Did the Fed have a legal basis for rejecting the Coin? (updated)

12 USC § 246Powers of Secretary of the Treasury as affected by chapter
Nothing in this chapter contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.

John Carney reported yesterday that it was the Federal Reserve that vetoed the trillion dollar coin. Tsy and WH statements announcing a joint decision apparently were face-saving exercises. Its a fascinating decision, and even if we don’t dive into the unitary executive constitutional issue (Article II vests the executive power in a president of the United States of America, the Fed’s independence is predicated on ignoring this fact), there doesn’t appear to be any legal basis for it.

Riddle me this, how come the Fed can be required to take dollar coins that banks haven’t ordered but cannot be required to take other denomination coins banks haven’t ordered?


$1 Billion That Nobody Wants

NPR June 28, 2011 – Politicians in Washington hardly let a few minutes go by without mentioning how broke the government is. So, it’s a little surprising that they’ve created a stash of more than $1 billion that almost no one wants.
Unused dollar coins have been quietly piling up in Federal Reserve vaults in breathtaking numbers, thanks to a government program that has required their production since 2007.
And even though the neglected mountain of money recently grew past the $1 billion mark, the U.S. Mint will keep making more and more of the coins under a congressional mandate.

They’re referring to a presidential dollar coin statute sponsored by Philip’s old buddy Mike Castle. My point is whatever legal authority Congress had to mint Castle’s “circulating and numismatic”* dollar coins was delegated to the Tsy Secretary’s discretion for platinum coins. So if Tsy can put a billion unwanted $1 dollar coins to the Fed then why can’t Tsy likewise put an unwanted $1 billion platinum coin to the Fed?

Whatever power Congress has to set dollar coin output is delegated to the Secretary to set platinum coin output. Remember, discretion to “mint and issue” platinum isn’t just for denomination and design but quantity as well.
(31 USC 5112(k))
Remember too, Congress also said the Secretary “shall mint and issue coins described in section 5112 of this title in amounts the Secretary decides are necessary to meet the needs of the United States”.
(31 USC 5111(a)(1))
If the Fed thinks the Secretary exercising these powers would be compatible with its own powers, well, all’s right in the forest. And if the Fed thinks it would create a conflict with its own powers…. that’s even better. See statute at the top of this page. The “chapter” it refers to is 12 USC Chapter 3 – Federal Reserve System. There is no authority in the Federal Reserve Act nor anywhere else in the US Code for the Federal Reserve to override a decision by the Secretary of the Treasury to mint and issue coins necessary to meet the needs of the United States.
I think the President of the United States just got bluffed by a bunch of eggheads. I suppose it’ll be a good warmup for caving to Mitch McConnell again. :o)

UPDATE: OK this is hilarious. Fed banks were required to order those $1 coins because of Mike Castle’s Presidential $1 Coin Act which required Fed banks to, “make quantities of each new design [4 a year] available to depository institutions in unmixed quantities during an introductory period. This requirement caused the Reserve Banks to place orders for each new design with the United States Mint, which in turn based production on these orders.” OK, so this congressional mandate is the reason the Fed was required to order and hold $1 billion (actually closer to $1.4B) in $1 coins in excess of demand. However at the end of 2011 Treasury suspended this congressional mandate because the Fed already had a decade’s worth of $1 coins stored in its vaults (no doubt the Fed egged Tsy on in this action). Here’s the funny part, would you like to guess how Tsy justified suspending the mandate to put $1 coins to the Fed? Let’s quote the press release, “Under existing law, the Secretary of the Treasury has the authority to “mint and issue coins . . . in amounts the Secretary decides are necessary to meet the needs of the United States.” My point exactly!
If Castle’s $1 Coin Act congressional mandate can override the Fed’s coin ordering discretion and then the Secretary’s Sect. 5111 authority can override the $1 Coin Act mandate, clearly the Secretary can use his Sect. 5111 “needs of the United States” authority to override the Fed’s coin ordering discretion. Now personally I’m dubious his authority is quite as broad as Tsy thinks it is (Geithner overrided an Act of Congress?!?), but that’s easy for me to say. On the other hand, neither the Fed nor Tsy can argue for a narrow reading of 5111 without admitting they’ve been in violation of the law since 2011 by failing to comply (or enforce) the $1 Coin Act mandate. So we’ll just let sleeping dogs lie and assume the Secretary’s authority IS that broad. :o)

Comments

  1. Hi Carlos, Great job, as usual.

    I don’t think he got bluffed. I think he ordered Geithner to go to Bernanke and kill the groundswell for the coin, so he could have cover for his own desire not to be boxed in by the coin. See: http://www.dailykos.com/story/2013/01/14/1178845/-Make-Em-Do-It-I-Still-Choose-Using-High-Value-Platinum-Coin-Seigniorage-To-End-Austerity

    • Thanks Joe, so Obama has gone from negotiating against himself to conspiring against himself? That shouldn’t surprise me I guess. :o)

      Personally, I think this “The Buck Stops with Congress” argument makes the President sound incredibly weak. People hire their presidents to solve problems, not provide color commentary while other people solve them.

      The President needs to throw his cap over the wall (say, “As long as I live in this house, the United States will never default on its obligations”) and then let the Attorney General figure out how to get it back. Its like what Harvey Keitel said about Navy captains….
      http://youtu.be/IV79EIZVuHQ

      • Well, you know I agree. I think Obama’s pretending to be weak because he wants the Republicans to do his dirty work for him.

        • Obama has let it be known that he wants to “fix entitlements.” He also knows that whoever makes the first move here gets the blame. The GOP has been saying explicitly for some time that this is the chief issue regarding spending. Obama is saying, then you go first, and we will go from there.

  2. Zero Bound says:

    Nah! Wall Street prefers bonds not platinum coins. Good for collateral and no sweat money making.

  3. beowulf, it seems to me that under the Constitution the president is granted wide authority of execution that presidents have interpreted as broadly as possible.

    The check and balance is the power of Congress to impeach if the majority of the House believes that the president has acted improperly, then the Senate has to conduct a trial and get a two-thirds majority in agreement to remove, which is a high bar unless the behavior is egregious. This certainly does not see to rise that that level.

    There is no provision in the Constitution subjecting the president to decisions of SCOTUS and for the most part SCOTUS has not involved itself in such disputes. Anyway, who would have standing in the first place?

    Looks to me like there are various interpretations by legal scholars and so the president, being a constitutional lawyer himself, is in a postion to make an informed interpretation himself. Unfortunately, the president seems to have decided upon a strict interpretation.

    Is that about right as you see it?

    • The platinum coin is his strongest card. If he ordered Tsy to put it to the Fed, the Fed would be nuts to challenge it in court. Tsy would likely win under 12 USC 246 (statute at top), if it lost the DOJ would appeal it all the way to the Supreme Court on unitary executive argument. That’s been a burr in Scalia’s saddle for a quarter century (and is a pet cause of John Roberts as well), there’s no way the govt loses that argument with this Court. And with that, every independent agency goes back to where they belong, under the President’s thumb (I’m totally on Team Scalia on this issue). So best case scenario for Fed is letting Tsy win this battle in the first round, worst case scenario is winning first round and then losing the war in the Supreme Court.
      The problem here of course is only we Republicans believe in Eisenhower’s point that sometimes the way to solve an insoluble problem is to make it bigger. I don’t think it’d ever occur to a Democratic Administration that the first step to winning the debt ceiling war against the GOP House involves launching a preemptive strike against the Fed. And that’s why this WH is going to suffer losses politically that it could have easily avoided legally.

    • Philip Diehl says:

      While it’s true that the Constitution does not expressly subject the president to the power of the SCOTUS, it’s implied and firmly established in court precedents dating back to Marbury v Madison (1803). That dye is cast.

  4. The article says:

    “The reason why such a suspension did not seem possible was the requirement under the Presidential $1 Coin Act for Federal Reserve Banks to make quantities of each new design available to depository institutions in unmixed quantities during an introductory period. This requirement caused the Reserve Banks to place orders for each new design with the United States Mint, which in turn based production on these orders. With production for circulation now suspended, Federal Reserve Banks will not be able to fulfill their legal requirement to make new designs available during an introductory period.”

    The Act reads:

    ‘‘(3) COORDINATION.—The Board of Governors of the Federal Reserve System and the Secretary shall take steps to ensure that an adequate supply of $1 coins is available for commerce and collectors at such places and in such quantities as are appropriate by …”

    That appears to be more like an act of joint co-operation between Treasury and the Fed, in gauging expected demand. That would suggest that the inventory over-stocking is due to a joint error in forecasting, rather than Treasury being in a position of ordering the Fed to order the coins, so to speak.

    Meanwhile, the press release says:

    “Under existing law, the Secretary of the Treasury has the authority to “mint and issue coins . . . in amounts the Secretary decides are necessary to meet the needs of the United States.” Given the substantial, growing inventory of $1 coins, it is clear that the minting of hundreds of millions of additional $1 coins over the next several years is not necessary and is not an effective use of taxpayer dollars.”

    Does “necessary” mean that “the authority to mint and issue coins” as a supply function includes the authority to dictate the Fed’s effective demand for coins – without the joint cooperation suggested in the wording of the Act above?

    • JKH, it’s not about the Fed’s ordering supply it thinks or does not think it needs. It’s about the right of the Treasury to coin money, deposit that money in the appropriate account at the Fed, the Mint’s PEF, and have that account credited with the face value of the coin. The Fed is the Treasury’s banker. According to law it is the Fed’s mandated banker. If the Treasury Department cannot compel the acceptance of its coins for credit into its appropriate account at the Fed, then, in effect, that destroys its delegated right from to create money through coining it, in order serve the needs of the nation. So, if that right of Treasury is real one of two tings must be the case. Either the Fed, and the Treasury’s banking agent, can be compelled to accept and credit Treasury legal tender when it’s presented by the Mint, or alternatively the Treasury must be free to establish its own bank, with the ability to create money out of thin. I wonder which alternative the Fed would prefer.

      • 1. The Fed is Tsy’s fiscal agent.
        “Federal reserve banks… when required by the Secretary of the Treasury, shall act as fiscal agents of the United States .” 12 USC § 391
        2. The Mint realizes seingiorage when coinage is shipped to the Fed. Whether this means when the coins are sent (Freight On Board as shipping lines say) or when it arrives at Fed Bank is irrelevant. Once its there, in any event, a TDC reflects $1 trillion (ex minting costs) of seigniorage that really should be deposited in Mint PEF (a public enterprise fund “established in the Treasury of the United States”) forthwith.
        3. US Coins are legal tender. 31 USC 5103
        4. Fiscal agent has a non-discretionary duty to deposit money (and legal tender is surely that) belonging to the government into Treasury of the United States and then keep accurate records of the transaction.
        31 USC § 3302 (b)… An official or agent of the Government receiving money for the Government from any source shall deposit the money in the Treasury as soon as practicable… (c) (1) A person having custody or possession of public money, including a disbursing official having public money not for current expenditure, shall deposit the money without delay in the Treasury… (d) An official or agent not complying with subsection (b) of this section may be removed from office…. (e) An official or agent of the Government having custody or possession of public money shall keep an accurate entry of each amount of public money received, transferred, and paid….

  5. Jack Foster says:

    Couple thoughts here:
    – i’m suprised no one seems to have thought about this. the TDC option was not an accidental loophole. my contention is, it was designed with full intent to provide a “doomsday” financial restoration capability for the govt. think about it for a sec, the govt has restoration plans for almost everything, and this is the solution for the monetary system.

    – if you read the statute, the exquisit detail provided for all the coins…except platinum. the platinum detail is so buried, it wasn’t meant to be found. however thanks to the interenet someone like carlos who dug into the detail and connected the dots it is now in public view.

    – assuming i’m right here, the govt would not want to invoke it’s usage for what is essentially day to day business. so they have fed/trsy come out and say it’s not an option…..at least not for the current situation.

    – how ever, do you think in a state of catastrophe they would not invoke it’s usage? of course fed/trsy would then say, well gee we could use this tdc option to replenish the “entire” monetary system overnight and provide liquidity/stability, etc….of course then they would, right?

    – everyone here knows the TDC is valid, meets all the legal criteria, and works as a solution.

  6. “Coordination ” is a nice term but the mandate was (is) to make each new coin series available to depositary banks. Since a new series was issued quarterly regardless of coin demand, Fed banks would often be obligated to order coins for which no member bank had ordered. If Tsy Sec’s authority to “mint and issue” (‘issue’ implying the power to regulate channels of of issuance– including the Fed) overrides the law’s mandate to buy presumably it can also override the law’s “Coordination” mission statement. Tsy’s 2011 interpretation of 5111 was sailing pretty close to the wind. I’m just applying it to the facts on the ground. :o)

    I’ve read that when Philip was running the railroad in 2000, the banks wouldn’t order the golden dollars so he distributed them through Wal Mart. If Tsy lawyers thought then that Sect. 5111 authority is as broad as they do now, he probably could impose some sort of mandate on Fed banks. I suspect Tsy only came out this way because, as it happens, the Fed wanted to be let off the hook for buying and storing ever more dollar coins.

    • Philip Diehl says:

      Beowulf raises a good point with the golden dollar/Wal Mart example. Because the banks refused to order the golden dollar and the Fed wasn’t going to order them if the banks didn’t, we went the Wal Mart route to get the coins into the marketplace. (And boy were the banks pissed. Great fun!) I don’t think Tsy had the authority to order the Fed to take the coins and if Tsy did have the authority, they wouldn’t have done it.

  7. “the TDC option was not an accidental loophole. my contention is, it was designed with full intent…”
    If only there was some way to run that theory past the Mint Director who drafted the law…
    :o)
    There are plenty of accidental loopholes in the law. For example, don’t you think if Congress intended IRC Sect. 401(k) to be a retirement savings tool they would have come up with a catchier name?

    • Philip Diehl says:

      Yeah, beo’s right. We’re not smart enough or knowledgable enough to have planned this. It’s purely an unintended consequence of this provision, one of maybe, what, 100,000 others in federal law.

      • Jack Foster says:

        Hi Phillip, i’m sure your be too modest, but will take your word for it. I just thought my alternate theory was going to make for a great chapter in the “presidents book of secrets”……..:-) ok, maybe i watch too much history channel…..:-)

        • Philip Diehl says:

          Jack, when you write that book go ahead with that theory as it makes me look like a genius, even Machiavellian. It’ll enhance my reputation. :-)

  8. Jack Foster says:

    It’s a theory and i could be wrong. but if you step out of the box for a second with an open mind and ask yourself a couple questions:

    -Do you think the govt has a restoration plan for the monetary system in the event of catastrophe?……it must have, no?

    – Given the trsy could print 1 or 1000 TDC’s, do you think there is any better restoration scenerio in which the govt could restore the monetary system?

    – if this were the monetary restoration plan, would they want it publisized?

    – if the TDC was intended as the monetary restoration plan, do you think they would invoke it to settle day to day business or keep it for catstrophe only?

    – and do you know what terms are in the mint directors confidential non-disclosure agreement?

    just something to chew on

    • Matt Franko says:

      Jack,

      The only catastrophe possible is the one we are witnessing right now… and those in charge would have just rejected the fail safe last weekend if that was the plan….. rsp,

      • Jack Foster says:

        matt, good point, but thought is, they rejected the TDC for “now”. there’s nothing to say they can’t whip it out at the last second if they choose to. the preference is probably that cooler heads prevail and the adults resolve the debt limit within current frameworks.

        if trsy can prioritize payments so that the govt at least makes the interest payments, there is no default. how long do you think congress can let the faa shut down or not send out s.s. checks before people go ballistic? so i can only guess the president sees other more conventional ways to handle the situation.

    • I’m sorry Jack, I was kidding and should have unpacked what I meant before. The Mint Director I’m referring to is Philip Diehl who, of late, frequently comments here
      http://monetaryrealism.com/tthe-razors-edge/#comment-13457

      Prior to becoming Director of the Mint, he was chief of staff to Secretary of the Treasury Lloyd Bentsen, so he has an uncommonly broad understanding how the Tsy Dept works. He’s a nice guy so I suppose you can ask him what, as they say in Hollywood, the bill’s subtext was, but I’m quite sure he and Congressman Castle (sponsor of platinum coin law, presidential $1 coin act and unfortunate victim to the “I’m not a witch, I’m you” candidate in the 2010 DE Republican Senate primary) were not thinking ahead to caching a Treasury survival kit in the US Code.

