Monetary Realism

Understanding The Modern Monetary System…

Coin of Destiny

People are starting to write about the Trillion Dollar Coin again, which can only mean one thing… Tsy is fast approaching the debt ceiling. Doing some quick math, i doubt Obama is going to make it Election Day without the debt ceiling being raised, ignored or sidestepped (you’d think when the White House was negotiating the debt ceiling hike last year, November 2012 might have crossed their minds as an important date to push the debt ceiling past).

Obama could cite the 14th Amendment to blow past the debt ceiling, Geithner could mint platinum coins, Bernanke could order the Fed to buy $2 trillion in postage stamps (I hope they’re Forever stamps so they’re hedged against inflation) or Obama could stick to form– stand firm for 15 minutes and then act like General Hull at the Battle of Detroit (“General Hull’s own forces still outnumbered those of the approaching enemy, but he did not know this. Feeling the situation within in the fort hopeless, he ran up a white flag and quickly agreed to surrender”).

http://www.warof1812.ca/batdetroit.html

I think its likely that Mitch McConnell will renew his proposal to give the President unilateral authority to raise the debt ceiling. Romney (and Senate Republicans) would surely want this outcome– 1. It avoids making the Republicans look like a gang of arsonists just prior to Election Day and 2. It’d mean that a President Romney would never have to worry about a debt ceiling vote. The problem here is I don’t think the House Republicans can be trusted to come in out of the rain, much less vote for something (McConnell’s plan) that both avoids a financial crisis and advances their own political interests.

I’ll put it to the floor, how do you think the debt ceiling issue will shake out this year?
UPDATE: Joe Firestone wrote in to point out Tsy has more headroom than I thought. Joe thinks (and I would have to agree) that Tsy can push this past Election Day, especially if they go into robbing Peter to pay Paul mode. So in the lameduck session we’ll have Congress simultaneously striving for tighter fiscal policy(vis a vis the debt ceiling) and looser fiscal policy(to avoid the fiscal cliff).

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  • Clonal Antibody

    Both the Debt Ceiling Law and the limitation on the issuance of US Notes came as a response to being on the gold standard. In 1862 when Lincoln issued the greenbacks and then in 1917 when Liberty Bonds were issued, the dollar could be exchanged for gold. So the concern on the part of the Congress was that there be sufficient availability of gold to cover the issuance of US Notes and Liberty Bonds. Hence in 1862, there was a limit of $250,000,000 placed on the issuance of US Notes, and then in 1917, the limit on the issuance of debt was placed. The 250.000,000 limit was later in 1863 raised to $450,000,000. It was not raised after that, and with the passage of the Federal Reserve Act, became moot, until the politicians started playing political football with the Debt Ceiling, and mislabeling the Public Debt as “Leaving the Future Generations in Debt” This of course coming from a deep misunderstanding of what money and debt are.

  • Robert Rice

    As I noted above with Joe, it won’t matter if the coining isn’t operationally capable of causing inflation or whether in four months inflation is empirically absent; the pro-austerity crowd will sell it as part of a package of economic policies which they will claim are debasing the value of the dollar (they might not call it inflation, because there won’t be any as you noted, although they might sell it as impending future inflation). I can hear the fearmongering now, “Just you wait and see. The President is pouring fuel on the fire of the coming economic collapse by destroying the value of the dollar with his unbridled money creation policies. Oh my god, we’re all going to die from spontaneous combustion if we don’t get this wreckless President out of office.”

    The bottom line is, strategically this doesn’t seem clean to me. There’s other ways to skin a cat. Is this our best route? It might be better for Obama to get into office first and then do something like the coin proposal when his reelection is irrelevant and there are two years before the next congressional election, and hence time to really show this worked. Save it for a trick up his sleave if you will. We’ll need a pro-government spending President in six months.

  • Robert Rice

    Agreed, if he can put it off until after the election, we should be good to go.

  • Tom Hickey

    I appreciate your position, Cullen, and respect your reasoning and decision about how to position this venue. There’s a lot to be said for taking the high road.

    However, the other side of the argument is making the web censorship free and letting users do the censoring themselves. I don’t read every comment at MNE, for example, since I don’t have time to waste on things that I regard as other than high priority. Those who engage in invective and personal attacks are not worth paying attention to anywhere. I might step into an exchange if I think that the heat is getting to be over the top though, just to get things back on track rather than to come down on anyone. So far we have had no real nut jobs show up that we have had to ban for being way out of bounds, thank goodness.

