Obama Will be Forced to Issue the Coin

Felix Salmon has an excellent post up today about how Obama won’t issue the coin (h/t reader Kris Smith):

 ”There’s a reason why the proponents of the platinum-coin approach are generally economists, or at least economically-minded. The idea makes gloriously elegant economic sense, and attempts to shoot it down on economic grounds generally fail miserably. You can try a legal tack instead, but that doesn’t work much better: the coin is as logically robust as it is Constitutionally stupid.

No one in the executive branch has any real desire to mint a trillion-dollar coin — you can be sure of that. But the coin-minting advocates are OK with that: they just want to use the threat of the coin to persuade Congress that it should just go ahead and allow Treasury to pay for all the spending that Congress has, after all, already mandated. As a result, while no one intends to actually mint a coin, any statement to that effect would constitute unilateral disarmament in the war between the executive and the legislature.”

But this thinking runs counter to what the Secretary of the Treasury will be forced to do. Obama doesn’t have any legal standing to avoid using the coin, especially now that he knows about the coin. Here is beowulf on how the Treasury must act:

“…the Secretary has no legal discretion in this matter whatsoever. His path is laid out by Congress like he’s the mechanical rabbit at a dog race. 

  1. Congress tells the Secretary (as supervisor of the IRS) how much to collect in tax receipts and (with somewhat less effort) in miscellaneous receipts.
  2. Congress tells the Secretary as signatory of every single appropriation warrant how much money to transfer to federal agency sub-accounts (called “appropriation symbols” for some obscure reason).
  3. Congress tells the Secretary he MAY borrow on the credit of the United State to fund expenditures but not for one penny more than the debt ceiling.
  4. Congress tells the Secretary he SHALL mint coins such coins as he decides are necessary to meet the needs of the United States.

When Congress orders the Secretary to spend appropriations in excess of the receipts they’ve ordered him to collect, the unavoidable budget deficit must be filled by the combination of the Secretary’s powers to borrow (debt limit-constrained) money and to mint (debt-free) money. If Congress refuses to increase receipts or cut appropriations or extend the debt limit, the Secretary has only one and only one path to comply with all of his legal duties. Maybe I’m naive, but I’m confident the path to salvation will never be ruled unconstitutional by any United States Court. [Bold Mine]

Wow! That’s interesting. The legal path gets even tighter because of John Roberts, and his ruling on Obamacare. In this Justice Roberts lays out if a law has more than one possible meaning, the Court must choose the meaning which follows the Constitution:

Chief Justice Roberts wrote that if there two possible meanings of a law— one path constitutional and the other unconstitutional, the court must pick the meaning that prevents a breach of the Constitution. I’d extend the point to when there’s two possible meanings of a combination of laws (after all, Obamacare itself is actually a combination of two separate Acts of Congress), the Court must choose the path of salvation. To coin a term, we can call this the razor’s edge doctrine.

“The text of a statute can sometimes have more than one possible meaning. To take a familiar example, a law that reads “no vehicles in the park” might, or might not, ban bicycles in the park. And it is well established that if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so. Justice Story said that 180 years ago: “No court ought, unless the terms of an act rendered it unavoidable, to give a construction to it which should involve a violation, however unintentional, of the constitution.” Parsons v. Bedford, 3 Pet. 433, 448-449, 7 L.Ed. 732 (1830). Justice Holmes made the same point a century later: “[T]he rule is settled that as between two possible interpretations of a statute, by one of which it would be unconstitutional and by the other valid, our plain duty is to adopt that which will save the Act.” Blodgett v. Holden, 275 U.S. 142, 148, 48 S.Ct. 105, 72 L.Ed. 206 (1927) (concurring opinion).”

Taking these two into account, the path for the Secretary of Treasury is crystal clear – he must mint the coin to fulfill his legal duties under the law. The court must rule these actions constitutional.

So while Felix might not want the coin to be minted, and heck – I have some reservations about the coin myself – it appears we are compelled to issue the coin.

 

Comments
  • Philip Diehl January 8, 2013 at 10:31 am

    Actually, the law does not “compel” the Secretary to mint the platinum coin, as is the case for almost all other coins. It says he “may” mint the coin. Nevertheless, he has the discretion to do so in whatever denomination he chooses without review by Congress, and there is no restriction placed on the use or purpose of the coin.

    • beowulf January 8, 2013 at 11:02 am

      “Actually, the law does not “compel” the Secretary to mint the platinum coin, as is the case for almost all other coins. It says he “may” mint the coin.”