      I’m making the argument (for no real reason, at this point, other that I like pulling at loose strings) that Tsy could put coins to the Fed if it wished. I’m not saying that’s anything a Tsy Sec would do on his own. It’d be such an assertion of Executive power, that only the President himself would pull the trigger and it’d be helpful to have a National Emergency declaration handy to show the judge. Of course, if the President made it clear he was prepared to bulldoze the Fed on this issue, I imagine the NY Fed might just put in an order for a TDC after all.
      As an aside, Bruce Krasting thinks that foreign CBs and Hill Republicans both leaned on Bernanke to reject the TDC and from the latter, Bernanke extracted a promise to raise the debt ceiling after all. We’ll see.
      http://www.zerohedge.com/contributed/2013-01-13/ben-b-nixed-coin-what-does-mean

      • “Prior to becoming Director of the Mint, he was chief of staff to Secretary of the Treasury Lloyd Bentsen”

        Phil wasn’t the ‘brains’ behind Bentsen’s ‘strong dollar policy,’ was he?

        • Philip Diehl says:

          Beo,

          ” the same marketing requirements as Congress set explicitly in the Presidential $1 Coin Act”

          I’m not certain what marketing requirements you mean. Is it the requirement that the coins be made available in unmixed bags?

          • Right, from what I’ve read in different stories, because the Fed banks had to make each of the 4 new series a year available to member banks, the Fed banks would buy coins themselves that no member bank would ever order and even those that were ordered and put in circulation, quickly came back as deposits and were kicked back to the regional Fed banks.

            Even as I write this I’m wondering now if the Fed was stockpiling $1 coins and itself telling the press there was a “congressional mandate” for them to buy $1 coins (when there really wasn’t) simply to build pressure for Congress or Tsy to cut back on $1 coin production. I remember the Fed wasn’t the most cooperative bunch when you brought out the Sacagawea dollar.

            • Philip Diehl says:

              Boe,

              Of course I was long gone from the Mint when all this happened but I’m close to someone who knows the story well. Here’s what I know from him:

              The bureaucrats at the Fed have always hated the dollar coin , from the SBA to the Pres dollars, and for reasons you can read about in my testimony before the House Fin Serv committee in late Nov., they decided to mix the presidential dollars in with stocks of the golden dollar. There was public demand for the Pres dollars but when the banks ordered them they got the mixed bags with who knew how many Pres dollars in them. They’d pull the Pres dollars out and return the golden dollars back to the Fed. Castle tried to fix this with the mandate for unmixed bags.

              But then the economy tanked. Coin demand is cyclical so demand crashed and the Fed inventory of all dollar coins of both types spiked. Still, the Fed had to make each new design available to the public so they had to keep ordering, though at lower volumes.

              Then they administered a kill shot to the program by strictly limiting the way banks could order the coins, and demand collapsed. The Fed could then point to the big stockpiles their policies and the depressed economy had created and declared the program a costly failure.

              Then they convinced the WH that a good way to show its commitment to reducing government spending was to effectively suspend the program. Of course, this was ridiculous because the coins produced seigniorage. But that was meaningless to the Fed because unlike dollar notes whose profits go on the Fed’s books, they receive nothing from seigniorage but bear the cost of shipping, processing and storing coins.

              So the coins were a net plus (tiny) for he public but a negative on the Fed books.

        • Philip Diehl says:

          Hardly. I was in the position for all of 8 months before going to the Mint. I worked for him for two years before we went to Tsy, and his policy preferences long pre-dated my arrival. My influence was related to advising him on specific bills; for example, the issue of whether to open the Arctic National Wildlife Refuge to oil drilling. I advised voting against, opening ANWR, and that’s what he did. Not what you’d expect from a Senator from oil-friendly Texas.

          • Thanks Philip. That (strong $) was one of the more peculiar things associated with him and the ‘New Dems’ like Rubin / Summers / Clinton who took it and ran with it. Ended up as a giant root canal for Asia (ex-China, who devalued before it hit), Russia, Argentina and eventually the U.S. (if you assume budget surpluses were part and parcel of the strong $ mentality).

            The human damage resulting from that period of economic policy is staggering to contemplate. Certainly some interesting ‘legal standing’ issues involved. Although when have macroeconomic policy advisers ever been sued or tried for anything?

            • Philip Diehl says:

              Hi Art. I know the Clinton’s first term budget policy was driven entirely by the belief that reducing the deficit would bringing down interest rates and increase growth rates. It worked and the combination of lower interest rates and tech-driven increases in productivity produced the unanticipated budget surpluses of the second term.

              IMO the debt crises you refer to were the result of the high sovereign debts in those countries weere a result of a mix of economic growth policies, cronyism and corruption, and bankers pushing loans like crack dealers in east LA. As these economies tanked, there was a flight to quality in T bills which strengthened the dollar. I think the great harm you describe was more the result of deeply misguided austerity policies imposed on these countries by the IMF. And 15 years later the EU is making the same mistake and the GOP would have us do likewise.

              It’s as though JMK never lived.

      • Philip Diehl says:

        Krastings makes some good points I’ve made here and elsewhere. Yes, both Bernanke and the WH are likely to have received warnings from Senate Repubs that the TDC tactical nuke would trigger a massive retaliation and Obama could kiss goodbye any hope for passing immigration reform or anything else on his agenda. Obama knows that whatever a president gets done in his second term, gets done in the first year.

        A war over the TDC would be a huge distraction and poison the water. It would also change the debt limit narrative from “the crazies in the GOP are willing to drive the country to default and destroy the economy” to “Obama has usurped the powers of Congress and subjected the country to international ridicule with this ridiculous coin”.

        It’s possible that some type of signal was sent by McConnell that Senate Repubs are not so self-destructive (like the House Radicals are) that they’ll drive the nation into default. They saw how the antics of the House crazies ended up screwing Senate GOP candidates in the 2012 elections, and they’re more wary now of following the lemmings over the cliff.

        • Perhaps the gun control issue is also involved behind the scenes?

          • Philip Diehl says:

            No doubt, Art. But the WH has to know there’s a snowball’s chance of getting it through the House and only a slightly higher chance in the Senate. IMO this is a sincere effort by Obama and suggests he’ll be tougher in the 2nd term. the are not just political risks but personal risks for him in that it’s likely to increase the threats on his life. I don’t say this lightly. In the days I was in Tsy, the Secret Service was still in the department.

            That said, there’s no way Obama could let this slide without acting. he would have taken a beating from progressives. But I think Biden came up with a package that’s pretty aggressive. If you’re an Obama supporter, you’ll think that’s what they’re committed to enacting. If you’re a cynic, you’ll think they figured nothing would pass anyway so why not propose something that’ll appeal to the base.

  9. Jack Foster says:

    it’s all good, i was just having some alternate theory fun…:-) after reading diehls post, i don’t think there is any doubt the TDC option works, technically, legally, functionally. not using it, is a choice.

    i too believe the mainstream media dismissed the TDC too easily and did not at least dig in harder to question it just because it was not within the norm…. groupthink.

    So that begs the question, what are the reasons not do use the TDC option?

    • “If you’re not careful, the newspapers will have you hating the people who are being oppressed, and loving the people who are doing the oppressing.”
      – Malcolm X
      (h/t Stephan Ewald)

      • Philip Diehl says:

        I’d forgotten that quote. It sure resonates today but with an ironic twist. Thanks to the Right’s extraordinary propaganda machine, today it’s the oppressed who love the oppressors, like the house slave in Django loved Candie. But in his case his love of Candie at least won him the perks of the job; now it earns a lifetime of debt.

    • MMTdebtkiller says:

      I think that if you used the coin to buy up all the securities at the Fed, that would cripple the Fed’s open market operations to control inflation and deflation. You would have to have some alternative mechanism for doing that already in position to move into its place. Actually, as I say elsewhere in related blogs, I don’t think the coin solution for buying up the securities at the Fed was legal, unless you were absolutely certain that the Fed had not already redeemed the debts of the securities in the very act of buying them with government money made up out of thin air. And Fed is a government agent as well. So, the securities are property of the United States, not the Fed. If you start using money from the coin to by-pass the debt ceiling, instead of getting rid of the securities at the Fed, you take the Fed out of the loop, although it could continue its operations in open market operations. Things could get a bit confusing.
      I think it is minimally disruptive if we can get the Fed to simply admit that it has redeemed the debt of the United States to the banks and is simply holding the securities for the United States and using them as authorized in open market operations. The securities are property of the United States. Then the Fed declares further there is no national debt at the Fed because these debts are being redeemed as the securities are being purchased. I think the President and Secy of Treasury should just stop rolling over securities at the Fed. If the Fed complains, then Admin. should just say, “Sue me,” and I don’t think the Fed would be sustained in court. The Fed no more has a valid claim to be reimbursed for the securities it bought with government money created out of thin air than does a bank clerk who demands personal reimbursement for a purchase from a customer of a security with bank money. The Fed in these transactions is a servant, an agent of the United States buying for the United States with United States money created out of thin air. Maybe the folks at the Fed sometimes forget that because of their isolation.

      • Joe Firestone says:

        I don’t think OMO is an end in itself. What they need to do is to control FFR. That they can do with Interest On Reserves (IOR).

      • Joe Firestone says:

        On the Fed, I see it a system whose components are the BOG, the FOMC, and the regional Feds. The BOG is a Federal Agency. The FOMC is an advisory group to this agency that helps it make monetary policys. The regional Feds are tightly regulated privately owned non-profit banks that have been delegated the authority to create money out of thin air, and to implement Fed policy. They are also the agents of their depositors with fiduciary responsibility for their accounts. One of their depositors is unique — the Federal Government.

        The Board of Governors is not a bank. It cannot create money out of thin air, or implement OMO or QE. One of thee regionals has to do it. When the Treasury receives Tax and loan revenue it may do so at any of the regionals. They credit Treasury Tax and Loan accounts at their banks. When the Fed buys securities in the open market, it’s these banks that do it. So, they own the securities, not the Government. The securities are therefore not owned by an agency of the Government. They are owned by one of the regional banks, a privately owned government agent with stockholders, and they are assets of these banks. The banks can’t just cancel Federal debts w/o it affecting the Balance sheets of the regionals. That’s why debt held at the Fed is considered debt held by the private sector and not debt held by another Gov agency.

      • If you see this reply, could you expand — regarding securities operations? I’m new to this.

  10. Philip Diehl says:

    Beowulf,

    I’ll cover several points in your post sequentially.

    “Riddle me this, how come the Fed can be required to take dollar coins that banks haven’t ordered but cannot be required to take other denomination coins banks haven’t ordered.”

    First, I read the law to require the Fed to make the coins available in unmixed bags, not to order the coins whether the Fed wants them or not. This requirement was imposed because the Fed had been undermining the program by mixing Presidential dollars with other dollar coins, causing the banks to get a lot more coins than they needed to meet demand for the Presidential dollars. The Presidential dollar program was Castle’s baby, and this requirement was his way of protecting the program from Fed bureaucrats. So, I don’t read this to require the Fed to order the Presidential coins if there is no demand for it. Moreover, the mandate here is from Congress, not from Treasury.

    “Whatever legal authority Congress had to put Castle’s “circulating numismatic” dollar coins on the Fed they also had when they delegated discretion to the Tsy Sec for platinum coins. So if Tsy can put a billion unwanted $1 dollar coins to the Fed, then why can’t Tsy likewise put an unwanted $1 billion platinum coin to the Fed?”

    The first part of this I’ve answered above. Otherwise, yes, Congress could have required the Fed to accept a platinum coin, or given Treasury authority to do so itself, but the platinum coin law doesn’t do this. I don’t think there’s any such requirement expressed or implied elsewhere in the law. I could be wrong on this, but I’d need to see the relevant provisions before being persuaded. But again, this is all about Congress’s authority to order the Fed to take the coin, not Treasury’s authority to do so.

    “There is no authority in the Federal Reserve Act nor anywhere else in the US Code for the Federal Reserve to override a decision by the Secretary of the Treasury to mint and issue coins necessary to meet the needs of the United States.”

    This is correct as far as I know. But it doesn’t get to the issue at hand. This refers to the Treasury’s authority to mint and issue coins, not to its authority to force the Fed to accept a coin. Now, if there were market demand for quarters, for example, and the Fed refused for some reason to order them and therefore could not meet that demand, then maybe a case could be made that Treasury could somehow require the Fed to order and distribute the coin. But far more likely Congress would intervene and the Treasury would wait for them to do so.

    FWIW, that’s my read of the law and the politics of the scenario.

    • “But again, this is all about Congress’s authority to order the Fed to take the coin, not Treasury’s authority to do so.”
      Thanks Philip. Let me ask you this, Would Congress have needed to grant the Secretary additional authority in the platinum coin statute for Tsy to have discretion to impose the same marketing requirements as Congress set explicitly in the Presidential $1 Coin Act? My question boils down to, is Tsy’s discretion to issue platinum coins as broad as its discretion to mint them?

      It does seem Title 12 was written by banking lawyers and Title 31 was written by Treasury lawyers. If I was trying to put a TDC to the Fed, I wouldn’t frame it as a banking issue. I’d call it a Custodian of Public Money issue and put it on the banking lawyers to explain to the judge how a fiscal agent is not an agent, legal tender is not money, and the words “shall deposit” really mean “may choose to refuse deposit.” :o)
      http://www.law.cornell.edu/uscode/text/31/3302

      • You need to be Treasury’s lawyer on this one!

      • MMTdebtkiller says:

        Are the TDC’s “legal money”? Doesn’t the Fed have to accept them on that basis?

        • Philip Diehl says:

          Yes, the TDC is legal tender. But by my understanding, the Fed doesn’t have to “accept” it if what you mean by “must accept” is they have to order and receive it if the Mint produces one.

          But, and this is where things get murky, if the coin were presented to the Fed, as legal tender, in payment or as a returned coin from a bank, I think they’d might have to accept it as such. Of course, this would require the coin to get into circulation or the Treasury to present it to the Fed in payment of some kind. Both scenarios are vanishingly unlikely.

          • Clonal Antibody says:

            Philip,
            The Treasury does sell “Proof” coins to the public. What if say the Bank of Japan, or another Reserve Bank – or some private entity were to “purchase” the coin, and t then tender it to the Fed for deposit. that would be one way to go. BoJ is always looking at ways to lower the Yen against the dollar. See Warren’s post on this – Japan should buy the platinum coin?

            • Philip Diehl says:

              Clonal Antibody,

              “What if say the Bank of Japan, or another Reserve Bank – or some private entity were to “purchase” the coin, and t then tender it to the Fed for deposit. that would be one way to go.”

              Yes, but there’s no way around the fact that Treasury would never force or finese in the way you suggest the Fed to take a HVCS coin. It just wouldn’t happen. I’m not talking about the law; I’m talking about the political realities. Either they reach an agreement or go that course or Congress would have to mandate it.

              • Clonal Antibody says:

                In other words, what you are telling me is that the Treasury and the Fed generally act as a team. The team decided that the situation was not ripe for the use of a TDC. (Signals may have been sent to the Congressional Republicans??) and that the debt ceiling was resolvable without going down the TDC path.

                • Philip Diehl says:

                  CA,

                  “The team decided that the situation was not ripe for the use of a TDC. (Signals may have been sent to the Congressional Republicans??) and that the debt ceiling was resolvable without going down the TDC path.”

                  Well, “ripe” suggests they might have seriously considered the idea on its own merits (not just for the leverage it offered against the House Radicals) but decided the time was not right to proceed. I don’t think that’s the case.

                  But I do think the TDC option might have pushed McConnell over the edge and sue for peace with the WH, then use Williamsburg to tell the House GOP that the time had come to take their losses on the debt limit and move on to the sequester and the 2013 budget fight.

              • “It just wouldn’t happen. I’m not talking about the law; I’m talking about the political realities.”
                Just like a Senate minority filibustering every bill and nomination for months or a House majority refusing to raise the debt ceiling wouldn’t happen…. until it does.
                :o)

          • Joe Firestone says:

            Phil, I think that since the coin is legal tender and since the NY Fed is the agent of Treasury, it must not only accept the coin, but credit it thereafter. When a bank accepts an account holder and provides an account, I think it has a fiduciary duty to accept legal tender from the account holder. In the case of the Treasury, there are also special circumstances. The Fed Banks are the only legal banking agents of Treasury. It cannot go elsewhere with its coin. And second, it’s also the case that the Fed Act clearly says that when the Secretary and the Fed are in disagreement about a matter of interpretation of the act, the view of the Secretary will prevail. So this is pretty clear to me, the Secretary can order the Fed to credit the coin, and the NY Fed must do so. Also, the Fed Chair and the NY Fed would not even have standing to sue because the law says that the Secretary’s view must prevail.

            • Philip Diehl says:

              Joe,

              “I think that since the coin is legal tender and since the NY Fed is the agent of Treasury, it must not only accept the coin, but credit it thereafter”

              I’m inclined to agree with you on this, but since no one has ever presented to the Fed a trillion dollar coin as legal tender in a transaction, I can’t say with certainty.

