Treasury: This constraint still remains with PCS. But the 1996 legislation, for the first time, makes the coining power of the Mint the near equivalent of the reserve creating power of the Fed, by allowing the Treasury to create coins with arbitrarily high face values.

With that power, the Treasury can require the Fed to fill the public purse to any level that Treasury thinks is necessary for its purposes. So, the Treasury's lack of currency and reserve-creating authority would be far less important than before, if PCS is used to its full potential.

Let's be clear, however, filling the public purse to any level, however high it may be, doesn't open the purse strings for free spending by the President. Congress still has to appropriate spending in excess of tax revenues for Treasury to spend that money. So, Congress still has control of the public purse; even after delegating its authority to fill it to the Treasury and the Fed in combination.

-- Congress leaving the Fed, the Central Bank, independent of the Executive Branch and the Treasury, but, at the same time closely associated with the Banking and Wall Street interests that own the regional banks, and sit on the Federal Open Market Committee (FOMC) which sets the monetary policy of the United States: PCS, again, if high enough coin face values are involved, reduces the independence of the Fed relative to the Treasury, by influencing its actions in setting its target interest rate.

As I've explained above, when and if coin seigiorage is spent by Treasury, reserves are added to the banking system in the trillions of dollars. But, these reserves would not be drained by debt issuance, so their existence in the system will drive the Federal Funds Rate (FFR) down to zero. If the Fed has a positive interest rate target, then it will need to pay IOR to depositors, and this will shift the bill for Federal interest over to the Fed, rather than the Treasury, taking it off budget.

Variations in PCS Options

The mainstream bloggers and commentators told the PCS story solely in terms of the theoretical availability of coins with face values in the low trillions and their potential impact on the debt ceiling conflict. But they never considered or examined a more aggressive use of PCS to change the US financial system substantially, by freeing the Treasury from its gold standard chains and the political system from fiscal policy alternatives focused first and last on their fiscal impact on deficits, debts, and misplaced solvency fears, rather than on full employment, price stability, and other public purposes. They never considered a range of PCS options and their possible wide range of impacts on economics, politics, and the federal financial system, as well as on the debt ceiling conflict.

Not even Brad Plumer. quoting the acute Jack Balkin, is thinking, for example, about very high value PCS, in the $60 T or greater range, as options that might liquidate the debt completely, and change the whole structure of how fiscal policy could be implemented. In addition, no one was thinking about the relationship between the general PCS authority and the broader government context including the Congress and the Fed.

As I've said in another place, a $60 T solution would allow Treasury to harness the authority of the Fed to fill the TGA (the public purse), so that Treasury need never issue debt again for the next 15 – 20 years, ample time to reconsider the unwise and damaging decision made by Congress in gold standard days to make the Fed independent of the Executive Branch and unaccountable to the public. That solution would also make the debt ceiling issue a dead letter, to the point where that legislation could easily be repealed over the next few years, since no one would expect to use it again.

When one proposes a very high value PCS solution, almost the first objection, after getting over the shock of hearing or seeing the proposal, is that either repayment of the debt, or deficit spending using seigniorage rather than debt issuance would be inflationary. That consideration made it into the mainstream posts. I'll consider the inflation objection at length in my next post. However it's also already been considered and evaluated in past writings by myself, and also by Scott Fullwiler. The bottom line, however, is that debt repayment won't be inflationary; and that deficit spending using seigniorage, also won't be inflationary in itself.

Any inflation effect will result from unwise and excessive Congressional deficit spending past the point of full employment. It will have nothing to do with using seigniorage credits rather than credits accumulated through bond sales for deficit spending.

If the mainstream had considered a wide range of PCS options, then one among them would have caught the broader PCS story, not that PCS could help the President over his current hump with the Republicans; but that it can remove many of the Treasury's gold standard-based constraints and, in the process, free up progressive advocates to push for solutions to most of our acute policy problems without always having to fight the “we can't afford it, because we're running out of money and what will we do about the burden on our grandchildren,” battle. If used properly, PCS can end all current justifications for austerity, debt, and deficit reduction in public spending. It can free progressives to build the Green New Deal and with it a bright future for America. The mainstream bloggers have missed all that by their narrow focus on the Trillion Dollar Coin and the debt ceiling rather than on PCS and its more general implications and potential significance if used.

Why?