      Just as a fantasy football coach should never second guess Bill Parcells on draft picks , I’ll concede Philip’s point on this or any other question of Mint law and procedures. :o)
      Also that part about “the Court must choose the path of salvation”– I don’t typically go around sounding like Deepak Chopra, that was a callback to a line I quoted the other day, “The path to salvation is narrow and as difficult to walk as a razor’s edge.”

      • wh10 January 8, 2013 at 2:40 pm

        So what’s the deal with this?

        “Former U.S. Mint Director: The $1 Trillion Platinum Coin Ain’t Worth a Plugged Nickel”

        http://www.cnbc.com/id/100364183

        • Clonal Antibody January 8, 2013 at 2:47 pm

          See what I wrote at Mike Norman’s on this

        • Ramanan January 8, 2013 at 2:51 pm

          I think ideally, the coin has to be circulating but this can be managed if someone insists. As per current law I am not sure so can be done even without circulation.

          One of the persons in the CNBC video in the site says if the government gives you a $1T coin, would you accept it … its value is nothing. It is untrue. If I get the coin I wll be worth $1T. I will buy out CNBC!

          Let us say banks do not accept it. I will take a loan of billions of dollars and when they ask me to pay, I will use the coin and demand change. If they sue me, the court’s decision is in my favour.

          • Clonal Antibody January 8, 2013 at 3:08 pm

            People forget, that a bullion coin, even though it can be sold at the price of metal, is still legal tender – if suppose, the price of platinum were to drop to 1c a pound, it would still be worth its face value. Regular coins are not allowed to be sold for their metal content. It is illegal to do so. That is the only difference between bullion coins and regular coins. It is illegal to melt either bullion coins, or regular coins except by the mint.

        • Philip Diehl January 9, 2013 at 5:58 pm

          Uhh, no. My position is that it’s worth a trillion dollars and probably more in terms of its secondary value in saving the US economy the costs of a default.

        • Tom Hickey January 9, 2013 at 6:33 pm

          @ WH10

          That post is by Ed Moy, 38th director not Philip Diehl, who was the 35th. A comparison of the respective posts reveals who has made the better case, and I don’t believe it is Mr. Moy.

          • Philip Diehl January 9, 2013 at 11:36 pm

            The way the debt ceiling will be raised is the way it was raised in 2011 and the way the fiscal cliff was “resolved”: an agreement was struck with McConnell, passed with bipartisan support in the Senate, and sent to the House where it passed with a minority of GOP support.

            The goal is to persuade the Senate GOP they have a losing hand and it’s time to deal again so the crazies in the House don’t take them down in 2014. The Senate GOP meeds to be thinking: Why set it up so the WH can wait until the last minute after all the bluster and threats. Then they come to the rescue, dealing another embarrassment to Boehner, et al. The coin (or some other device) as a credible threat is central to the strategy. Otherwise, it’s just a game of chicken.

            And then there’s the long game. We’re trying to lay a new pathway in the political neural network by establishing and repeating a pattern. Doing so may be the best hope of muddling through until the grip of the House radicals is broken. The same path might be followed for immigration reform and other issues over the next two years. (This is not the bipartisan pipe dream of the first Obama administration. It is realpolitik.)

            Bear in mind the Senate GOP faces vulnerabilities their House counterparts do not. And the 2012 elections gave GOP Senators up in 2014 and 2016 a wake up call.

    • Robert Rice January 8, 2013 at 5:12 pm

      Philip,

      (a)The Secretary of the Treasury—
      (1)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;

      http://www.law.cornell.edu/uscode/text/31/5111

      The Secretary is not required to issue a platinum coin per se, that is if we consider the platinum coin code independent of the relevant legal context noted above. However, the legal context reads in a manner that suggests the Secretary is obligated to mint some kind of coin to meet the needs of the United States. Funding Congressional spending is notably a need. Given the platinum coin code is a subset, if you will, of the Secretary’s legal mandate, and given this coin appears to be the legal coining avenue toward that end (although admittedly, I haven’t much considered alternative coins), it appears the Secretary has no choice but to coin, should the debt limit not be increased.

      There is one potential problem I see with the argument above, and that is; what did the ratifiers of the code mean by “meet the needs of the United States”? I don’t know whether the ratifiers envisioned Federal Government self-finance springing forth from these coining codes. I’d like to find out.