              “The Fed Banks are the only legal banking agents of Treasury. It cannot go elsewhere with its coin.”

              This I know to be incorrect. When the nation’s banks said they would not order the golden dollar and the Fed said if there was no demand for the coin they wouldn’t order it, I circumvented the entire pack of them and struck a deal with Wal-Mart to release 300 million of golden dollars over two months through 3000 stores nationwide. We direct shipped the coins to the stores via USPS.

              When Wal-Mart sold out of their first shipments in a few days, bank customers started calling their banks asking for the coin. Of course they had none and came screaming to the Fed and Treasury about it.

              Mission accomplished.

              “the Fed Act clearly says that when the Secretary and the Fed are in disagreement about a matter of interpretation of the act, the view of the Secretary will prevail. So this is pretty clear to me, the Secretary can order the Fed to credit the coin”

              Irrespective of the legal merits of your argument, the Secretary will not order the Fed to take a trillion dollar coin. As I’ve said, the only way the Fed might be forced to take the TDC is if Congress mandated them to do so.

              I could be persuaded if someone provides an example of a Secretary forcing the Fed to do something of this magnitude in the way of a policy change.

              I hope you all don’t misinterpret me. I support HVCS and promoted the TDC vigorously. I’m just giving my best legal, political, and strategic communications assessment based on my years in Treasury, on the Hill, in politics, and in strategic communications.

              IMO it’s a mistake to focus on scenarios that simply aren’t going to happen and I do not believe the Secretary will force the Fed to take a TDC. It’s best to develop other strategies.

              • Clonal Antibody says:

                The Fed Treasury Accord of 1951 would tend to argue in your favor. I doubt that anybody in this administration has the stomach to revisit that. Normally that argument would have been resolved in the Treasury’s favor, but for the fact that Congress threatened to pass a law on behalf of the Fed position – this led to the Fed Treasury Accord, and enabled the maintenance of the status quo

                The Federal Reserve System formally committed to maintaining a low interest rate peg on government bonds in 1942 after the United States entered World War II. It did so at the request of the Treasury to allow the federal government to engage in cheaper debt financing of the war. To maintain the pegged rate, the Fed was forced to give up control of the size of its portfolio as well as the money stock. Conflict between the Treasury and the Fed came to the fore when the Treasury directed the central bank to maintain the peg after the start of the Korean War in 1950.

                President Harry Truman and Secretary of the Treasury John Snyder were both strong supporters of the low interest rate peg. The President felt that it was his duty to protect patriotic citizens by not lowering the value of the bonds that they had purchased during the war. Because bond prices vary inversely with bond interest rates, a rise in interest rates would have made the same bonds purchased at the lower interest rates worth less on the government securities market. Unlike Truman and Snyder, the Federal Reserve was focused on the need to contain inflationary pressures in the economy caused by the intensification of the Korean War. Many on the Board of Governors, including Marriner Eccles, understood that the forced obligation to maintain the low peg on interest rates produced an excessive monetary expansion that caused the inflation. A fierce debate between the Fed and the Treasury then ensued as both vied for control over interest rates and U.S. monetary policy.

                This website tells the story of how the Federal Reserve and the Department of the Treasury settled their dispute. The resulting agreement, known as the Treasury-Fed Accord, eliminated the obligation of the Fed to monetize the debt of the Treasury at a fixed rate. This agreement became essential to the independence of central banking and laid the foundations for the monetary policy pursued by the Federal Reserve today.

                • Philip Diehl says:

                  CA,

                  “I doubt that anybody in this administration has the stomach to revisit that. Normally that argument would have been resolved in the Treasury’s favor, but for the fact that Congress”

                  What’s remarkable in this example is that the WH and Tsy didn’t prevail even in wartime. It’s yet more unlikely in peacetime unless the country is on the edge of an economic abyss. Like the spring of 1933 and the fall of 2008. Considering how the country has failed to address the root causes of the 2008 financial collapse, I suspect we’ll reach the edge of the abyss again, sooner rather than later.

              • Yes, I’d agree with this that no Secretary (well, John Connally would, but other than him) would think of forcing the Fed to do something like this. If the Fed was thinking ahead, they’d game plan out a process where they could say yes but with conditions attached so it’d be the Fed’s call when to order and when to unwind the TDC). However, this is is a case where it will be easier to move the mountain to Mohammed than Mohammed to the mountain. Bernanke’s term expires January 2014 (and I doubt he’ll be re-appointed).

                As Nigel B said (or quoted), the Coin is going to be around as an issue as long there’s a debt ceiling so it it’ll be interesting to see this become an issue for the next Fed Chair nomination. If the President wants to use the TDC, I’m sure somewhere in America an economist could be found who’s open-minded to the idea. What’s more, senators could ask the nominated Chairman if he’d cooperate with the Administration on this if its necessary in order to avoid default. The right answer (for someone seeking Senate confirmation) is, “So long as the President is notifying Congress of his intended actions to Congress, the Fed will cooperate with him and the Secretary to protect the US economy.” :o)

              • Phil, I’m focusing on a scenario that is unlikely to happen, because I want it to happen, and think it ought to happen. How else can I increase the likelihood of its happening if I don’t blog about it. When I first started mentioning PCS in in November of 2010, and wrote my first blog post focused primarily on it January of 2011 there seemed little likelihood that it would ever break the mainstream barrier; but it did get there in July 2011, and again in December of 2012 – January 2013. I think I had some influence on that.

                Now I’m in the same position with respect to the $60 T coin. I think the following is true. It takes the decision of only one person to ram this through, so our assessments of likelihood have to be based on his capacity to think outside the box and how that capacity is likely to interact with the situations he’s likely to encounter. I think he’s got some tough situations coming up, and also that he can think outside of the box. So, I think there’s some likelihood he may embrace this.

  11. Since every Hill Republican is scared of being primaried by Tea Party activists (like Dick Lugar and Mike Castle were) , the President’s first priority should be pushing a federal election law like Washington State’s, requiring open nonpartisan primaries in all federal races, the two top candidates going on to the general.
    This would strengthen moderate candidates of both parties against hardcore party activists and would quickly provide Obama a working House majority on all sorts of issues (starting with the election law itself).
    http://monetaryrealism.com/tea-party-opens-door-to-election-reform-will-democrats-walk-through/

    • Philip Diehl says:

      I couldn’t agree more about election reform: nationalize federal elections to the degree the Constitution allows. Universal hours and registration requirements, etc,. to stop GOP voter suppression. I’d include nonpartisan redistricting on the list to eliminate gerrymandering, but I’m not sure its constitutional. Maybe limiting it to federal elections would pass muster.

      Then there’s the latest GOP innovation: dividing state electoral votes by their gerrymandered congressional districts. States where Obama won a majority and took all the electoral votes could have ended up splitting their votes, with the majority going to Romney. If the states with big GOP legislative majorities and a GOP governor, like FL, OH, PA, MI and WI, had done this before the 2012 election, Romney would probably have won despite losing by 6% points nationally.

      And the GOP should be wary of Dems doing the same thing in states they dominate.

      Electoral reform should be among the top items on Obama’s agenda, but I don’t think it’s even on the agenda.

      But as for open nonpartisan elections (ONEs), I’m real concerned they will have some nasty unintended consequences. I know the theory is that they’ll screen out extreme candidates and favor moderates, but I have my doubts.

      Citizens United makes the results of ONEs especially unpredictable. Imagine the Koch brothers pouring money into the campaigns of a couple of faux progressives to split the vote and then finance the campaigns of two Tea Party types. The result could easily be a runoff between the two TPs, with progressives outside looking in.

      At least with partisan primaries, you have a shot at some kind of choice. (This is especially true in my state, Texas, where all Dems would be knocked out in the first round of statewide elections.) I suspect none of the moderate and progressive Senate candidates of 2012 in MT, ND, IN, and MO would have survived the first round if ONEs had been in place. The opportunity for mischief is especially great in cheap media market states where a little money goes a long way.

      • “Koch brothers pouring money into the campaigns of a couple of faux progressives to split the vote and then finance the campaigns of two Tea Party types. ”
        So they’d be funding 4 candidates for a single seat? I’m sure they could afford it, but states set different primary days and once word leaked out what they’re up to (like last year with the state-level voter suppression laws), the backlash would more than cancel out any gains.

        In one party states like Texas (or California), I fear there is no election law reform that will make progressives (or conservatives) more competitive, this is a democracy after all. ONES do give independents and members of out parties a say; winners will likely be more moderate than winners in one party primaries. I mention Washington State’s law specifically because it kills three birds with one stone, the ONEs, nonpartisan redistricting commission and All Postal voting. Congress can clearly set the rules for federal elections (House, Senate, Presidency) but can only set rules for local races in states that’ve opted in to federal rules, that’s the reason the 18 year old voting rights law had to re-enacted as a constitutional amendment.

        • Philip Diehl says:

          Yes, that might be a back door way to federalize state elections. Most states are unlikely to set their state elections on different days from the federal elections to preserve their own election rules. Too expensive and voters will raise hell about the inconvenience. They’ll see it all as being done for purely partisan reasons at their expense.

        • MMTdebtkiller says:

          Should democrats take the strategy of encouraging some of their followers to cross over into Republican primaries to vote for more moderate candidates, or even candidates with democrat leanings?

      • Philip, I know you know (among other things) what a federal election is. We have a fair number of foreign readers and, when I remember to, I try to spell details of our system that may not be obvious to non-Americans. I apologize that comes across like I’m over-explaining things to you. :o)

  12. Clonal Antibody says:

    Ellen Brown on the Trillion Dollar Coin

    Gimmick or game-changer?

    This is the real context and backstory of the trillion dollar coin. The stakes are much higher than just fending off the debt ceiling. We the people need to take back the power to issue our own money, and we can’t do it with nickels and dimes. We’re going to need coins bearing some very large numbers.

    The idea of minting large-denomination coins to solve economic problems seems to have first been suggested by a chairman of the Coinage Subcommittee of the U.S. House of Representatives in the early 1980s. He pointed out that the government could pay off its entire debt with some billion-dollar coins. The Constitution gives Congress the power to coin money and regulate its value, and sets no limit on the value of the coins it creates.

    • “Today, the Federal Reserve creates trillions of dollars on its books and lends them at near-zero interest to private banks, which then lend them back to the government and the people at market rates.”

      What is she talking about?

      • What is $29 trillion, Alex?. :o)

        The politics of this issue are crazy— not only does the TDC pull supporters from the left like Ellen Brown but over on the right, the John Birch Society gave it a thumbs up.
        Obama’s Trillion-Dollar Coin Exposes Federal Reserve Scam

        You would have stroked out, true, but Obama could have done worse than saying he supported using debt-free money from the Mint instead of adding to the public debt by borrowing money through the Federal Reserve (hey, the NY Fed runs the T-bill auctions, no?). I’m not sure how the Republicans would react to Obama demanding they NOT raise the debt ceiling. :o)

        • Did you see this, beo: http://www.yesmagazine.org/new-economy/trillion-dollar-coin I caught her commenting recently and pointed out her 2007 book didn’t connect with the 1996 legislation, and then gave her references. She acknowledge I was right, and now this!

          • Joe, as I recall Ellen did make the connection to Diehl in a 2008 interview. I believe the reference was on The Johnsville News in a summary. Anyone else recall that?

            • I’d be interested in seeing that. But regardless, I don’t think she ever proposed minting TDCs based on that legislation, which is what I pointed out to her. And I think the yes article is the first time she’s cited Carlos’s work.

              • Found it.

                [Brown]: In fact I read somebody’s opinion, I think it was somebody from the Mint said that you could solve the whole problem by printing, or stamping, ten one-trillion-dollar coins, I mean today, that’s what it would be, and then just pay off the debt with these ten trillion dollars worth of coins. Because there’s no, it doesn’t say in the Constitution what the face value of these coins would be…
                http://www.thomhartmann.com/blog/2008/12/transcript-ellen-hodgson-brown-09-december-2008
                cited here:
                http://johnsville.blogspot.com/2011/07/debt-watch-coin-trick-trillion-dollar.html

                • Philip Diehl says:

                  Thanks for digging these articles up, Joe.

                • Philip Diehl says:

                  Oops. Thanks to Tom.

                • MMTdebtkiller says:

                  I’ve been commenting on Ellen’s blogs that there is no need for the coins to buy back the securities constituting the debt. I tell her that the Fed has already redeemed the debt of the United States to the banks. Since then I’ve finally pulled this together when I realized the Fed is just an agent of the government, using government powers to create money out of thin air to buy the securities for the United States. The securities are not property of the Fed but of the United States. The United States does not owe itself for the securities that have no current creditor to owe the debt to. I’m letting her mull that over. But she is currently throwing all her efforts into public banking, state banks, county banks.

                  • “I tell her that the Fed has already redeemed the debt of the United States to the banks.”
                    Except it hasn’t been redeemed. Only a bond’s issuer can redeem it and T-bonds are issued by Tsy, not the Fed. I’m not saying your point isn’t logical, just that its not legal.

                  • Joe Firestone says:

                    Again, they are the property of the Fed banks — privately – owned banks.

        • Quick question regarding the 29 trillion article you linked to.

          I remember well the brouhaha that article by Randy generated around the MMT/MR blogosphere (I think he wrote before the genesis of MR but it was referenced often in early discussions) but isnt Randy simply pointing out that the Fed was essentially doing their own 29 trillion dollar coin trick?

          While not literally *spending* 29 trillion the Fed made clear they were ready to process 29 trillion dollars of claims on the various financial assets they had chosen to stand behind if needed.

          We know the reaction if it were a 30 trillion dollar coin being talked about.

          • The $30 T coin would have worked, if Obama had used it to quickly pay down debt and published a schedule promising the pay off of all the debt. There would have been a brouhaha; and probably impeachment by the House. But that would never have gotten through the Senate, and Obama could have just kept repeating the austerians own framings on the debt and the deficit to defeat their opposition. The printing money meme would have had no power w/o inflation to back it up. But we know there wouldn’t have been any inflation. Bottom line Obama ends the political drive for austerity and also runs the political table while he’s at it.

            • Philip Diehl says:

              Like a lightning bolt from heaven. That’s how it’d have to be done. And, yes, the House would impeach him, and they’d immediately pass legislation overturning it, the Senate would probably pass it, and Obama would veto the bill. But if Obama made the case effectively, he might be able to hold the votes required to sustain his veto.

              But not his style. Andrew Jackson or TR would have to come back to life and occupy his body.

              • One reason why I’d now use a $60 T coin, is that even if they repeal the coin legislation, the cow would be out of the barn, and the proceeds would last 15-25 years, by which time we’d have a chance to reorganize the Fed under Treasury. Anyway, I agree about the lightening strike. If I were Obama I would have done that done the $60 T coin in May of 2011; or most recently the day after the election. And, then I would have given a speech like the one in this post: http://neweconomicperspectives.org/2013/01/4244.html followed by a mobilization of OFA behind the initiative.

                The Senate, then, never would pass a House bill to repeal, because everything would have become so visible that sticking with the coin would be a litmus test for any Democratic candidate. Then if Obama got a high percentage of the debt paid by November 2014, I doubt there’d be any trouble in the mid-terms. After all, what’s not to like: 1) debt rapidly disappearing; 2) the end of any need for austerity and no entitlement cuts; 3) no battles with Congress over debt ceilings or fiscal cliffs or austerity budgets; 4) Congress still controls the purse strings; and 5) attention turned to real issues about how to create good times here in America.

                I think the brouhaha would pass. The Rs wouldn’t be able to repeal the coin capability until they got hold of both Houses of Congress, and if Obama played his cards rights actually doing things for people rather than the banks, and Wall Street, I don’t think we’d see Republican control of both Houses again for some time. Their earliest opportunity to get the Senate again might not be until 2018 when there will many more D Senate seats than R Senate seats at risk, as there were in 2012.

                • Philip Diehl says:

                  Good point re the repeal and the fait accompli. But the time to do this is after Obama has gotten what 2nd term legislative accomplishments done that are going to get done and after the 2014 midterms. Early in 2015 so some of the dust can settle before November 2016.

                  • Don’t think so! Austerity is costing too many people too much. he needs to end it now or Dems will be blamed in 2014 or 2016. I’d do it right now! It takes the debt ceiling off the table and removes any need for austerity in an obvious way. If the Rs still insist on it out of pique at Obama, then they’d get crushed in 2014. You can’t sell austerity to people when the debt is getting paid down fast and there’s $43.6 T in the TGA.

                • Once you blow past the size of the public debt is there a reason to go right to $60T? You need to ease into something that’s such a break from current practices. Even a trillion dollar coin is too big to be practical (of course, like Mike said, once you think it, you can’t un-think). IIRC it was Philip who suggested minting $25B coins would be a good place to start.