One important question, is why the mainstream bloggers who are interested in the PCS idea haven't explored options other than the band-aid option of a few trillions in coin seigniorage to get by the debt ceiling for a little while. Why couldn't they see PCS more broadly than they do and explore the idea to begin to understand the likely impact of it generally as well as alternative PCS options. What's holding them back? Is it the impact of busy lives and hectic days? Is it the time they spend on the telephone or in email communications with other mainstream bloggers and insiders in the Washington/New York village? Is it that they consciously or unconsciously shy away from ideas that might lead them to advocate policies that would actually change the system of political economy we have now?

I cannot say. But what I do know is that their examination of platinum coin seigniorage in the context of the debt ceiling crisis, and otherwise, is too narrow and superficial too serve us well. We need deeper thinking and more detailed exploration of this relatively new idea, and its implications.

But the sudden waves of blogging by the mainstream when debt ceiling crises approach, aren't giving us any of that. What they're giving us instead, is an echo chamber treatment of the TDC, not the daring explorations of a new idea, very high face value platinum coin seigniorage, that we have a right to expect from a free press.

(Cross-posted from New Economic Perspectives.)

New MSM Trillion Dollar Coin Wave Misses the Big Story: Bradford and Plumer

Joseph M. Firestone — Fri, 14 Dec 2012 00:31:44 -0500

In my last three posts, I've critiqued the new wave of mainstream posts and commentary on Platinum Coin Seigniorage (PCS) on my way to making the case that the MSM are missing "the big story" about PCS. These include posts by Pethokoukis, Wiesenthal, Carney, Drum, Yglesias, Yglesias, and an MSNBC cable segment by Chris Hayes. All of these have looked at PCS in terms of the Trillion Dollar Coin (TDC) and its possible impact on the impending debt ceiling shakedown. None have viewed it from a broader point of view. Let's now look at commentaries by Harry Bradford, and Brad Plumer.

Harry Bradford

Harry Bradford posted on the possibility of minting two $1 T platinum coins. He does the journo thing of citing a bunch of people saying this or that about aspects of the TDC proposal while doing very little evaluation and analysis. More or less, his post is just a ﾓhe said, she saidﾔ treatment.

Bradford begins by citing Chris Krueger's Guggenheim report, and cites Krueger's opinion that using the coin option might be inflationary, and might trigger a wave of law suits, Of course, I've already indicated above that neither of these things are likely to happen and that Krueger offers no reason for thinking these two effects would come to pass. But Bradford takes Krueger's view at face value.

He then quotes one economist as telling the Washington Post that "A government shutdown is much more straightforward" than using PCS. In reply to which one might ask: more straightforward for who? The journalists who have to write about it and won't have to research PCS beyond the TDC meme, or the millions of people who will suffer economic hardship for at least some period of time because the President decided to engage in that kind of brinksmanship, rather than just mint a platinum coin with a high enough face value to take the debt ceiling off the table as a negotiating tactic supporting the strategy of "shock doctrine" designed to emasculate the social safety net?

Bradford then cites Pethokoukis as saying that using the coin might cause inflation, a point I examined here, indicating that Pethokoukis was following Krueger's opinion and that Krueger's opinion, was just that, a statement supported by no argument at all.

Then Bradford points out that others incuding WaPo's Brad Plumer, don't believe it would cause inflation since the money from the coin would not be directly spent into the economy. And he ends by indicating that in July 2011 Felix Salmon wrote that if the coin were used, then investor confidence in the US might be damaged; but that I debated that view in a post at Naked Capitalism.

Bradford neither tells us why Salmon thought investor confidence might be lost, nor why I disagreed with him. As it happens, Salmon thought that using the platinum coin would cause the US to lose reserve currency status. I argued against that point by questioning why that would happen as long as we were paying our debts with the seigniorage. I also pointed out that it would be very difficult to find a substitute for USD, and went over the difficulties, on a case-by-case basis, involved in shifting the reserve currency to another nation.

Brad Plumer

Brad Plumer's post "Could two platinum coins solve the debt-ceiling crisis?" touches the various bases already reviewed above, including calling the coin and other options for getting around the Congressional prohibition, "wacky," while quoting the Peterson Institute for International Economics's Joseph Gagnon to the effect that using the the two coins would not be inflationary, because the Government would just be using the proceeds to spend at existing levels. This part is correct, of course.

Then Plumer adds something new to the discussion:

This strategy is hardly risk-free. Opponents could plausibly argue that the original law was intended to set rules around commemorative coins, not to finance the operations of the government. And, of course, the political blowback would be fierce.