  • Cullen Roche

    People are like banks. They don’t regulate themselves. And if there’s no one there to regulate them they’ll screw you over. :-)

  • Tom Hickey

    Again, that’s your view. The position at MNE is different.

    If someone calls you a flaming asshole — such invective is regularly hurled at Mike by the goldbugs’ followers — and you object, delete their comments, or ban them, then you charged with being a pussy that can’t take criticism and are in denial about your position. Mike has chosen to let it stand and shrug it off in the interests of open comments, including the anonymous option, with no censorship.

  • FDO15

    You are liars and hypocrites. I just had a series of comments censored and deleted from Mosler’s website for pointing out operational facts that MMT misunderstands. Not only do you all contradict yourselves all over the place, but you’re liars and hypocrites.

  • Tom Hickey

    This is why we don’t delete stuff at MNE. We would prefer to let people come to their own conclusions. Warren makes the calls at his site though, and he sets different boundaries.

  • Cullen Roche

    FDO, your comments could use some of the same advice. You’re not always exactly cordial with everyone (including me). And given your adoption of some of the MMR ideas it would be nice if you made an effort to express those ideas in the same manner that I’ve mentioned to Tom here. Thanks.

  • Tom Hickey

    FDO15, what are you talking about specifically. I was just over at that thread at Warren’s and a search turns up 58 hits on FDO15, with many of those yours, and some replies to you.

    I thought the discussion was more heated than it needed to be, but it got rather nuanced and brought out some good points and I learned some things.

    All of us might get more love and understanding by being less confrontational and abrasive. After all, this is not religion.

  • http://www.correntewire.com/blog/letsgetitdone Joe Firestone (LetsGetitDone)

    I agree he’s not likely to do it. That’s one of the reasons why he’s such a terrible President. Good president’s lead the polls. They don’t follow them!

  • http://www.correntewire.com/blog/letsgetitdone Joe Firestone (LetsGetitDone)

    It may come up, Robert, but Obama doesn’t have to do anything about it until he’s near the ceiling. he doesn’t have to talk about it or say what he’ll do about it. He has enough money (my latest calculation is that he has $800 B of headroom) to avoid it until at least after the election.

    I wish he’d do the $60 T coin now. If he did, he could prove there’s no inflation problem by October, but the longer he waits, the less feasible it is to do it until after the election for the reasons you’ve mentioned

  • http://www.correntewire.com/blog/letsgetitdone Joe Firestone (LetsGetitDone)

    Bought wimps and losers!

  • http://www.monetaryrealism.com Michael Sankowski

    Well I did shoot my hunting partner and force him to apologize on national TV to me, and then was part of Team B, so I can see why some might consider me to be right wing, despite my support for the TDC and 16% deficits.

  • Robert Rice

    So, I was watching CNN this morning as I do rather frequently, and one of the hosts, Fareed Zakaria, had a panel of folks on discussing the SCOTUS ruling on health care as well as the economy in general. On the panel was Peter Schiff as well as three others, and during their conversation on the economy, Fareed pointed out to Schiff countries which can print their own money aren’t having any problems with borrowing money to fund their commitments. In other words, bankruptcy isn’t a problem for them. He adds countries like those found in the EU are exhibiting concerns with bankruptcy because they cannot directly create money. Now, this is more or less a recognition and elucidation of the distinction between currency issuer and currency users, which is encouraging. However, in response and in predictable fashion, Schiff claims exactly what I argued above people along his lines will argue in response to the suggestion money printing is our savior: he indicated money creation is only going to lead to U.S. creditors terminating their lending to the government because such a policy leads to an ever falling value of the dollar (aka, inflation). He also indicated in this conversation one of the most irresponsible comments I’ve heard come from him, and that is: the Federal government does not have money it has not first taken from the non-government. No kidding, he actually said that virtually verbatim. Totally baseless, but a belief held by many.

    We can all be dismissive of Schiff as some fringe loon as well as those along similar lines, but he certainly isn’t be regarding as a nut. He is testifying before Congress, he’s running for Senate, a significant portion of the electorate shares his views, he’s regularly on the TV, etc. Those are facts people advocating for money creation shouldn’t ignore. It would also be to our own peril to ignore the fact that the arguments against money creation boil down to arguments against inflation.