                  Considering that the fear of inflation is the biggest political hurdle to “printing money” (and needs to be addressed when it comes up), a shock and awe $60 megaton coin strategy will lose more political support than it gains. Besides, there’s no point to creating a Strategic Petroleum Reserve-like buffer stock of something the govt has the ability to create at will, especially if its just going to scare the hell out of people (and that it certainly would).

                  • Philip Diehl says:

                    Beo’s right about taking this one step at a time. The debt limit is the tip of the wedge. The exploding debt cost squeezing the rest of the budget is the next increment of the wedge, and anyone interested in preserving entitlement, defense or any of the domestic discretionary spending levels will suddenly get a lot more interested in PCS. The time will come.

                    Looking back at what might have been and why it wasn’t has limited utility. You guys made a big step forward from 2001 to January 2013. You got some legal and economic heavy weights supporting the TDC and big media coverage. It’s a great foundation to build on. Now it’s time to anticipate the net opportunity and be ready for it.

                  • Beo, sorry, I guess we disagree in our political judgment about this. Sure the $60 T coin will scare the hell out of people, as would the $25 T coin, or even just a $5 T coin minted tomorrow. But I think the President can calm people down easily enough. Using the money initially to pay down debt and cover already appropriated deficit spending will calm people down. Explaining that what’s in the purse can only be used to pay down debt and to cover deficit spending appropriated by Congress will come people. The lack of inflation over the first year after minting will further calm them down.

                    I think it’s more important to have the fait accompli of enough money in the public purse to pay off the debt, and be able to cover all deficit spending for 15 – 25 years, so people can get so accustomed to having deficits without debt that it seems like the natural way to do things, and fear of “printing money” is banished from out politics; than it is to move slowly and incrementally, and not “scare” people.

                    The debt itself will be paid off incrementally, and this will build public support as the payoff goes on. More support will be built by deficit spending without debt, and by a President who is willing to use the fact of a full public purse to build political support for doing the deficit spending needed to enable us to re-build America and create a better life for all our people.

                    There must be no chance for austerian political opposition to prevent this from happening because, if the opposition has a veto on the amounts needed in the public purse to do deficit spending for that 15-25 year period, we will likely end up back in the debt issuance business with the same kind of political dynamics we have now. Sometimes incrementalism isn’t the way to go, because it frequently only gives irrationalism to gain a political foothold. That’s why we need the $60 T now, while the President has the power to get it. I’m going to keep writing about and building support for it for as long as it takes to get Obama listening. I probably won’t be able to do it; for all sorts of reasons. But I’m going to give it my best!

                  • Unless you think that the authority to create that buffer stock might be removed before you had a chance to use it!

            • MMTdebtkiller says:

              Let’s start working on getting the Fed to acknowledge publicly that it has no United States debt in securities at the Fed. It has redeemed all such debt. Let’s see what the GOP does with that. The Fed in these matters is just an agent, servant of the United States government, not a totally independent entity.

          • Right , Greg. That 29+ trillion (it’s still running) was “only” liquidity provision, which is monetary rather than fiscal, but 1) the public and probably Congress did not realize this was happening to the degree it has, and 2) the deal was that in exchange for cash-flow to mask insolvency the TBTF’s would renew lending to the private sector to avert a deeper downdraft in housing that was spilling into the rest of the economy and creating cashflow problems that were resulting in wider insolvency. The banks did not do that, and only insiders know about the disproportionality.

            The obvious question is why the govt through its central bank was so support of the financial sector while hanging the rest of the country out to dry. I don’t think that an answer specifying legal technicalities would have been very satisfying to voters if they realized the actual facts.

      • Warren commenting on Ellen’s post.

        “Except that’s not how it works”

    • Philip Diehl says:

      Ellen Brown’s article is damn interesting and some of what she says is new to me. The references to Franklin, Jefferson and Lincoln strike me as being “on the money”, as they say:

      ” In fact, the trillion dollar coin represents one of the most important principles of popular prosperity ever conceived: nations should be free to create their own money without incurring debt. Some of our greatest leaders, including Benjamin Franklin, Thomas Jefferson, and Abraham Lincoln, promoted this essential strategy. They realized that the freedom to print money offers a way to break the shackles of debt and free the nation to realize its full potential.”

      What the TDC is doing is beginning to pull back the curtain on the Wizard of Oz, and our banking wizards don’t like the hocus pocus of their money creation to be unveiled. As long as it’s shrouded in mystery, they can stay in control.

      • Absolutely, “The Secrets of the Temple” are beginning to get exposed now. That’s change you can believe in!

      • Jack Foster says:

        What’s funny is, how the conservatives have started telling the GOP not to put up a fight to the raising the debt ceiling now…..because they probably are afraid the curtain will be pulled further back if it turns into a major fight.

        • Philip Diehl says:

          Hi Jack,

          I really think the reason why the GOP is withdrawing on the debt limit is because the House Radicals cost them seats in November and if they don’t get them under control, it’ll happen again in 2014. They forced the House Rads to accept a deal in 2011 and in last month’s fiscal cliff deal. Now they’re doing it again in Williamsburg.

        • Or Bruce Kasting is right with his theory that Bernanke agreed to veto the TDC in exchange for the Republicans voting for a clean debt limit hike.

      • Matt Franko says:

        ” Benjamin Franklin, Thomas Jefferson, and Abraham Lincoln, promoted this essential strategy. ”

        Ellen should be careful with her appeal to authority here… Lincoln did not advocate for “debt free money”, check the historic record here is Lincoln from 1863:

        That Congress has power to regulate the currency of the country, can hardly admit of doubt; and that a judicious measure to prevent the deterioration of this currency, by a reasonable taxation of bank circulation or otherwise is needed, seems equally clear. Independently of this general consideration, it would be unjust to the people at large, to exempt banks, enjoying the special privilege of circulation, from their just proportion of the public burdens.
        In order to raise money by way of loans most easily and cheaply, it is clearly necessary to give every possible support to the public credit. To that end, a uniform currency, in which taxes, subscriptions to loans, and all other ordinary public dues, as well as all private dues may be paid, is almost, if not quite indispensable. Such a currency can be furnished by banking associations, organized under a general act of Congress, as suggested in my message at the beginning of the present session. The securing of this circulation, by the pledge of United States bonds, as therein suggested, would still further facilitate loans, by increasing the present and causing a future demand for such bonds.
        In view of the actual financial embarrassments of the government, and of the greater embarrassments sure to come, if the necessary means of relief be not afforded, I feel that I should not perform my duty by a simple announcement of my approval of the Joint Resolution which proposes relief only by increasing circulation, without expressing my earnest desire that measures, such in substances as those I have just referred to, may receive the early sanction of Congress.”

        Lincoln #1 recognized that our government, first and foremost, possess the ABSOLUTE AUTHORITY to operate our currency system…. how the details work out as to rates of taxation, bonds/no bonds, coins, notes, bank involvement, etc ARE JUST DETAILS.

        The first requirement is for a recognition that our government possesses this absolute monetary authority, and then we can work out the operational details… we currently have to somehow get consensus on this basic authority from, “our fellow Americans” , which imo is FAR from certain btw, and then worry about the details of how the system is best operated, which is the same process that Lincoln lays out for us here 150 years ago. …

        Advocating for “debt free money” at this point is jumping the gun a bit, we dont even have a consensus on whether the govt truly possesses absolute fiscal/monetary authority under law at this point (witness the rejection of “the coin”) …… rsp,

        • Jack Foster says:

          Matt, well Lincoln, being the great politician he was, knew that sometimes you have to give something in order to get something. in 1863, the war was far from over and outcome still uncertain, therefore all things negotiable were in play to achieve the means to the end.

          What we do know, is before the first issue of greenbacks, Lincoln could have borrowed money from wall st/europe, at 25-35% interest! Refusing the offer of extortion, he moved for direct issue of greenbacks. talk about a big f-u to the banks right?

          Now if you were a banker, watching the u.s. direct issue currency, would you have been nervous that the future of your being able to collect fat interest payments on govt debt was at risk?

          The net/net to the whole Lincoln/greenback issue really comes down to one thing: Did it work? yes or no?
          If it did work, who benefitted from stopping it?
          If it did work, is it worth revisisting it today as an option to improve our ability to put people back to work and grow our prosperity instead of tear it down?

        • Joe Firestone says:

          Can’t wait for consensus before you advocate something, or you’ll be waiting forever. You have to advocate and then build consensus.

  13. Yeah, my thought too when I read it. I posted a link to it at MNE with this comment: “Ellen handwaves a bit in explaining the existing system of creating money in a sentence or two, but it’s no big thing [in terms of the overall point she makes in the article about direct issuance]. Otherwise, good framing of the issues and citation of expert opinion. Word is getting around.”

    Ellen doesn’t seem to get that TPC is about liquidity provision as far as the debt ceiling goes. But she is not interested in TPC for that but rather for money creation by coin seigniorage rather than debt emission. Regardless of the fact that she is still a bit confused about this, she does make the point that debt financing through the private is not the only way to go, and a lot of people don’t seem to get that yet.

    It’s surprising that Ellen doesn’t seem to get this yet. The money creation process has been explained to her on a number of occasions, actually some of it IIRC by both of us at Bill Mitchell’s some time ago in his post on 100% reserve banking on which she commented. Since then I and others have been in email conversation with her about it.

    But Ellen started with an erroneous conception of the role of Fed and banks in money creation and apparently it’s a zombie concept with her to some extent, bound up with her pushing for state banking. But she has come a long way from where she was, so there is progress.

    • I give Ellen credit for putting her agenda on the table. She wants the govt to take over the banking sector (whether at state or federal level), and she doesn’t see the point of drilling into the details of private banking since she wants to kill it with fire. I don’t think that agenda is going very far, but she’s not hiding the ball. Its the people who know the technical details to the nth degree but don’t lay out plainly what they want who annoy me.

      • Right, the technical aspects may not be correct, but she has framed her message well. She is definitely action-oriented, as her advocacy of state banking shows. In fact, that project seems to be moving forward, although I have not followed it closely.

        • MMTdebtkiller says:

          Ellen really still thinks there is a debt at the Fed, that all money is debt of the people to the issuer. I hope she comes around. The current system can create debt-free money once we get the Fed to admit that it really has no claim to be rreimbursed for the securities it has purchased. (I do accept Tsy paying the legally mandated transaction fees of 6% of the interest on the securities to be paid the Fed. That’s how they get funds for their operations. But I would insist we only pay them once for a given security. And stop rolling over securities.).
          And Tsy could create such funds by issuing securities, having banks buy them, having next Fed buy them and redeem their debt. The funds are now debt free. So ultimately the Tsy gets to pay these fees with debt free money created by the banks. No taxpayers are involved.

  14. Philip Diehl says:

    Based on reports coming out of Williamsburg, the GOP is clearly looking for an exit strategy from their debt limit dilemma. Headline: “GOP in Retreat”. Indeed.

  15. Philip Diehl says:

    The GOP is throwing in the Rowell on this round of the debt ceiling. It’s possible the TDC option contributed to this. Possible.

    “Hoping to avert another debt ceiling showdown, President Obama has found a little common ground with U.S. Sen. John Cornyn.

    Cornyn, R-Texas, told the Houston Chronicle’s editorial board on Thursday that Congress wouldn’t let the federal government default next month.

    “We will raise the debt ceiling. We’re not going to default on our debt,” Cornyn said, adding, “I will tell you unequivocally, we’re not going to default.”

    Cornyn’s comments came amid another heated fight over the nation’s borrowing limit, which many congressional Republicans have intended to use as leverage to secure more spending cuts, particularly to entitlements. Unlike in 2011, Obama has refused to negotiate over the debt ceiling, saying further brinkmanship could lead to a financial crisis.

    Republicans indicated Thursday that they may instead seek a short-term extension of the debt ceiling, but Cornyn expressed hesitation toward other proposals like postponing payments on bills. “My hope would be that we would not even go there,” he told the paper.

    Asked about an op-ed he wrote earlier this month calling for a possible partial government shutdown “in order to secure the long-term fiscal well being of our country,” Cornyn responded: “You sometimes try to inject a little doubt in your negotiating partner about where you’re going to go. But I would tell you unequivocally that we’re not going to default.”

    Considering Cornyn’s leadership role in the Senate GOP and his prior threat/bluff to take us into default, this is a definitive signal of McConnell’s intent to avoid a repeat of the 2011 fiasco.

    Obama has won this round.

    • Jack Foster says:

      Let’s see:
      – First the white house wouldn’t rule out using the TDC option.
      – then people got excited that it might happen and the debt limit would be masacred.
      – The establishment gets nervous. (would love to know the backroom buz )
      – a couple days later white house takes the TDC option off the table.
      – a couple day more and the gop caves on raising the debt ceiling.

      They were totally scared of having the TDC get anymore attention from a fight over the debt ceiling for sure!

      We still need to keep it goin though

      • Philip Diehl says:

        Maybe. I can’t dismiss a scenario like that; I just think it’s more likely It happened for reasons of political survival: of several GOP Senate incumbents and Obama’s 2nd term agenda.

      • Philip Diehl says:

        And, yes, we should keep it going. There will be more opportunities coming up, one of them being when interest rates rise and the debt carrying costs begins to devour the budget.

          • Philip Diehl says:

            Thanks, Tom. I need to study this.

            BION, I’m a Democrat in the gold industry. I have to fend off rhetoric from the gold bugs that gold prices will skyrocket because the Chinese will dump their gold reserves and, with no other alternative, buy gold. (I do think gold prices will continue to rise but for other reasons.) I explain to them that the Chinese will move slowly because to do otherwise crushes the value of their dollar reserves.

            You might think of it from the Chinese perspective as the US being too big to fail.

            • As I mentioned upthread, perhaps there’s something to the theory that Bernanke traded away the TDC in exchange for the GOP voting for a clean debt ceiling hike.
              Speaking of Democrats in the gold business, did you catch Krugman going off on a gold tangent last fall (with a cameo by Larry Summers)? Interesting explanation of why gold prices stay high.
              http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-wonkish/

            • Are you familiar with Marshall Auerback of Pinetree Capital, who blogs at Macrobits. Pinetree is into gold, too.
              http://macrobits.pinetreecapital.com/

              He recommended the platinum coin, too.
              http://macrobits.pinetreecapital.com/time-for-the-platinum-coin/

            • How large are China;s dollar reserves? Don’t they mostly put their USD into Treasuries?

              • Philip Diehl says:

                “How large are China;s dollar reserves? Don’t they mostly put their USD into Treasuries?”

                Joe,

                It’s a state secret, but estimates i’ve seen run in the $1.7 to $2.0 trillion range. My understanding is that it’s mostly in treasuries. At one point i think they had around $500 billion in Fannie/Freddie holdings.

                • Thanks, that’s what I thought.So, they’d have to sell them to get reserves.

                  • Philip Diehl says:

                    “Thanks, that’s what I thought.So, they’d have to sell them to get reserves.”

                    The Chinese have been building reserves for years, of course, and in recent years have significantly reduced their $ denominated reserves as a % of total reserves. I know they’ve been active in the last two or three years buying large quantities of gold and are expected to keep doing so. As the Euro begins to turn, I expect them to diversify in that direction as well.

                    I figure that as the EU, Japanese, and BRIC economies strengthen, the safe harbor of treasury bills will lose its attraction, and central banks will accelerate their shift away from the $. (I know they’re constrained in how quickly they can do this.) Then the value of the dollar will fall.

                    Rinse and repeat.

                    I’m not an economist so that’s probably too simpleminded.

                    • They are moving to the IMF SDR %, slowly but surely. At least they were in late 2011. They are not moving out of treasuries all that fast, but they are not buying new treasuries at quite the same rate.

                      They are switching from stealing demand from the US to generating demand from their own population. Part of this will allow them to stop purchasing Treasuries at the same rate.

                    • The USD is over-valued as the persistent trade deficit shows. Need to fall another 15 -20% against that currencies of the net exporting countries. This would speed US domestic investment in productivity increase and development of alternative energy sources.

                      Going to SDR (basket of currencies) instead of the USD as reserve would resolve Triffen dilemma, since now the US needs to run persistent large CAD’s to provide external demand for $ reserves.

                      This would be an overall plus for the US although the crazies would be wringing their hands over loss of dollar reserve status and a weak dollar policy as a matter of loss of US prestige.

            • Speaking of gold – are you aware of the link between negative real rates and gold prices? Izabella Kaminska has written about this several times. It’s a good tool to keep in the back pocket. Gold rallies when real rates go more negative.