Indeed, even Balkin now says that he thinks the platinum-coin option is too risky. If Congress can't or won't lift the debt ceiling, then most likely the Obama administration would have to start shutting down parts of government so that it doesn't default on its debt. That, in theory, would prod Congress to act.

"All those other ideas [like the platinum coin option] are very uncertain, and they could lead to complicated litigation," says Balkin. "A government shutdown is much more straightforward."

Plumer is right that the political blowback would be fierce if the President used the PCS option. That's why I think it's best for the President to use it in a way that introduces definitive changes in the Treasury's authority to spend Congressional appropriations without borrowing, and in the political context of fiscal politics by creating the wherewithal to pay off the current debt. I favor minting a $60 T proof platinum coin to do that, to which the political blowback would be still more fierce. But, if one is going to get fierce political blowback in the first place then one may as well get it for changing something fundamental, rather than for using a band-aid over a short-term problem (the debt ceiling). For reasons I've outlined in this post and this one, I think minting a $60 T coin, would be a political game-changer for progressives and can build enough popular support for the President to survive any political blowback.

But as Plumer says, Jack Balkin now thinks that the platinum coin option is too risky to use, not only for political reasons; but also because he thinks it would spawn complicated litigation. It may spawn litigation challenging the President's action based on the intent of the law. But as I argued above, suing and winning based on the question of Congressional intent is very difficult and tests the expertise of justices who like to stick to the text of legislation, and also there is the question of standing.

Balkin thinks that it's more "straightforward" for the President, in case of Republican intransigence, to end the debt ceiling crisis by prioritizing spending with bond holders first on the priority list, and with gradual shut downs of portions of the Government as revenue shortages require. I agree with Balkin that this way of handling the situation will eventually work for the President politically and the Republicans will be blamed as they were in 1995 for the shutdown.

However, many people will suffer the effects of the shutdown; so for them this is not a "straightforward" course; but one that introduces many more complications into their lives than the President minting a $60 T platinum coin and then braving political blowback and litigation, and perhaps attempts at impeachment by the House.

It's worth noting that Jack Balkin has just posted an excellent argument at the Atlantic for his preferred strategy of pursuing the government shutdown course, and a version at his own blog that refers to PCS.

In the one on his blog he says:

Still others have begun discussing alternatives like trillion dollar platinum coins and the sale of exploding options, which I discussed during the 2011 debt ceiling crisis. These two ideas are quite interesting theoretically, but they are practically irrelevant.

Why? He doesn't make that clear except to go on to explain why the government shut down strategy will work. And later on in the post he says:

In fact, if the president ignored the debt ceiling and issued his own bonds, or if he publicly announced that he would mint trillion dollar coins or sell an exploding option to the Federal Reserve, he might lose the high ground in the standoff and actually be politically weakened. First, Republicans would feel no obligation to raise the debt ceiling because Obama would have taken all the pressure off them, and government functions would continue normally. Second, any of these strategies would give Republicans the opportunity to go on the attack. They would insist that Obama was acting illegally, go to court to stop him, and possibly even try to impeach him.

I agree with this, but only if Obama were to chose one of the low trillion dollar platinum coin options. Those are no good, because they leave the fundamental fantasy of fiscal scarcity intact. We can see that it is this kind of option Balkin is thinking about because even when PCS is used he still sees raising the debt ceiling as an issue that needs to be settled. But if a $60 T coin option were used, then the debt subject to the limit would be paid off and the debt ceiling would never be an issue, at least for the foreseeable future. In my next post, I'll get to the Big Story about PCS, the MSM commentators missed.

(Cross-posted from New Economic Perspectives.)

New MSM Trillion Dollar Coin Wave Misses the Big Story: Drum and Yglesias

Joseph M. Firestone — Thu, 13 Dec 2012 17:36:15 -0500

In my last two posts I've been reviewing the new wave of mainstream posts and commentary on Platinum Coin Seigniorage (PCS) by way of providing background for making the case that the MSM are missing “the big story” about PCS. Thus far I've reviewed recent posts by Pethokoukis, Wiesenthal, and Carney, and an MSNBC cable segment by Chris Hayes. All four have looked at PCS in terms of the Trillion Dollar Coin (TDC) and its possible impact on the impending debt ceiling shakedown. None have viewed it from a broader point of view. Let's now look at the commentaries by Kevin Drum and two from Matthew Yglesias here and here.