    The dirty little underlying economic secret is that everyone just assumes the quantity theory of money is true. They don’t know it by name typically, but conceptually its the belief of the “heartland”. It’s why any suggestion of money creation is rarely coming out of anyone’s mouth, and when it does, it is immediately “rebutted” with claims of dollar devaluation/inflation. I was actually surprised and encouraged to hear Fareed even suggest money creation as a policy choice, but once Schiff responded, there was no rebuttal to Schiff’s “rebuttal”.

    If we want debt reduction and government deficit funding by means of money creation, we’d be better off not counting on “fate” and “destiny” (which equates to fairy tale luck) but on the recognition of facts and our collective repudiation of unsound arguments. If you want coining to happen, get to rebutting false beliefs on inflation. Otherwise articles like this sound more like an exercise in self-flattery and seeking hero-worship than it does in getting the policy actually implemented for the good of us all. There is no such thing as destiny, providence, or the sky fairies which bring them about. It’s up to you, to us to get’r done. Til then, you’re just a gambling man.

  • http://www.correntewire.com/blog/letsgetitdone Joe Firestone (LetsGetitDone)

    I’ve been doing a lot of rebutting of false beliefs about inflation in a variety of posts. Cullen had a pretty good paper on hyperinflation sometime ago as I recall. Bill Mitchell, Randy Wray, and Scott Fullwiler have written a lot on inflation and hyperinflation, and Rob Parenteau, Marshall Auerback, John Harvey, and Eric Tymoigne have all made important blog contributions. I’d provide links; but I’d be picked by the spam filter here.

    If you just google the names above, coupled with inflation, you’ll be able to retrieve copious writing on the causes of inflation/hyperinflation from an MMT viewpoint. There are also at least two posts dealing a good bit with coin seigniorage and inflation by Scott and myself.

    Schiff’s views on this have been amply refuted many times before and will be again. But it will take years to change minds on this subject in the absence of a demonstration by the President that even a huge quantity of money created won’t be inflationary, provided: it’s not spent, spent only to pay off debt subject to the limit, or “deficit spent” only up to the point the output gap is closed.

  • Tom Hickey

    Robert Rice: “the Federal government does not have money it has not first taken from the non-government. No kidding, he actually said that virtually verbatim. Totally baseless, but a belief held by many.”

    Right. And the strange thing is that most people think that most of the money comes from the govt, and they also think that govt has to get money. Huge contradiction there.

    That’s the naive view. The “sophisticated” view is that money is created by the Fed, which is a private bank and the govt has to pay “the bankers” to obtain its own currency.

    It’s obvious that most people have not thought through what they believe, so one can tell them just about anything that fits into some belief that they hold. They just don’t see the contradiction in holding contradictory beliefs. Must be the result of their religious training.

  • Robert Rice

    Joe, I wasn’t suggesting there’s never been a rebuttal offered from this side of the aisle directed at the fearmongering claims of inflation in relation to money creation as a prescription. What I meant to express was more an inquiry as to why, if we all have decided money creation is ultimately the means to the glorious end of economic vibrance, little to nothing is being written about it four months before a rather important election, particularly given almost no one agrees with us? We should supplement articles like the above. If Obama made the argument, I agree it would help a lot, but why don’t we do more on our end to help the President out? He can’t do it all, and he shouldn’t have to. Our republic is a team sport.

    There is an order of information dissemination in this country along the following lines: Theorists/academics argue amongst themselves, some end up with followers within the media who disseminates it to a broader audience (or the academics might make the effort themselves with books written to a more popular readership; I hope, for example, Randy’s new book is successful in reaching such), the populace listens and makes its own judgment, voting accordingly. Anyone who spends any time listening to news organizations knows Fareed’s comments are rare. Most don’t even make the money creation suggestion in response to austerians. Well, why? Democrats have largely accepted the Republican, anti-Keynesian argument which states we supposedly have a debt problem and that money creation is no way out since it will cause inflation. The fact is, if we were to evaluate based on numbers who’s been more successful in spreading their views, we’ve been much less so.