        • Clonal Antibody says:

          Mike Sandler at HuffPo – The Trillion-dollar Coin’s Week of Fame

          Is the coin forever vanquished? Don’t be so sure.

          The trillion-dollar coin is a powerful meme because it is grounded in an understanding of how the monetary system actually works. Even coin detractors were often forced to recognize the validity of the coin’s premise, if not its broader promise. So watch out: As the Vatican learned with Galileo, the truth has a way of resurfacing. Be on the lookout for debt-free, interest-free money, coming soon to a country-needlessly-plunged-into-recession-by-austerity near you.

          • Plus, the entire Paul K – Interfluidity dustup was started by the Coin. I tweeted Noah Smith when he asked if anyone remembered the Trillion Dollar Coin with the reply that Paul Krugman and Steve Randy Waldman sure did.

            Remember, in the beginning, there was no debt ceiling crisis. When the coin was first proposed, it was as a way to make people understand the government could issue money directly.

            The debt ceiling transformed the coin from about the lolz to something which could help us avoid economic catastrophe, and it caught on hugely.

            • Mike the coin got involved with the debt ceiling at least as early as November 4, 2010, with Beo’s comment on this post of Marshall Auerback’s: http://www.nextnewdeal.net/obama-faces-his-own-teachable-moment#comment-9831 When ND20 upgraded its web site, it wiped beo’s comment. But not before I quoted them, also in the context of the debt ceiling in this post of November 12, 2010: http://www.correntewire.com/constitutional_crisis_over_debt_ceiling_does_government_have_shut_down The same post appeared a bit earlier on FDL; but I’m linking to the Correntewire version because beo had two comments on the post. I need to link a bit more in this story. So, I’ll do a second comment with those links. Wouldn’t want to get caught in the spam filter.

            • Beo’s first blog post on PCS was at FDL on January 3: http://my.firedoglake.com/beowulf/2011/01/03/coin-seigniorage-and-the-irrelevance-of-the-debt-limit/ It was cross-posted at Correntewire also. There were comments of relevance at both places. But the post indicated that PCS could be used to solve the debt ceiling problem. Then on January 5, I followed with this post: http://www.correntewire.com/will_he_say_he_has_no_choice_or_will_he_use_seigniorage also cross-posted at FDL. I blogged on PCS many other times between January and June, always relating PCS to the debt ceiling fight; but also talking about more general application. In short, PCS was closely related to the debt ceiling from the beginning of blogging on the subject.

            • Ha ha, Joe, you should be my biographer.
              If you go back to the original Marshall’s Longest thread, we were talking about the debt ceiling (we were also discussing the issue of whether the Fed could refuse a deposit).
              I think what Mike meant was that only econowonks took any interest in platinum coin seigniorage, it took the debt ceiling battle (and rebranding it the trillion dollar coin) to put the issue into popular culture.,. My favorite example was The Most Interesting Man In The World angle..

              Like Arm & Hammer with its baking soda, we just need to find other uses for it. :o)

              • My earliest exposure to the coin had very little to do with the debt ceiling. And it’s not like there was really all that much exposure in the first place. Over at mosler’s place, the coin was almost all about how the government #could# print money. The debt ceiling was a part, but only a part, of that discussion. Mosler’s blog at the time was far, far larger than any FDL posts or Auerbach posts.

                So while the coin had a ton of early reference to the debt ceiling, I remember it as being a thought experiment turned into real life possibility by a legal loophole. I bet Cullen remembers it like this too.

                This isn’t to say the debt ceiling part of the coin was nothing. But only that the debt ceiling wasn’t really how I or probably many of the econ geeks over at Moslers were first exposed to the coin.

                Even if it was in the title of the post, let me assure you, I wasn’t interested in it as a real world debt ceiling solution until much later.

                • “I remember it as being a thought experiment turned into real life possibility by a legal loophole.”
                  Right, that was the econowonk stage, it took the real life possibility of a debt ceiling catastrophe (and not just musings in Mosler forum bull sessions) that suddenly made it the least stupid idea in the room. :o)

          • Jack Foster says:

            This was a great piece. The beauty is more and more are starting to digest the true significance of the TDC exercise. With PCS or even direct issue currency, greenback style, we have options that can be better solutions vs. the way we currently manage the monetary system.

          • Has three links to my stuff, so I can’t complain too much. However, the idea that Paul Krugman is somehow close to MMT, is really uninformed; and the idea that ” “The “austerity-ans” refers to the “Austrian” school of economics, which decries government spending as pretty much the root of all evil, is really mistaken. Some Austrians may be Austerians; but when MMT people use that term, they’re talking about “centrist” people who are really tough about both raising taxes and cutting spending. The best examples of US austerians are Pete Peterson, Robert Rubin, Maya MacGuineas, Alice Rivlin, Erskine Bowles, Alan Simpson, Jack Lew, Bill Clinton, Paul Ryan, and Barack Obama; not Robert Murphy or John Carney.

            • Matt Franko says:

              Joe,

              Any chance of getting a televised debate perhaps at Chris Hayes MSNBC show with those Peterson/Fix the Debt type people and some MMT/Coin heavyweights?

              With “The Coin” now front and center, and all of the scales finally dropping off of many eyes, I think perhaps it is time for these Peterson folks to be called to account in the media somewhere…. they need to be called to appear in a very public forum to defend their position with an informed challenge or at least informed interlocution.

              Perhaps Kelton/Black/Beo vs Walker/Rattner/McGuiness ?

              These Peterson folks have to be called to account publicly and defend their assertions that “we are out of money”, “broke”, etc… in light of the revelations occurring due to “the coin”…. they cannot be allowed to continue to get away with these false assertions with impunity … a public challenge is in order. rsp,

              • I think that’s a great idea Matt. But I can’t get to Chris Hayes. Maybe Stephanie can. But if she can, will Walker, MacGuineas, and say, Erskine Bowles, actually come? I think not! They’ve got a propaganda machine set up. I’ve never known them to debate with anyone who didn’t share their assumption that we have a long-term deficit/debt problem.

                • He does read this site, so you’ve come to the right place. :o)

                  Seriously though, think baking soda. Figure out other uses of TDC and when you make your pitch for some policy or another that involves a TDC , you won’t have to explain to the audience what that means… which for monetary reformers is kind of a big deal.

            • “However, the idea that Paul Krugman is somehow close to MMT, is really uninformed; ”
              I don’t think anyone has accused Krugman of that… We like to think his thinking is more simpatico with Monetary Realism. :)
              :O)

              • You mean mean you guys still believe in loanable funds models? Somehow I doubt that!

                • Oh please! Now MMT and MR are going to have pissing contests regarding who gets Krugman!!!!

                  Stop!! I cant take it any more!!!!!

                  Look what you did Cullen, you evil evil bastard!!!

                  • One good thing that might come out of such an exercise is that Sumner would be left on the gym floor while everyone else leaves to go play!

                  • Please note that there should be a smiley face after my comment.

                    As Foghorn Leghorn used to say;

                    “its a joke son, its a joke”

                    • And a bit (joke?) of a pissing contest. :\

                    • Philip Diehl says:

                      “Please note that there should be a smiley face after my comment.
                      As Foghorn Leghorn used to say; “its a joke son, its a joke”

                      Too bad. I was looking forward to a throwdown.

                      There should be a sarcasim-irony-joking font.

          • Joe Firestone says:

            Reflecting my stuff! See his links!

        • “There will be more opportunities coming up, one of them being when interest rates rise and the debt carrying costs begins to devour the budget.”

          This issue is a big deal, a very big deal. The question is how to cut net interest cost (slated to be approx $4.5T over next decade) which is pretty much the lowest lying fruit in the budget deficit.

          • End the debt offset of deficits requirement and go to direct issuance instead of indirect thru debt emission, while providing substitute “safe assets” in the form of term deposits at the Fed rather than tys in offset of deficits. In Warren’s view, this what tys are in effect anyway — “savings accounts at the Fed.” That way the Fed can set price and let quantity float with demand for different maturities, setting the yields constant to eliminate variable duration premium. Gets rid of the government as big household or firm analogy, and leaves the system pretty much intact, if that is the objective.

            • “while providing substitute “safe assets” in the form of term deposits at the Fed rather than tys in offset of deficits.”

              Except that the interest paid on the term deposits would be deducted from the Fed’s net interest debate to Tsy. I’m curious as to what happens if the Fed’s interest cost for term deposits and excess reserves exceeds its earnings rebate (net interest costs invariably exceed earnings rebate). Does the Fed have to eat the overage or are they going to send Tsy a bill?

              • Yes, if interest is paid by the Fed, it’s not included in the deficit. Fed should set rates low — no need for govt to pay duration premium in providing safe assets. Should be no problem in paying interest from revenue. If there’s ever an issue, it is only an accounting issue and can be fixe the way the mark to market rule was changed to mark to model at FASB in 2009 when issues arose. :o

              • “Does the Fed have to eat the overage or are they going to send Tsy a bill?”

                Hey, if FDR could summarily end domestic $-gold convertibility and end domestic gold hoarding, and Nixon could summarily end international $-gold convertibility, this kind of internal accounting issue isn’t a blip on the screen. Those were essentially US defaults.

                • Well that certainly would take care of the net interest issue (CBO estimates that will be $4.5T over the next decade). :o)
                  1. Tsy stops issuing debt, really “debt-free money” is a huge political selling points. Its like you go all the way around the globe and you end up with next to people who are 100% against raising the debt ceilng. We can accommodate them!
                  2. Tsy deposits TDCs with the Fed into as needed to fund appropriations.
                  3. The Fed drains reserves with its term deposit facility (and by continuing to pay interest on excess reserves).
                  http://www.frbservices.org/centralbank/term_deposit_facility.html
                  4. Interest cost is deducted from Fed’s net earnings rebate sent to Tsy. And once interest cost exceeds earnings (which it soon would)…
                  5. The Fed keeps paying and tapes each new invoice for Tsy reimbursement in its dream journal, repeat ad infinitum.
                  http://www.zerohedge.com/article/creative-accounting-makes-fed-insolvency-impossible
                  What’s nice is, all of this is possible under current law ( well the term deposit facility is a bit underauthorized by Congress, but what’s the harm?). The only real bottleneck is 2. “Tsy deposits TDCs with the Fed” (OK and maybe the ad infinitum part) . Once that’s resolved by hook or crook, its downhill from here.

                  • I can’t stress this enough, net interest has to be dealt or the rest of the govt will be starved of funding. This is because net interest makes up a cartoonishly large fraction of long term deficit projections.
                    Recently this was, “visualized with the following graph from the Heritage Foundation (based on Office of Management and Budget data and CBO data).”
                    http://www.americanthinker.com/entitlements_08-850.jpg

                    This Dec. 2009 AEI graph based on CBO data shows the same trend line.
                    http://www.american.com/graphics/2009/Chart_12-3-09.gif

                    • beo,
                      – what happens to the future interest rate cost of the deficit if the Fed raises rates, and the entire outstanding reserve position (= cumulative deficit) reprices higher, immediately?
                      – or do you personally guarantee that rates remain low until 2080?
                      – and that, among other things, there will never again be an inverted yield curve?
                      – or are you irretrievably on board with FM*2 (full-Monty-Mosler), with interest rates fixed permanently at zero?

                    • “or do you personally guarantee that rates remain low until 2080?”

                      Well no, I won’t be around in 2080. If reserves are drained with Fed term deposits and IOR the Fed will have to pay out more in debt service whenever interest rates go up (presumably anything over earnings rebate is on them) … and they’ll have no one to blame but themselves. :o)

                    • Philip Diehl says:

                      “Recently this was, “visualized with the following graph from the Heritage Foundation (based on Office of Management and Budget data and CBO data).”
                      http://www.americanthinker.com/entitlements_08-850.jpg

                      Beo,

                      This sure tells the story. I suppose CBO hasn’t release a graph like this post-fiscal cliff deal.

                    • Philip, I think the CBO’s rule of thumb for spending cuts and tax hikes is every $1 trillion in 10 year deficit reduction, decreases net interest over that period by $180 billion. What’s funny is the WH (accurately) wants to count that as a spending cut, but the House doesn’t (in order to minimize the ratio of spending cuts to tax hikes).
                      I was troubled today, until I figured a way to build over the troubled waters of JKH’s mind, the Fed could continue to move interest rates up and down as the spirit moves them, so long as Tsy can go back to its Gilded Age practice of paying debt service with coinage. :o)
                      —-
                      Tom, you’re preaching to the choir. After debt service, the second lowest lying fruit is the trade deficit (and the tariffs necessary to close it). The Richman clan’s scaled tariff, for example, would raise approx $250B a year.
                      http://monetaryrealism.com/did-the-fed-have-a-legal-basis-for-rejecting-the-coin/#comment-14776

                  • Remind me again why the US is paying persistent net exporters to hold tsys instead of reserves, thereby creating a further incentive to save in USD.

                    It’s true that the real terms of trade favor the US, but only a full employment,and US policy makers are not smart enough

                • Hi Tom, I have trouble viewing those as defaults, given the disparities between gold’s real and nominal values. More like corrections to a broken system. The gold discoveries in Witwatersrand in 1896 had a similar effect. Had they not occurred, the classical gold standard would have broken long before the problems of 1914-1934, imo.

                  • Art, I suspect that those relying on the promise of $-gold convertibility regarded it as a default on a legal obligation. Nixon was aware of this and expressed concern about the international reaction, and Connally told him that it’s their problem. It was.

                    • That John Connally was a first round pick. Nixon wanted him to be his successor after his (planned) retirement in 1976. That Watergate was a dark day, Nixon really REALLY should have burned those tapes.

                    • No doubt they did Tom, but the fact is, holders of govt obligations from 1873-96 (a/k/a the Long Depression, originally the Great Depression), 1930-34, and 1968(?)-73 were demanding more in real terms than they were entitled to. If you want to raise some eyebrows, blame Sir Isaac Newton. I do. :)

                      JM Keynes did a nice job explaining this phenomenon in terms of British Consols from the classical gold standard through WWI in his Treatise on Money.

                      The best solution would have been to move the gold peg periodically in response to inflation. But once you realize that, interest-rate targeting comes to the fore, and there’s not much of a role left for gold in a monetary system.

                    • “The best solution would have been to move the gold peg periodically in response to inflation. But once you realize that, interest-rate targeting comes to the fore, and there’s not much of a role left for gold in a monetary system.”

                      Right. Gold is the price anchor and the currency issuer has to defend it as a chief policy objective. Here is an interesting post by JP Konig, The Losing Battle to Fix Gold at $35 http://mises.org/daily/3325

            • “. In Warren’s view, this what tys are in effect anyway — “savings accounts at the Fed.”

              They are tradable fixed term, fixed principal, fixed interest highly-insured savings accounts. A near perfect standardized commodity. They should make the “highly-insured” into “guaranteed”, it would help a very small amount.

            • “setting the yields constant”

              At all (or all issuance) points of the curve? Why?

          • Clonal Antibody says:

            Kotlikoff – The Treasury Has Already Minted Two Trillion Dollar Coins

            Indeed, over the past five years, the Treasury has, in effect, done its $1 trillion coin trick twice.

            Come again?

            Well, substitute a $2 trillion piece of paper called a Treasury bond for the platinum coin. Suppose the Treasury prints up such a piece of paper and hands it to the Fed and the Fed puts $2 trillion into its account. No difference right, except for the lack of platinum.

            Next suppose the Treasury doesn’t hand the $2 trillion bond to the Fed directly, but hands it to John Q. Public who gives the Treasury $2 trillion and then hands the bond to the Fed in exchange for $2 trillion. What’s the result? It’s the same. The Treasury has $2 trillion to spend. John Q. Public has his original $2 trillion. And the Fed is holding the piece of paper labeled U.S. Treasury bond.

            Finally, suppose the Treasury does this operation in smaller steps and over five years, specifically between 2007 and today. It sells, i.e., hands to John Q. in exchange for money, smaller denomination bonds, which Johns Q. sells to the Fed, i.e., hands to the Fed in exchange for money. Further, suppose the sum total of all these bond sales to the public and Fed purchases of the bonds from the public equals $2 trillion. Voila, you’ve got U.S. monetary policy since 2007.

            • Kotlikoff is one of that multitude of smart finance people who don’t have a clue when they wade into macro.

      • Doing my best!

  16. MMTdebtkiller says:

    Tom Hickey
    The USD is over-valued as the persistent trade deficit shows. Need to fall another 15 -20% against that currencies of the net exporting countries. This would speed US domestic investment in productivity increase and development of alternative energy sources.
    Going to SDR (basket of currencies) instead of the USD as reserve would resolve Triffen dilemma, since now the US needs to run persistent large CAD’s to provide external demand for $ reserves.
    This would be an overall plus for the US although the crazies would be wringing their hands over loss of dollar reserve status and a weak dollar policy as a matter of loss of US prestige.