Kevin Drum

Drum presents his view of the theories that “. . . have been floating around. . . “ since last year's debt ceiling crisis including: the constitutional 14th amendment option; the platinum coin, the priority of legislation (that Congress has approved deficit spending since passing the latest debt ceiling implying approval of an increase in the ceiling); and the “you and whose army” theory that even if the President breaches the debt ceiling, no one could do anything about it because they would have no standing to sue. Here's what he says about the coin:

There's an obscure statute that authorizes the Treasury to mint platinum coins "in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time." Jack Balkin suggests that the secretary of the Treasury could simply mint a $1 trillion platinum coin, deposit it at the Federal Reserve, and then write checks on it. I don't buy this one either. It's just too outré. It's the kind of thing that sounds cute to a blogger tapping away on his laptop, but there's no way an actual president would ever try anything so obviously childish.

A bit unfair, I'd say. Labeling using “outré,” followed an ad hominem using “a blogger” to discredit a serious proposal without arguing against it. Apart from the fact that being "a blogger" says nothing about the quality of one's argument in the first place, as long as Drum wants to appeal to authority rather than to reason, as a good "progressive" from Mother Jones should; Jack Balkin's not just “a blogger tapping away.” He's a Professor at Yale Law School; and the originator of the PCS idea, beowulf (Carlos Mucha), is an Attorney. In addition, the most frequent blogging advocate for the PCS idea, namely me, is a Ph.D. in political science and a former university professor, before pursuing a long career in Washington, primarily as a researcher and consultant. Seems to me all three of us are further away from being just “bloggers” than Kevin Drum himself, who seems to me to be the one just “tapping away on his laptop.”

As for outré, one person's “outré,” is another person's solid new idea, it's not an argument against that idea. Drum got some pushback from readers about his treatment of PCS, and he then posted an update on it:

Several people have pushed back on my dismissal of the platinum coin ploy. I'm not a lawyer, but my sense is that this is so wildly contrary to the intent of the law, which was to allow the Treasury to issue commemorative and bullion coins, that a court probably would intervene if the president tried to pull this off. The other ploys are at at least minimally plausible, but this one is banana republic territory.

Drum can't resist the labeling without justification, can he? The Banana Republic Law is the debt ceiling law, and its use to extort concessions from a safety net that more than 2/3 of the American people want proves it. On the other hand, according to a Yale Law professor and many others who have looked at it, PCS is authorized by legislation passed late in 1995. Any challenge to it on grounds of intent is highly dubious for two reasons.

First, the Courts generally don't try to interpret laws based on theories about Congressional intent. The Justices aren't collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn't something any Court is likely to take up.

Second, Drum gives the “you and whose army” theory with a fair amount of conviction, saying it is the strongest theory of all. But that theory applies in spades to PCS, if we consider that the possibility of using it is written into the law, and the only one with standing to challenge it is the Congress itself, which won't, because the Democrats have a majority in the Senate, and won't challenge the President. Again, the PCS option is stronger than the constitutional option from this point of view; because as long as the PCS and consol options are legal, the debt ceiling legislation isn't unconstitutional.

In another update, Kevin Drum agrees with the idea that the best option is to shut the Government down in chunks because the Republicans “would cave before long.” I suspect they would, but I think this option would still result in real damage to real people; while the PCS option avoid that damage. Perhaps Kevin, doesn't see this because he thinks a TDC wouldn't make any difference in the political situation in the longer run. However, if he thinks that, it may be because he, like the other mainstream bloggers, hasn't given any thought to variations of PCS that might change the political situation and move it in a new direction entirely. Drum is another MSM blogger who's supposed to be “progressive.” If that's true then why isn't he discussing how the PCS authority can be used to further broader progressive aims, rather than simply solve the debt ceiling crisis?

Matthew Yglesias

In his post on 12/06 Yglesias just refers to the TDC idea and to one his posts on it in 2011.

But resetting into a no concessions mindset, the White House has a lot of tools. Not only can he argue that the 14th Amendment obviates the debt ceiling (which I would if I were him) or have the Mint create a couple of $1 trillion platinum coins (which is weird, but on a sounder legal basis) he can use his control over the executive branch to make the lapse of borrowing authority as painful to Republicans as possible.

He says he prefers a 14th Amendment challenge to it; but then calls it both “weird” and on a sounder legal basis, which makes one wonder why it's “weird”? Why do many MSM bloggers seem to feel obligated to characterize PCS in negative terms, even as they grant that it is a legal option? Do they need to do this to keep their credentials as among the Very Serious People (VSP)?