    It’s the “will be refuted again” you wrote about I was hoping to encourage. Saying we once upon a time wrote something on inflation that no one knows about is a great start, but why’ve we stopped if the idea is to beat the drum on money creation? I realize it might be “old hat” and “boring” at this point to write about why money creation doesn’t inherently cause inflation, but repetition and timing are key to get’n’r implemented. Instead we’re too busy watching Cullen/MMRers and the MMTers fuss because they can’t share the dump truck while playing together in the sand box. I’m half teasing, but really, if we all agree some pump priming would be useful, let’s at least get that done. We can argue about the JG later, with a much healthier economy and lower unemployment in the meantime. Maybe we can all put our differences, i.e. egos, aside for a bit and focus on what matters.

    Realistically, Cullen’s comments are the only one’s which may have reached any sort of significant numbers, and that’s maybe.

    There’s two problems all of the above listed names face:

    Problem 1) Reaching a non-academic, more popular audience. This means utilizing more common language so that the concepts can be the focus, not the reader’s frustration over new vocabulary (although I understand some new vocab is likely unavoidable; it can be minimized and not be an exercise in showing off, as it often is). Writing for other academics has its place, but you’re getting nowhere fast politically if you don’t use more common language, which is often left to the media who again don’t share our views. In addition, I would emphasize we all need to dispose of incorrect descriptions like taxes are equal to money destruction if we have any hope of being heard more broadly. Inaccurate framing is a self-imposed hurdle.

    Problem 2) Getting the arguments in front of the average voter with enough time for them to evaluate such. This is only going to happen via the media.

    And to add two more:

    Problem 3) Trying to hold one’s contempt for those of different views in check, as Randy for example seems to have difficulty doing at times. Value judgments about your “opponents” are of little utility–stick to rebutting arguments.

    Problem 4) Making it about the success of the idea not about the success of the individual promoting the idea. We need less heros, more just doing what’s right and letting the chips fall where they may. The boys who eliminated bin Laden aren’t out seeking your approval, so stop seeking theirs. We’re all heros if we all just do what’s right.

    Look, I realize an effort is being made, but I also notice MMT, MMR, or anything remotely similar is generally absent from MSNBC, CNN, Fox News (yeah, right), ABC, CBS, NBC, PBS, CSPAN, Comedy Central, etc., etc., etc. True, some are on TV occasionally. I saw Auerback’s recent appearance, for example. But wouldn’t it be useful to get Randy on Jon Stewart’s show for an interview related to his new book? He can make the argument to a more popular audience in a sympathetic context. All he has to do is just talk to the people respectfully, using straight forward language anyone can understand. MMT isn’t so complicated the elements we are talking about can’t be explained simply to people. We have the answers on paper, and collectively we have the people to get this done. By means of persuasive, passionate, but polite arguments, let’s appeal to our fellow countrymen for them to recognize that there really is a simple answer that really actually won’t hurt us.

  • Robert Rice

    Exactly, Tom. There’s a good opportunity here to educate, to point out the contradiction, to get people to wrestle with their views, and to persuade them of what’s true.

  • http://www.correntewire.com/blog/letsgetitdone Joe Firestone (LetsGetitDone)

    I’m all for this, Robert. In fact, It would take me awhile to count all the pieces I’ve written advocating for deficit spending and paying down the national debt since beo made his first comment on the subject in late 2010. In fact, I think beo will agree that I’ve done most of the promoting of the idea since then. Many people have now written about the idea, and MMTers clearly have supported it as well as Cullen.

    But, you know, it’s hard to get everyone blogging about the same thing, and even when MMT bloggers start blogging about the coming crisis, they’ve preferred to emphasize the faux nature of the crisis, rather than how easily it can be solved by minting a very big coin. And even when people agree that PPCS can be effective in alleviating the crisis, there’s a wide range of political disagreement about how the politics of the kind should or would be likely to work out. Again, you can get a better understand of the political currents on this by googling for some of the posts I mentioned above.

  • Cullen Roche

    I actually never endorsed the coin idea because I don’t think a politicians will ever put his name behind it since the public would likely view it as a political ploy to circumvent the current rules….

  • http://www.correntewire.com/blog/letsgetitdone Joe Firestone (LetsGetitDone)

    I know but thanks for publishing the piece anyway. We can certainly disagree on how the politics would work out.