    I’ve been participating in a number of commentaries to Yahoo and Google news about the debt-ceiling debates and the platinum coin. Almost 99% of those are wildly rejecting the coins. They don’t understand them and have gotten negative attitudes from their opinion-formers at Faux News. Ezra Kline suggested the coin wasn’t a good idea because it was being almost universally rejected by the public as a bizarre or silly idea. I am in the 1% on these commentaries pointing out that most of them don’t understand fiat money and that is why they are so hostile to the idea. But I don’t think I’m being paid attention to. The coins might have worked if the President did a good educational job on the public about these coins. He isn’t very good at that. They still don’t understand the ACA either.

    • Joe Firestone says:

      He needs to do the coin first. Then the education comes when he gets the seigniorage and uses it to pay the debt and cover the deficit.

  17. Philip Diehl says:

    A request and a suggestion:

    The request: I need to be able to answer the following question. If the TDC sits in the Fed vault and thru seigniorage provides a means to fund government spending without issuing debt, isn’t the TDC effectively injecting new money into the economy? With debt financing, current money supply is recycled from buyers of t bills to the Treasury and out again through the payment of the government’s bills. There doesn’t appear to be a feedback loop like this with the TDC.

    The suggestion: As a former PR guy, I think it’s time to abandon the “TDC” moniker and rebrand. The TDC is too tainted by the mis/disinformation campaign it underwent for the past three weeks. I also think we need to decouple the concept from its immediate platinum connection. What I have in mind is something along the lines of what someone else here, Joe?, has suggested: High Value Coin Seigniorage, HVCS.

    • Clonal Antibody says:

      Philip,

      The only reason to use Platinum was the existence of a law on the books theat allowed you to do HVCS. Any other metal would require the passage of a law through Congress. A difficult thing to do in the current circumstances.

      I believe on your earlier question, much has been written here and elsewhere. Mike, Beo, Joe or Scott (Fullwiller) would be more appropriate to answer that question.

      • Philip Diehl says:

        “The only reason to use Platinum was the existence of a law on the books theat allowed you to do HVCS. Any other metal would require the passage of a law through Congress. A difficult thing to do in the current circumstances.”

        Yes, as the author of the platinum bill, I’m aware of this. My thinking it that both “trillion dollar coin” and “platinum coin” is tainted, at least for the present, by the mis- and disinformation campaign wage against it over the past several weeks.

        To shed this image, I’m suggesting we use another term such as HVCS. Neither the trillion dollar or the platinum metal is essential to the concept, though of course the means of implementation is through the platinum law.

        The essential elements of the concept are captured in “HVCS”: seigniorage from a high face value coin.

        • Philip, I hated the Trillion dollar coin at first – it’s a farce. It was only later after beowulf told me over and over again it was a good idea because it is a farce and not a good idea despite it’s farcical nature that I changed my mind.

          The TDC is great because you can’t ignore it. My kids talk about it now, and kids dream about things like gigantic sums of money. Laurence Kolitkoff is talking about it, Paul Krugman and Steve W are talkign about it.

          The adults noticed that the TDC was more than a coin, but a whole new way of issuing money. It was similar enough to quantitative easing the impact would be very similar to QE. This is part of the reason I wrote that post “This is the best time to talk about the Coin”. The U.S. government can issue money directly with almost no negative impact. Do we want to grant the government this ability is an entirely different debate and one very needed.

          You are correct. The coin is direct money creation by the government. It’s just that this is very similar to quantitative easing. If the money is spent in excess of the debt already issued, then the coin is as though we issued debt and then QE’d that debt. It’s not exactly the same because of interest payments and a few other minor issues like IOER, but the effect is very, very similar.

          There are positive and negative consequences to every action and you are helping us to think through those consequences. We have the best comments section on the web.

          We’ve had Steve W, Woj, Frances, wh10, Clonal, Ramanan, Brett F – these are people who really know things, in addition to Cullen, Beowulf, and JKH.

    • Joe Firestone says:

      What’s going into the economy are net financial assets (NFAs) in the form of reserves rather than NFAs in the form of deb instruments as now.

      The new acronym I’ve been using is HVPCS, for High Value Platinum Coin Seigniorage. Also the hash tag #mintthehvpcs

    • I don’t know if anyone directly answered this question. If the seigniorage is used to pay down debt: then:

      1. No additional money than before goes into the economy for the Government held debt and the $1.7 T Fed held debt. That’s $6.5 T almost 40% of the debt-subject-to-the limit.

      2. Net new money does go into the economy, when the debt held by the public is repaid; and no offsetting debt is floated. That’s about $10 T of new money. However, that $10 T would be paid off as it falls due over a 30 years period, and it can best be understood as Treasury-implemented QE, a swap of financial assets: reserves for the debt instruments held by the public. No new net financial assets are added except the interest paid on the debt instruments. But, of course, that would be paid whether or not new debt was issued.

      To believe the addition of net new reserves used to swap for debt instruments is more inflationary then the addition of net new securities you have to believe in the invalid quantity theory of money. Based on the evidence available to us there’s every reason to believe that it is the net new securities that are more inflationary than the net new money. See: http://neweconomicperspectives.org/2012/12/platinum-coin-seigniorage-issuing-debt-keystroking-deficit-spending-and-inflation.html and the link to Scott Fullwiler’s “Coin Seigniorage and Inflation” therein.

      3. Net new money goes into the economy when seigniorage, rather than debt, is used for deficit spending. However, in that case it’s not the net new money that might cause inflation but uncontrolled deficit spending beyond the capacity of the economy to absorb it. The same considerations apply here as in 2. There’s likely more inflation when debt is used to finance deficit spending than when reserves are used for that purpose. So seigniorage will be less inflationary than debt.

  18. I dunno, the people against the trillion dollar coin will automatically be against the HVCS, likewise people who support the TDC will support this… but only after it clicks you’re talking about the trillion dollar coin (I do like your idea of $25 billion coins, call them quarter ton coins). :o)

    So your PR effort mean climbing the hill, and if you succeed it will have the same tainted (if that’s the word for it) image the TDC has now. The name trillion dollar coin isn’t as path dependent as it sounds. Joe Firestone is out for supersizing it to $60 trillion and I said, I think a $25 billion coin is a good idea.

    As for your question about T-bills versus funding spending with seigniorage, that is precisely the issue Paul Krugman and Steve Waldman have been discussing (interest on reserve payments have made bank reserves very much like T-bills).
    http://www.interfluidity.com/

    • Philip Diehl says:

      Beo,

      “I dunno, the people against the trillion dollar coin will automatically be against the HVCS, likewise people who support the TDC will support this”

      That’s true. But I’m talking about the 99% who are between those two sets of partisans on the issue and who are easily swayed by the mis- and disinformation we have all witnessed. A trillion dollar coin is easily cast as a ridiculous concept to the great unwashed masses. That is an obstacle to gaing the political support ultimately be required to implement anything similar to the seigniorage concept. The HVCS concept is more difficult to discredit in this way.

    • Having said all that. There’s something to be said for taking the position, ‘Depositing a trillion dollars is a big leap but its worth taking the small step of depositing $25 billion coins as a pilot program. I don’t think using the Mint’s coinage powers will be inflationary, the evidence is it won’t be inflationary, but we want our Treasury to be prudent so we could establish a small pilot program and only expand it if we can see for ourselves it isn’t inflationary.”
      Compared to $1 trillion, a $25 billion coin IS a small pilot program.

      Final point, Tsy fulfills Fed coin orders as a service to Fed banks, in the same way as the Post Office will sell you as many stamps as you need.
      When the shoes on the other foot, if Tsy wishes to deposit money, no Fed bank can refuse because as Tsy’s fiscal agent, it must fulfill the legal duties of a custodian of public money. (31 USC 3302 cited above).

      • Philip Diehl says:

        Beo,

        “Final point, Tsy fulfills Fed coin orders as a service to Fed banks, in the same way as the Post Office will sell you as many stamps as you need.”

        Your incremental strategy is exactly right IMO.

        Re you final point, Tsy is mandated by law to issue coins sufficient to meet demand and the Fed is the channel by which it meets that mandate. As such, the Tsy is not really providing a service, especially not one that we think of in a commercial context, so much as meeting its obligations under the law.

    • Joe Firestone says:

      People will be against any HVPCS because it threatens the debt instrument regime. I think one may as well be hung for a sheep as a lamb, and so should use the lightening strike, killing the debt instrument regime with one blow.

  19. gentlemen, the trillion dollar coin moniker is perfect for marketing. it went viral. you could not change the name now if you wanted to. and it is exactly sized for marketing because it is so outrageously large but not too large like 60T for marketing. it has the right number of zeroes for the discussion of our trillion dollar budgets. the 99% love it or hate it as they learn about it but they can’t ignore it. the 99% will go either way depending upon what celebrity or politician comes out for or against e.g. paul krugman. as the 99% see their favorite celebrity endorse it they will then jump on board. to win the marketing battle you need a marketing campaign with money behind it to yell as loud as the money opposing it. the law seems to support it. the crisis seems to beg for it. the economics seem to agree with it. can you trademark it? why would you want to change this phenom now?

    • Philip Diehl says:

      Nigel,

      “to win the marketing battle you need a marketing campaign with money behind it to yell as loud as the money opp”

      I’ve spent 13 years in marketing and PR on the client and the agency sides, and I can assure you that money and a loud megaphone are not sufficient to succeed, especially against opponents who have more money and a louder megaphone. You need a strategy, and the strengths and vulnerability of the brand (in our case, the “trillion dollar coin”) are a key component of you strategy.

    • “gentlemen, the trillion dollar coin moniker is perfect for marketing. it went viral….. why would you want to change this phenom now?”

      Agree. Even the Koch Bros. would have trouble buying this amount of PR this quickly. There’s nothing like contagion. It’s the dream of PR world, and it has dropped in our laps.

      At the same time, I also agree that the issues it raises provide an opportunity for further discussion of alternatives. One doesn’t obviate the other. I don’t think that consideration of alternatives weakens the coin as a practical proposal that is ready to go out of the box. In fact, there are likely a lot of people who are not excited about the coin gambit that are or would be excited about a variation that secures essentially same objective.

      The key fundamental to take advantage of now is the reframing of the debate that “the coin” has introduced. The coin is a useful vehicle that happened to catch on, but it’s not really about the coin (seigniorial). It’s about reframing debate about the monetary system and what implications it has for Joe and Jane Sixpack, that is, the majority of voters. But the coin is particularly interesting because it is an option that is ready to go, requiring only that officials grow the backbone to use it — no new legislation required.

      • Philip Diehl says:

        Tom,

        Ok. But what % of the coverage was negative. I cut the clips, and it was way more than 50%. For every story citing Krugman and Tribe, there were 10 making fun of or outright ridiculing the idea. And most of those supporting it did so as a means of neutralizing the GOP debt limit threat, not for the debt reduction purpose we discuss.

        The big upside of the past three weeks is we put the TDC and HVCS on the policy map. Now we need to have a strategy to make it credible and build broader support.

        I agree with beo that an incremental approach is the most likely to succeed. No president will play Thor and cast the thimderbolt out of the blue. And we need to shed the TDC moniker in favor of something like HVCS. This is not unlike how “pro-abortion” morphed into “abortion rights” then to “choice”. Likewise, “anti-abortion” to “pro-life”. This was not an accident. It was the result of the guidance of PR specialists who understand the value of language in shaping the support and opposition to political positions.

        • “Of course, the opposition mounts when something they oppose gets traction. IMHO, the best strategy is not to hunker down and circle the wagons but to get reinforcements.

          There are plenty on the left that advocate “debt free” money, but there is no common thread, and they pretty much argue against each other’s plans. I think that an open approach would serve the cause better, and there is a good argument on this side that an practical approach that can get results quickly is something we all should focus on instead of proposing en runs going for a touchdown right away a field of strong opposition.

          Maybe bludgeoning through the line, going for a series of first downs, is the better way to go. The legal loophole is the place to start and the debt ceiling provides the opportunity to run the play.

          • Philip Diehl says:

            Tom,

            “the debt ceiling provides the opportunity to run the play.”

            I suspect the GOP has learned its lesson about the futility of threatening to drive the country into default. Obama called their bluff and the GOP folded last week. It’s no longer a credible threat.

            Instead, they’ll try to use the sequester and the annual budgets to threaten to shut down the government in order to force spending cuts outside of a balanced tax/spending package. IMO the sequester threat is not much more credible than the debt limit threat; the budget threat probably more so.

            I think the opportunities are more likely to come when:

            1) the carrying cost of the debt starts to squeeze spending for everything else. At that point, people will look with greater intereest at HVCS as a way out of the zero sum game of budget politics.

            2) The second opportunity might come sooner when the chickens come home to roost from our failure to address the root causes of the 2008 meltdown. When the too-big-to-fail, too-big-to-jail banks start teetering in the next crisis, there won’t be the slack in the system to borrow another trillion plus dollars to bail them out again. Even if American were willing to do it, which they won’t be.

            At that point, the door will open for serious consideration of debt-free self-funding HVCS. There needs to be a cadre of people ready to come into a crisis with fully developed policy concepts ready to execute, like FDR’s Brain Trust in 1933.

            • Sounds right to me.

              • “Except they can’t get a job in this economy, technology will eliminate many of of their job opportunities in the future, and higher paid positions up the ladder will be slow to open to them since Boomers can’t retire because what meager savings they had were decimated by the 2008 crash.”

                It’s is going to take both institutional change and policy change to address inequality in income and wealth distribution. The establishments of both parties and especially the GOP are digging in their heels.

                Increased productivity through technological should result in more leisure rather than increasing unemployment with well-designed institutions and policy. Nothing that can’t be fixed pretty readily if the myths are removed and the self-interest of elites exposed. The primary myths are lack of affordability and unsustainability of public debt, which are based on the false govt as big household or firm analogy. That’s where the coin comes in. Think 16T in national debt is over the top? Use the coin to switch it to bank reserves and let the wealthy find “safe assets” that are not govt sponsored for them with a subsidy, which is what interest payment for parking place is. If they want a safe asset provided by govt, let them hold bank reserves.

            • On first day of fiscal year, Tsy deposits coinage equal to net interest paid the previous year. I like plays that end in the first act. :o)

              When you say (or spell out) HVCS, people are going to associate it with Joe’s HVPCS plan for Tsy to put a $30T or $60T coin to the Fed. Joe argues for rather eloquently so if that’s the direction you want to go, no worries.
              If you’re looking for a more incremental strategy, perhaps the way to ride the TDC wave while also defusing opposition is to propose a “responsible alternative”. Say, Tsy and the Fed should cooperate on a pilot program using $25 billion coins to see what effects positive or negative the use of debt-free money would have on our financial system, which is swimming in debt. If its negative, that should quiet critics who are pushing for a trillion dollar coin. If its positive, then it will be worthwhile to slowly expand the program, to gauge its impact in larger amounts. The only time we should ever mint a trillion dollar coin is sometime after the evidence is clear to everyone the $500 billion coin, the $100 billion coin and the $25 billion coin worked just fine ( a red herring of course, the Mint can strike 40 $25 billion coins almost as easily as a single $1 trillion).
              I guess it’d worth stressing that its not a transfer of power from Tsy to the Fed since it is the Fed who orders coins from the Mint. You could call the article, Beating trillion dollar coins into plowshares: Can a political weapon be converted into a useful monetary policy tool?
              :o)

              • Philip Diehl says:

                Beo,

                I like the step by step approach but I’d go faster and with a specific target in mind–like increments of at least $50 billion a year to reach the goal of covering the annual carrying cost of the debt. I figure that with the debt continuing to rise and interest rates also rising, it would take, say, ten years before HVCS is covering the full annual interest on the debt. Let’s say that’s $500 billion a year. At that point, we’d be minting a half trillion dollar coin every year to continue covering the annual interest on the debt, is that correct?

                A slow ramp up like this would not only alleviate fears over the inflationary effect of HVCS (assuming we’re right that there won’t be any), it would also make plain its significance as a way of relieving the zero sum game of budgetary politics. A constituency will form inside and outside Congress to continue or even accelerate the pace HVCS is ramped up in order to ease the squeeze on the rest of the budget as entitlement and other spending increases.

                Also, wouldn’t we expect interest rates to fall from what they would otherwise have been if Treasury was no longer longer competing in credit markets? And wouldn’t we expect tax revenue to rise if there were fewer tax free bonds in the marketplace? If I’m correct on this, it seems like HVCS would develop a powerful public constituency for the lower interest rates it would bring.

                What’s wrong with this picture? It seems to good to be true. Where’s the downside, the tradeoffs?