In his post on 12/07, he says:

Why did Congress draft a statute that doesn't specify what denominations the platinum coin may be? I have no idea. But it's a gaping loophole in the basic monetary framework of the United States, and pretty clearly allows Secretary Geithner to at least temporarily evade the debt ceiling by financing the government through seigniorage. The administration officials to whom I've raised this point generally respond by chuckling. Kevin Drum offers what amounts to an incredulous stare argument that this is undoable, "no way an actual president would ever try anything so obviously childish . . . so wildly contrary to the intent of the law . . . banana republic territory."

Maybe so. But such is the stuff of which great leaders are made. And there is precedent for it. In 1933, Franklin Roosevelt essentially broke the back of the Great Depression by taking the United States off the gold standard. As a matter of substantive policy that was much more radical than evading the debt ceiling. And as a procedural matter it was tricky. Did Roosevelt have the authority to do that?

Sort of! He issued Executive Order 6102 under the terms of the World War I Trading With the Enemy Act. Is that what congress intended? Clearly not. FDR's Depression-era gold policy had nothing whatsoever to do with World War I or any other war. But it was on the books.

So Yglesias's attitude toward PCS is different from the other bloggers. He recognizes that it's legal and that a great President will use any law on the books that will help him do what's necessary at a particular time. And about PCS specifically, he says later:

I don't think it would be a good idea for the government to be routinely financed by coin gimmicks, but it's a much better option than the alternative of default or endless debt ceiling crises. Putting the platinum coin on the table is a good way of clarifying that whatever House Republicans say or do, default is not an option and no concessions will be made so they ought to save face and embrace the McConnell Principle.

So, Matthew Yglesias wants to have the President tell Congress that whatever the Republicans do, he has the coin alternative to use to avoid the debt ceiling, and then rather than use it, negotiate something like the McConnell principle to avoid debt ceiling controversies in the future. But, why does he propose this? There are so many other alternatives, and this is such a trivial think to get in return for the PCS power, which is after all, the Ace of Trumps in this game.

-- The President could tell Congress that he has the coin alternative and insist that they repeal the debt ceiling legislation entirely or he will use it.

-- Or he could tell them nothing, and just use the coin power to mint a coin sufficiently large to buy all the Fed debt and to redeem all the Intra-governmental debts creating accounts at the Fed for the Trust funds. That would lower the debt subject to the limit to something like $9.5 T, making the debt ceiling issue a dead letter for at least a few years.

-- Or he could do something really radical like mint a $60 T coin, and immediately start repaying the intra-governmental and Fed debts and all the other debt instruments, while leaving nearly $44 T still available to cover future deficit spending for 15 – 20 years.

Why wouldn't real progressives such as Matthew Yglesias claims to be, favor an alternative like that, since it changes the political context by removing the memes of “we're running out of money,” “SS and Medicare are fiscally unsustainable,” and “our grandchildren will bear the horrible burden of our enormous national debt,” from the political debate?

It's a puzzle isn't it?

Looking at the posts of Pethokoukis, Wiesenthal, Carney, Drum, and Yglesias, we're seeing certain common elements. None goes beyond discussion of PCS in the low trillions, and generally there's a focus on the TDC meme and its relationship to the debt ceiling.

Also, none is concerned with how the existence of PCS is related to the option of challenging the debt ceiling legislation by using the 14th Amendment. Chris Hayes's cable segment follows the same pattern.

An emerging recommendation from some of these posts is for the President to use the TDC option as a threat in the background of his negotiations with the Republicans and then settle with them on some arrangement that makes it much more difficult for debt ceiling crises to occur in the future. This is a very conservative and unimaginative approach to the present situation, and there's not a lot of difference of opinion among the MSM commentators. TDC is "weird" or "outre." It's probably legal. But it's bizarre. Use it as a threat to defuse the present situation. But, once there's a deal with the Republicans then put it back on the shelf, and go on with politics as before. Is that all we want to get out of the legislative authority for the Treasury to create seigniorage revenues by using the Fed's authority to create reserves in unlimited quantity?

The next one will discuss the Bradford and Plumer posts!

(Cross-posted from New Economic Perspectives.)

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

Joseph M. Firestone — Wed, 12 Dec 2012 23:34:18 -0500

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, substituting as host on the Rachel Maddow show (12/05 at 9:20 PM); and John Carney at CNBC (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, 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” 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; 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, 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, 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 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, this idea originated last July with a commenter called "Beowulf" at Cullen Roche's Pragmatic Capitalism blog. 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. 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 (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.)