                • Where’s the downside, the tradeoffs?
                  The finance sector would not like this. After all, their goal is to convert Social Security accounts (admin costs a fraction of 1% into 401(k) accounts (admin costs, 2.0%). It would seem unnatural to them for the deer to start shooting at the hunters.
                  :o)
                  I need to get back to the salt mines but I’ll try to get back this after work. I don’t think it would take quite as long and in as many steps as you think. Like Churchill said, we talk to her differently once she’s inside the harem.

                  • Philip Diehl says:

                    Beo,

                    “Like Churchill said, we talk to her differently once she’s inside the harem.”

                    HA! However, Winston was a prude, so how would he know? I guess his mother might have related this wisdom to him. She led the life to know. ;-)

                    Yes, I understand the downside for the financial section. I, like you I think, consider this to be yet another appealing feature of HVCS.

                    I’m persuade that HVCS would have no inflationary effect in periods of negative or weak economic growth, and assuming there is none when growth rates are higher, I haven’t seen or heard of any potential downsides of HVCS.

                    During too many years of life experience, I have seen very few things that offer great advantages with no tradeoffs associated with them. If there are downsides, it’s better to identify them, be ready to respond to critics who raise them, and even preempt critics by acknowledging them upfront and explaining why they’re minor or more than offset by the advantages of HVCS.

                    • There are huge downsides to printing a high value coin. Like it or not, our current setup requires the buy in of a large number of participants.

                      The coin is new. The coin is weird. Even if the effect of the coin is the same – or similar – to quantitative easing, it’s still new and weird for nearly everyone in the United States.

                      Actually minting a very high value platinum coin could easily disrupt markets, it could easily freak out the larger investment community. This proposal is totally out of left field – heck the mainstream is only now thinking about the coin. We’ve had a few years over here at MR and in the MMT community to think through the pros/cons, and I bet we still have’t covered many of those pros and cons.

                      Market confidence isn’t something that is easily shaken, but when it is shaken, the results are disaster. The actual flows in the market only shut down for about a month or so in 2008 before they started to recover, but the job losses were horrific. The impact could have been much worse had the fed not reacted like it did.

                      The world is not ergodic, as Paul Davidson points out. There are random features of the world which cannot be foreseen, cannot be accurately forecast, cannot even be put into a probability distribution. Keynes called this uncertainty, as opposed to risk, and Keynes was right.

                      Stepping out into the world with something which is in every sense revolutionary for our existing monetary system isn’t something to take lightly. Not only that, there are no boundries or programs in place to constrain the power to directly issue money. As it stands, we’re just making it up without any constraints at all.

                      Putting together a program where this change is introduced to the market in small increments seems wise to me. I do like the “target” plan you’ve suggested. It’s measurable. We know how much it will be in advance of the program being implemented.

                      Many people who trade bonds are severely freaked out by the inflation prospects of QE. Yes, they are dead wrong. They are terribly wrong. But this doesn’t mean we should flip them the bird and shove $60T down their throats, just because we can. It’s possible, but is it wise – even if some parts of our financial overlords are directly responsible for criminal activity?

                      Like Bill Black, I am pissed the banksters never got charged with any crimes. They knew. They freakin’ knew. They did bad things. But not everyone did bad things, and I’d argue even most of the finance industry did not do bad things. But this does not excuse the criminals, and there were many criminals.

                      So we’re here, with a slightly better understanding of how the world of money works. It’s not a perfect understanding, because you see disagreements even among people with a deep level of understanding of the monetary system on our side. But it is better than the current status quo.

                      So What do we do? First, do no harm.

                      Pushing the country into another recession because we flip out the repo market by taking away every last safe asset they are using is probably not a good or wise path. Even if this was a good way to strip the bankers of their power – and I don’t agree with it being a good method – it would probably be worse for most people in the United States. There would be many job losses.

                      Beowulf’s plan to use a series of coins to pay the interest owed at the end of the year is a pretty good one.

                    • Philip Diehl says:

                      Michael,

                      I’ll address several points you’ve made here:

                      1) I’m not advocating a flash cut to HVCS, much less one of $60T or even $1T; in fact I oppose it. I know there are others here who disagree with me and prefer a preemptive strike resulting in a fait accompli. Not me.

                      2) When I speak of downsides or tradeoffs related to HVCS, I’m speaking of the consequences of the policy change itself, not the consequences of failing to prepare markets, policymakers, thought leaders and the public for an incremental adoption of HVCS. In fact, I think there’s a snowball’s chance in hell that HVCS would be seriously considered if this preparatory work were not done.

                      I agree with you that failing to prepare the ground would invite disaster, in the highly unlikely event that HVCS was adopted in a lightning strike.

                      So when I ask about trade off, this is not what I’m asking about.

                      3) While the appropriate preparatory work is necessary, it’s not sufficient. The idea is so far out there and has so many powerful opponents that it couldn’t happen without a “conspiracy” of events.

                      In much the same way the policies of the New Deal were unthinkable in the summer of 1929 but were law four years later, adoption of HVCS will require a profound crisis. And I think that crisis is inevitable considering how we have failed utterly to address the causes of the 2008 near-collapse.

                      The next crisis will be marked by three features: a) the banks then on the verge of collapse will be far larger than in 2008 and therefore their collapse will be more devastating, b) the huge debts run up to save the economy during the 2008-2009 crisis have drained the slack out of the system leaving little to draw on in the next crisis, and c) there will be strong opposition across the political spectrum to bailing out the banks again. Another TARP will not be passed by Congress.

                      4) if I’m not mistaken, beo and I originated the idea of introducing HVCS incrementally in an exchange of Comments on this post on January 18 at 3:32 pm. In my Comment you’re responding to here, I went another step by suggesting the HVCS policy be linked to eventually covering the full carrying cost of the debt and ramping it up faster than beo and I originally discussed in order to reach that goal in a decade or so. Today, the annual interest cost is about $450 billon, and who know what it will be in five or ten years after several more years of big deficits and rising interest rates. I think $25 billion increments aren’t large enough to do the job in a reasonable period of time.

                    • “But this doesn’t mean we should flip them the bird and shove $60T down their throats, just because we can.”

                      And there’s the question of who this “we” is in “just because we can.” Using coinage as a monetary policy tool is something that must be agreed to by the President, the Fed chairman and most importantly (he’ll have to sell the other two) the Secretary of the Treasury.
                      Philip was once Chief of Staff to Tsy Sec. Lloyd Bentsen, imagine if Philip presented him as policy options:
                      1. a trillion dollar coin (against the Fed’s wishes)
                      2. a $60 trillion coin (against the Fed’s wishes)
                      3. a joint Tsy-Fed pilot program beginning with a $25 billion coin ( or whatever face value the Secretary was comfortable with, maybe it starts with a $1 billion coin).
                      Does anyone really think Lloyd Bentsen (or any Tsy Secretary) would take a “screw the flight simulator, lets see try this in a real plane” attitude?
                      .

                    • Philip Diehl says:

                      “Does anyone really think Lloyd Bentsen (or any Tsy Secretary) would take a “screw the flight simulator, lets see try this in a real plane” attitude?”

                      Beo,

                      Ha! And Secretary Bentsen flew bombing missions under Nazi fire in Europe in WWII, was shot down once, and was awarded the DFC, and still he’d not decline the flight simulator.

                      The truth is, I’d have never recommended, and he would have never considered, such an unorthodox policy option as HVCS, with the possible exception of a truly desperate economic situation a la 1933.

                      My conclusion that the HVCS option is most likely to be seriously considered by senior policymakers in the context of great economic turmoil is based on my experience with those policy makers during my years in Treasury, the Senate Finance Committee and as one of Senator Bentsen’s senior staff.

                    • Mike, I think you are over-dramatizing this. The world did not fall apart when Nixon slammed the gold window shut and gave everyone the finger while John Connally thumbed his nose in the backkground.

                    • What would FDR, Truman, Nixon, LBJ, or Reagan have done? You know, the guys with balls.

                    • ParadigmShift has an interesting comment at Bill Mitchell’s today that is about replacing neoliberalism.
                      http://bilbo.economicoutlook.net/blog/?p=22445&cpage=1#comment-28137

                      He thinks, correctly IMO, that it is a sociological problem more than an economic one, in that it involves changing existing institutions. Otherwise, TPTB will simply co-opt the change for their purposes.

                      Take the coin, for instance. It would take them about a second to figure out that this is a direct route into the Treasury vault ready and waiting to drive their truck through if adopted.

                    • I am pretty sure going off gold unleashed the inflation problems of the 1970’s. It caused the oil producers to freak, which and they increased prices unilaterally because they were concerned about the possible inflation that would be unleashed.

                      http://en.wikipedia.org/wiki/1973_oil_crisis#Nixon_Price_Freeze

                      I am certain the gold standard was not sustainable. But I can’t pretend closing the gold window was without negative consequences. Going off gold caused the 1970s, which then enshrined the system we currently use as a way to combat inflation. Even good policies can have very negative impacts in both the short and long term.

                      This is what I am worried about, Tom – the unintended consequences.

                      What are the consequences of moving off a real estate standard all at one time? What happens to millions of homeowners as they watch the value of their home fall 40%? This is what moving from our private banking system based on real estate values to some other system would probably mean – a fall in real estate values of 40% or more.

                      This is just one possible outcome. There are other negative outcomes which are entirely possible.

                      Our entire economic system of lending is based on a functioning repo market. What happens when we take away all of the low-risk assets from the repo market? I have no idea what the outcome would be. I don’t think anyone could accurately predict what might happen. Last time that happened in 2008, we had a massive crisis. What would happen this time, when all U.S. government debt vanishes overnight?

                      Or how about the oil countries deciding they are again worried about the value of the USD and deciding to unilaterally raise the price of oil? That’s what they did in 1973. Maybe they would do it again, and cause stagflation.

                      These are big potential problems with redeeming every penny of the national debt. Maybe they will not happen. It’s very likely something we can’t even imagine today will end up being the crucial factor which would decide the future if we use a huge coin.

                      But don’t pretend a huge change in our economic world won’t produce a huge impact, or that these impacts will be all good from the first moment.

                    • Philip Diehl says:

                      “I am pretty sure going off gold unleashed the inflation problems of the 1970′s. It caused the oil producers to freak, which and they increased prices unilaterally because they were concerned about the possible inflation that would be unleashed.”

                      Michael,

                      I think the merits of an alternative theory are stronger.

                      Johnson’s and Nixon’s decisions to fund the Vietnam war, the social programs of the Great Society, and the increase in spending on weapons systems without paying for any of it through tax increases generated the inflation of the 1970s. The Arab oil embargo delivered jet fuel to the fire. The embargo was possible because the dynamics of supply and demand and the dynamics of politics in the Middle East enabled it, and the embargo was strongly motivated by US support for Israel.

                      The Saudis learned a valuable lesson in the run up of oil prices in the wake of the embargoes: high oil prices in the West depresses economic growth and lowers demand for oil. They also increase inflation which decreases the value of their dollar denominated holdings. After the 1970 embargoes, the Saudis, as the swing producer in OPEC, have taken a very different approach to setting oil prices: slowly increasing prices over the long term with as few shocks to the system as possible.

                    • “Take the coin, for instance. It would take them about a second to figure out that this is a direct route into the Treasury vault ready and waiting to drive their truck through if adopted.”

                      That’s exactly right. Giving this power would mean Goldman would be first in line somehow.

                    • Some serious legal analyses of the coin. Haven’t had a chance to deconstruct them yet, but these are by far the best critical analyses I’ve seen:

                      http://www.dorfonlaw.org/2013/01/big-coins-political-credibility-and.html

                      http://www.dorfonlaw.org/2013/01/big-coins-political-credibility-and.html

                    • Philip Diehl says:

                      Joe,

                      FYI, here is the comment I just posted on the Dorf on Law site:

                      “I am Philip Diehl, the former Mint director, who co-authored the platinum coin law, oversaw minting of the first coins under the law, and who you, with incredulity, state supports the platinum coin option.

                      I’m not going to get into a full discussion of the merits of the legal foundation of the platinum coin option. This is not the appropriate place for that, but I’ll soon issue a paper doing so.

                      However, I will say this: your argument is based on a flawed assumption, virtually universally held, that the platinum coin law was intended to authorize platinum commemorative coins. Not only does the plain language of the law nowhere state or suggest that intent, as the co-author of the law, I can state definitively that this was not the intent of the law. Moreover, the coins the Mint produced under the law and under my supervision as director were not commemorative coins.

                      If you have followed the reporting closely, you might respond by citing public comments made this month by the other co-author of the law who stated that the intent indeed was to authorize platinum commemorative coins. He is mistaken and I’m confident that if we were to review together the context in which I proposed the platinum coin law, we wrote the law, and he moved the bill, I believe he would agree with me.

                      In any case, my paper will address why it makes no sense whatsoever that the congressional intent of the platinum coin law was to authorize a commemorative coin.”

                    • And here’s another one:

                      http://www.dorfonlaw.org/2013/01/post-mortem-part-2-zombie-big-coins.html

                      These 5 seem worth reading and worth answering.

                    • Well, there is a different way to spin this too. The increase in oil price was long overdue owing to the negative externalities, including the deal the US gave the Saudis, namely take dollars for cheap oil and we’ll sell you advanced military equipment. What happened to bring the price down, according to Warren, was deregulating natural gas.

                      What happens if housing falls by 40%? Lots of people who overpaid go underwater, old people’s assets shrink, and young people can afford to buy homes at a competitive price. Some good, some bad. Right now, prospective buyers are faced with artificially elevated prices due to Fed monkeying, banks keeping inventory off the market, stringing out foreclosures, and selling off in lot to crony “investors” to rent and then flip. The true price of housing is 30 to 50% lower depending on the area, based on income, employment history, historical mortgage rates, and downpayment traditionally regarded as prudent.

                    • Philip Diehl says:

                      “and young people can afford to buy homes at a competitive price.”

                      Except they can’t get a job in this economy, technology will eliminate many of of their job opportunities in the future, and higher paid positions up the ladder will be slow to open to them since Boomers can’t retire because what meager savings they had were decimated by the 2008 crash.

                    • Should have added above that the true price of carbon-based energy is considerably higher than the market price. Needs to rise and it will as awareness of global warming grows through connecting the dots with natural disasters and “acts of God.” This is not “inflationary,” it is common sense economics. Continually fouling the nest is not a sustainable option.

                    • This is actually for Mike, but I ran out of reply room. I’m sorry but I think your reply here is just a rant, full of questionable generalizations and mere opinions. Let’s look at the dynamics for a moment. The Secretary mints the $60 T coin and the Mint deposits it in the PEF, and transmits an order from the Secretary invoking 12 USC § 246 and requiring the President of the New York Fed and the BOG to comply and credit the coin. The Fed then has the choice to make a stink and itself begin to destroy market confidence, or just quietly credit the coin. No money at this point has gone into the economy; but there’s $60 T in the TGA. Next, the President pays down the interagency debt and redeems the debt held by the Fed, lowering the debt to $10 T leaving $6 T of room between the debt level and the debt ceiling. Next the President pays down additional debt as it falls due, about $1.6 T over a year’s time, if there are no more Treasury Bills issued. That leaves about $8.4 T of debt after the first year, or roughly about 50% of where it is now. The Fed, because it fears the very negative psychological effects you fear, responds by raising interest on reserves so it’s equivalent to what the interest would have been on short term debt. So, what has happened to the private market. Very little, I think. Reserve accounts have now become what Treasury Bills were before. So what? Why should a process like this cause the kinds of extreme reactions you’re expecting?

                    • This reply is for Beo. Again, I ran out of reply space.

                      “And there’s the question of who this “we” is in “just because we can.” Using coinage as a monetary policy tool is something that must be agreed to by the President, the Fed chairman and most importantly (he’ll have to sell the other two) the Secretary of the Treasury.
                      Philip was once Chief of Staff to Tsy Sec. Lloyd Bentsen, imagine if Philip presented him as policy options:
                      1. a trillion dollar coin (against the Fed’s wishes)
                      2. a $60 trillion coin (against the Fed’s wishes)
                      3. a joint Tsy-Fed pilot program beginning with a $25 billion coin ( or whatever face value the Secretary was comfortable with, maybe it starts with a $1 billion coin).
                      Does anyone really think Lloyd Bentsen (or any Tsy Secretary) would take a “screw the flight simulator, lets see try this in a real plane” attitude?”

                      I don’t think the Chairman has to agree. I don’t think the Secretary has to agree. I think that only the President has to decide on the $60 T coin. If he does and orders the Secretary to get it minted and credited. Then it’s done, so who cares about Bentsen or Geithner or their counterparts? Let’s back up a step, and look at your three options. I think the President does 1) or 2) if he wants to start a long political struggle that he may very well lose. But if he wants to destroy the destroy the foundation of austerity politics, then he will select 3) or maybe a $100 T coin because it’s more powerful as a meme. So, again, it depends on what the goals of the President are and his perception of the problem. You guys seem to think that the problem is how to get everyone used to fiat money. I think the problem is how to destroy the political power of the austerians, so we can build a more equal and prosperous economy and society.

                    • This one’s for Tom Hickey and his sociological problem from paradigmshift. I think social change occurs in part from the bottom up; but also from the top down. It’s a question policy changes meshing with social and economic affordances. If the President minted a $60 T coin and proceeded to pat down debt as it fell due; certain elements of the neoliberal pardigm would come under immediate severe attack:

                      1. The Government can only spend based on the taxes it collects and the money it borrows;

                      2. The Government has financial limits and can be forced to become insolvent;

                      3. The Government is like a household and must manage its budget in an analogous way;

                      4. The level of Government debt and the debt-to-GDP ratio are important things to manage;

                      5. The Government cannot afford to fund a generous social safety net;

                      6. The Government cannot afford to solve or enable us to solve the many serious problems America has; so we need a period of austerity to get the debt under control before we can spend again.

                      These elements of the neoliberal paradigm would not survive the onslaught of the $60 T coin, because the reality of the Government using seigniorage to pay down the debt and cover the deficit would be staring people in the face every day. These key elements would be dead within a year; and with their death the whole neoliberal paradigm would be seen as the the fantasy that it is!

                    • Right, Joe, what ParadigmShift is saying is that this would involve huge institutional changes socially, politically and economically, and TPTB that depend on those institutions would not take this lightly. I can hear the drones already :o

            • I agree that our best chance will come with the next crisis. Hopefully, if Obama is still president he will have learned from botching the last crisis that you can’t bail out the banks and bail out the economy. You have to bail out the people first; then they will bail out the businesses and the banks.

    • Joe Firestone says:

      You need a marketing campaign when you need to persuade large numbers of people about something before it’s in place. In this case, I just want the President to miss one HVPCS coin, an then use it to kill the debt instrument business. At that point, the President won’t have to market the coin. All he’ll have to market is how wonderful it will be when the US is debt free.

  20. “trillion dollar coin” search on wiki:
    http://en.wikipedia.org/wiki/Trillion_dollar_coin
    unless proven to be illegal, this idea will never leave the national discussion until the debt ceiling leaves the national discussion. see you in 3 months, rinse and repeat.

  21. Philip Diehl says:

    “History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.”
    – James Madison
    —————————————————————————————-
    “you are a den of vipers. I intend to rout you out and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning.”
    -– Andrew Jackson

    • Let’s not forget that Andrew Jackson also believed in a ‘balanced’ federal budget. When he achieved it, economic depression ensued.

      • Philip Diehl says:

        Art,

        “Let’s not forget that Andrew Jackson also believed in a ‘balanced’ federal budget. When he achieved it, economic depression ensued.”

        We’ll give Jackson a break since JMK wasn’t born yet.

        Of course, in 1932 FDR ran on a balanced budget platform. I don’t think he was ever enamored of JMK as illustrated by his contractionary policies in 1937.

  22. Per the Fed’s website (or maybe it was the Treasury’s), a gas station can reject a $100 bill before the gas has been pumped. You only have to accept legal tender after the service has been rendered or good delivered. The Van Nuys Flyaway won’t take dollar bills. Apparently then the Fed can reject a tender before it has rendered the banking services involved. It’s a privately-owned bank, after all!

    • Hi Ellen, the coin being presented to the Fed isn’t tendered as payment for services or for a product. It’s a coin being tendered as a deposit into the Treasury General Account (TGA). Also, note these three considerations. First, the Treasury Department is mandated to deposit its money into Fed accounts if it wants to enter the banking system. So unlike the gas station; the Treasury can’t find another bank; and it needs a bank to spend and implement Congressional appropriations. The Fed, turning down a coin would be refusing to perform a duty it contracted for when it accepted the duty of a Fed Bank to serve as one of the depositories of the US Government. I don’t think it can do that and remain a regional Fed bank.

      Second, even though the regional Feds are privately owned banks; they cannot behave in ways that contravene the policy of the Board of Governors, a Federal Agency, and they are very tightly regulated by that Board. So, the regional New York Fed, the bank that has the Treasury General Account (TGA) will not be making any such decisions on its own authority. Additionally, in agreeing to house the TGA, the New York Fed has contracted to serve as the sole banking agent of the Treasury Department with respect to its spending account. Somehow I don’t think the sole banking agent of the United States Treasury Department has the legal right to turn down a deposit of legal tender, and refuse to credit its face value in the Treasury’s own checking account. Imagine what the liability of that “private” bank would be to the US Government, if as a result of any such action, the US would be forced into defaulting on some of its payments and decided to sue the NY Fed for consequential damages. Not a pretty picture, and not a risk that the NT Fed would want to take w/o an explicit and specific instruction from the Board of Governors.

      And third, consider the Board of Governors and the Chairperson of the Fed. What will they do. Well, they’ll tell the Secretary that they don’t want to do it. But if they say no; and the Treasury Secretary orders them to accept and credit the coin; then what? Then this (also quoted at the top of this post):

      “12 USC § 246 – Powers of Secretary of the Treasury as affected by chapter
      Nothing in this chapter contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.”

      So, one of the powers vested in the Secretary of the Treasury before creation of the Federal Reserve was certainly to spend its legal tender into the economy. But to do that under an arrangement where the Fed is its bank, requires that the Fed deposit and credit its legal tender into its spending account, the TGA. So, I think it follows that under 12 USC 246 the Secretary has the authority to order the Federal Reserve to credit that coin so Federal spending can proceed.

      And as beo has pointed out here: http://monetaryrealism.com/did-the-fed-have-a-legal-basis-for-rejecting-the-coin/#comment-14464 The Fed really doesn’t want to go to Court over this because they risk a Supreme Court finding of unconstitutionality due to the Unitary Executive theory, which, in this case, may well have the support of some of the most conservative justices. My own view here, is that the Fed would not even make it the Court because they’d denied standing under 12 USC 246, if the Treasury Secretary also ordered them not to contest his order legally.

      Now, if you read through this thread, you’ll see that both Phil Diehl and Carlos (beowulf, or beo), believe that no Secretary would treat the Fed this way. But what if the Secretary were ordered by the President to do it? And what if the President were somebody like FDR or LBJ? Then I think it could happen; and depending on how tough things get in the next few years who knows what Obama will do? After all he’s the guy with the drones.And the guy who throws people under the bus when he thinks he has to. So, why wouldn’t he throw Bernanke under the bus too, if he thought he needed to?

  23. Michael Sankowski
    I don’t think anyone could accurately predict what might happen. Last time that happened in 2008, we had a massive crisis. What would happen this time, when all U.S. government debt vanishes overnight?

    Why does the debt have to vanish overnight? Or ever?

    Seems to me the alternative way to frame this is that debt servicing is no longer a zero sum game where the non debt holders are paying the debt holders. You can still hold the debt but you dont get to demand austerity for others to “pay for it”.

    • That didnt turn out right. This is my comment not Michaels;

      “Why does the debt have to vanish overnight? Or ever?

      Seems to me the alternative way to frame this is that debt servicing is no longer a zero sum game where the non debt holders are paying the debt holders. You can still hold the debt but you dont get to demand austerity for others to “pay for it”.

    • And don’t forget that predatory lending and lending that is fraud-based or based on misrepresentation void the contract. Of course, investigation of this either never took place or was murdered in the womb.

    • Right! My $60 T proposal doesn’t call for overnight payment of all the debt. About $6.5 would be paid over night; about $1.7 T held by the Fed; and about 4.8 held by other Government agencies. Another $1.6 T held by the public including foreign nations would be paid off during the first year. the rest would be paid off as it falls due for 30 years. So, Mike’s statement doesn’t describe what I’ve proposed.

  24. Jack Foster says:

    If you want to make a case for the coin, one of the best things to do is make a list of the reasons the other side has, not to mint the coin…..that is what are the most logical, rational, reasons against the coin…….then systematically lay out the rebuttal to the reasons against the coin.

    so maybe the next post on MR would be: Here are the top 10 reasons not to mint the coin (people tend to gravitate towards negativity, so use it to our benefit:
    1) It could be used to reduce the national debt – where would people have to go to safely invest
    2) It could be used to reduce unemployment- would it pull resources from prvt sector?
    3) It would result in less fees to the banking industry.
    4) Congress didn’t intend to bypass the fed’s interest collecting machine
    5-10) etc.

    So, who wants to collect the list?…:-)

    • Jack Foster says:

      oh, yeah, btw, we should probably define the problem(s) we are trying to solve by using the coin. I’ll take a stab:

      The coins main function will be used to solve the nation “diametrical monetary connundrum condition”.

      What is the “diametrical monetary connundrum condition” you ask, well that is the monetary reality that currently exist within our monetary structure which forces the govt deeper into debt when it deficit spends (and thereby expanding the private sector benefit) and sucks life out of the private sector economy when the govt wants to cut budgets and run surpluses.

      Does this sort of make sense?

      • “What is the “diametrical monetary connundrum condition” you ask, well that is the monetary reality that currently exist within our monetary structure which forces the govt deeper into debt when it deficit spends (and thereby expanding the private sector benefit) and sucks life out of the private sector economy when the govt wants to cut budgets and run surpluses.

        Does this sort of make sense?”

        Makes great sense.
        And let me add that the other diametrical connundrum is that our primary private credit based system can only grow as incomes to service debt grow, yet all our smart people insist on lowering incomes ( or reducing the number of people drawing an income while paying the remaining workers more…..possibly) so businesses can maintain profits. The life blood of a growing credit base is income to service it and asset prices to leverage off but we ignore one channel and simply rely on the other.

        Inflating asset prices continuously is simply……………….inflatiion. Its not growth.

        We need broad based credit growth. Lots of people participating moderately. Not just a few going all in

    • You can do lists and counters; but you have to avoid reinforcing the opponent’s frames when you do the kind of treatment you’re suggesting. On the other hand it’s good to do the exercise for yourself, so you get to see whether any downsides raised by critics are valid.

  25. Philip Diehl says:

    Joe,

    The two links you provided were to the same post. Did you mean to link to different posts?

    In the paper I’m now writing regarding the legal basis for the TDC, I’m addressing the merits of the argument in Buchanan’s post and other arguments as well. His case is very thin and, moreover, is based on a flawed assumption, virtually universally held, that the platinum coin law was intended to authorize platinum commemorative coins. Not only does the plain language of the law nowhere state or suggest that intent, as the co-author of the law, I can state definitively that this was not the intent of the law.

    • Jack Foster says:

      Phillip, in the paper your writing about the legal basis for the coin, will you be including any framing of the argument for actually implementing the coin plan?

      My thought is could your paper also be used as a sort of business case for using the coin, pros/cons/uses/benefits, etc?

    • No, Phil. Somehow, I thought there were 5 relevant links when there were only four. It was just late I guess.

  26. Mike, get a grip. “We” are not doing anything.
    This is an evolutionary process following from the 2008 crisis and accelerated by electrons flying across the internet. Like any dynamic complex system WE are not in control nor are the president, the fed chair or congressional hit men. No individual can manage or predict the outcomes. We can only react as individuals. As they say, does a butterfly that flaps its wings in Brazil cause a tornado in Texas? In our context the butterfly is “the trillion dollar coin”. It became the butterfly from the larva of Philip’s platinum coin law. Will the coin ever be used? Who may know? But IMHO it will follow from economic necessity that the majority under stressful conditions will embrace and the president willingly promote OR it won’t. Meanwhile the Dog sleeps.
    The brilliance of the trillion dollar coin meme as revealed by Beowulf is that it is not just a coin law but rather a Sleeping Dog (the butterfly). Shhhh don’t wake him!
    So I would recommend that we all just sit back open a Killians Red and enjoy the movie.

    Who is that masked man (Beowulf) who so brilliantly through discovery and slight of hand revealed that Sleeping Dog? I proclaim (just saying) no other than
    Senor Zoro-
    Don Diego de la Vega: “to avenge the helpless, to punish cruel politicians”, and “to aid the oppressed.” http://en.wikipedia.org/wiki/Zorro :)

    resp

  27. Clonal Antibody says:

    Michael Sankowski
    I am pretty sure going off gold unleashed the inflation problems of the 1970′s. It caused the oil producers to freak, which and they increased prices unilaterally because they were concerned about the possible inflation that would be unleashed.

    Mike,
    M. King Hubbert wrote his paper on peak oil in the lower 48 in 1956. Hubbert had been the chief analyst of the Economic Warfare Board in WWII before joining Shell. After leaving Shell, he was a senior Geologist at the USGS. The US Government I believe was well aware of the situation, and laid plans for how to deal with the situation. If as would have been obvious to all the very smart people in the US Government (and the US Government has always had many very smart people) as the US transitioned from being a net exporter to a net importer, the Gold standard could not work. So I am certain that overtures were made to the French to precipitate the Gold crisis, which was the trigger for Nixon to close the gold window. The response of OPEC was a natural one, and that lead to the inflation of the 70’s couple with Carter’s hash job in Iran. Volker also, I believe was partly responsible for the inflation by raising the interest rates. This of course was inflationary, and would at the same time lead to a shortage of goods, as businesses would cut inventories in order to cut down on borrowing – again leading to further inflation.

    I would tend to argue that inflation is almost never a monetary phenomenon, but rather precipitated by other forces, and increase in money supply occurs as a result of the inflation. My own analysis shows that money supply and inflation (CPI) are uncorrelated over the last 70 years.

    • I’m dubious the French were working as our stalking horse at the gold window. Remember this was just a few years after De Gaulle kicked the US military out of France (LBJ asked De Gaulle if he wanted us to dig up and take home the GIs buried at Normandy too). They and we have mended fences since then, but in 1971 there’s no way in hell the USG would trust France to be our partners in a plan to blow up Bretton Woods. If the USG wanted something like that to happen, we would have asked the British or (more plausibly) the Japanese to play along.

      I agree with Philip’s point that the proximate cause of blowing up Bretton Woods was Johnson and Nixon trying to pay for guns and butter– the Great Society, War in Vietnam and the Apollo moon program– without sufficient taxes to drain AD from the booming economy (and without the price controls and de facto mandatory savings system we had in WWII).

      It was inevitable Bretton Woods would fall apart sooner or later, the guns and butter issue just accelerated the ending. After WWII, we should have gone with Keynes’s bancor plan (naturally there’s a Churchill angle, he wanted to call the global trade currency, “florins”) instead of US negotiator (and Soviet spy) Harry Dexter White’s dollar-based trade regime. One wonders if the traitorous White knew it was a bad idea and was trying to, as Marxists says, heighten the contradictions by insisting on a plan he knew was likely to blow up the world economy sooner or later.

      • Clonal Antibody says:

        Beo,
        you are confusing LBJ with Nixon. LBJ was not liked by DeGaulle, but deGaulle greatly admired Nixon. See “Nixon And De Gaulle Had A Unique Relationship.”

        • Philip, that’s kind of funny. I didn’t know Bentsen had been a bomber pilot when I made the simulator comment.

          “you are confusing LBJ with Nixon”
          Are you kidding? Do you think Nixon made the Normandy comment?
          Just remember, LBJ was the one whose right hand man was John Connally and Nixon was the one whose Secretary of the Treasury was… John Connally. :o)

          • Clonal Antibody says:

            Exactly my point. So France could well have been the stalking horse. After all, Nixon did end the Vietnam War after signing the “Paris Peace Accords” – could not have been done without French help!

  28. Jack Foster says:

    btw, a big cheers to Ellen Brown, she had her most article on the TDC posted on the huffington post:
    http://www.huffingtonpost.com/ellen-brown/the-trillion-dollar-coin_b_2508437.html

  29. Joe, I encourage you to deep pushing on the big one. No reason for there not to be many proposals on the table, from very incremental to the big one.

    Where I see a potential problem arising in going to no-bonds is the wrench that will throw into the gears of financial markets, which have come to depend on safe assets and benchmark yields. Of course, they could be forced to change, but that creates an obstacle that I think is needless.

    Treasury could still issue iaw demand securities at par wo/ interest and let the yield be determined at auction through discount from par if justification in terms of public purpose is found for the subsidy, or just at par wi no discount as a way for those not having access to reserve accounts to hold govt liabilities as assets rather than deposit accounts unless the account were fully insured by govt. Govt could also expand its E/EE bond program for “retail” savers.

    In other words, there are workarounds instead of going to no-bonds cold turkey and getting a mountain of pushback.