      That question though and its answer is secondary. What we should be principally concerned with is whether the drafters/ratifiers of the Constitution (the law with primacy) intended to vest the Federal Government, in the Coining Clause (Article 1, Section 8, Clause 5), with the authority to self-finance. If in fact they envisioned government self-funding, which the trillion dollar coin is but a form, then utilizing a coin (or whatever form of legal tender) is indisputable. This is the crux. If however the evidence should prove to the contrary, the platinum coin proposal could very well lose a challenge in a court (but for some loophole, it likely would), and that would be a problem.

      The Legal Tender Cases and other related historical sources provide us with direction as to whether the Constitution allows for Federal Government self-funding. I have generally been of the opinion that the Coining Clause does provide this authority, although my research has not been exhaustive.

      I do hope for our sake the evidence proves conclusive the Federal Government possesses self-funding authority. As long as that authority is held accountable, then its responsible use can lead to greater aggregate demand, thereby improving the economy, and by extension the citizenry and its well-being. Money creation or self-finance is just a tool; the lack of its use is detrimental as is its abuse. We need “just right” porridge, not its absence or a gluttonous pursuit thereof. With solid legal footing, the platinum coin could be the path to economic salvation.

      • Clonal Antibody January 8, 2013 at 5:30 pm

        See my reply below

      • Cullen Roche January 8, 2013 at 6:08 pm

        In reality, it doesn’t matter if the law intended for the US govt to be able to self finance. What has developed over the course of the last 150 years is a money system dominated by private banking and designed entirely around private banking. To create a self funding govt is to begin tearing down the institution of private banking.

        You might be able to make a legal argument that that’s what the constitution meant, but I guarantee you one thing – you sure as hell won’t beat the lawyers who the banks spent a trillion dollars on to defend their industry. We’ve got a private money system built by banks and for banks. Get used to it. Regulate it. That’s about the best we’ll see in our lifetimes.

        No matter what the coin proves from a legal basis doesn’t really matter because it won’t be a permanent measure. Not until the institution of private banking starts to crumble around us. Don’t hold your breath for that….

        • Robert Rice January 8, 2013 at 7:08 pm

          I understand your cynicism and skepticism. However, the banks do not own the SCOTUS. I don’t even imagine they could influence the Court, except through competent attorneys arguing their case. Should the evidence be strong for self-finance and should the Administration and the Treasury Secretary pursue this path, in the event self-finance via the coin or some alternate faces a legal challenge, they too will have very good attorneys arguing their position. The Administration is not going to pursue a trillion dollar coin without a belief the evidence for their position is genuinely conclusive. They cannot afford to lose this in front of the SCOTUS; it could cause immediate problems with funding Congressional commitments, and it would be far too embarrassing, politically. In which case, should it end up before the SCOTUS, I believe success is more likely than you speculate. If the Administration assumes the risk, it suggests the Administration has conviction in their legal position. With strong evidence, they could easily be successful before the Court.

        • Fed Up January 10, 2013 at 1:45 am

          “What has developed over the course of the last 150 years is a money system dominated by private banking and designed entirely around private banking. ”

          And, “We’ve got a private money system built by banks and for banks. Get used to it. Regulate it. That’s about the best we’ll see in our lifetimes.”

          What if the credo that all new medium of exchange/medium of account has to come from the banking/hedge fund model is the problem?

          What someone needs to do is refute the economic assumptions behind that credo.

          • Greg January 10, 2013 at 5:29 am

            Well there was a significant 30-40 year period mid 30-40s to mid 70s where banking was very different, and our country was very prosperous, at least by many definitions of prosperous. The reason the banks behaved differently is because the government made them, and it was largely for public purpose reasons (avoiding bank instability). Government (rightly) blamed banking for many of the problems of the late 20s early 30s.

            Most people in Congress today (all of them actually) are where they are largely because of the investments made during that time in public goods. They have since been spun off into numerous private enterprises that are making many people rich and employing millions.

            For those people to now call for reductions in public investments when their own welfare is largely a result of previous public investments should lead to embarrassing op eds pointing out their duplicity, instead they get billions in support from think tanks and private enterprise as they try to deny to others that which they prospered from themselves.

            • Fed Up January 10, 2013 at 2:48 pm

              Greg said: “Well there was a significant 30-40 year period mid 30-40s to mid 70s where banking was very different, and our country was very prosperous, at least by many definitions of prosperous. The reason the banks behaved differently is because the government made them, and it was largely for public purpose reasons (avoiding bank instability). Government (rightly) blamed banking for many of the problems of the late 20s early 30s.”

              IMO, WWII eliminated a lot of the excess capacity and excess labor, especially outside of the USA. This allowed the USA to net export (trade surplus) until around 1970 (the world went back to being supply constrained instead of being demand constrained).

              • Greg January 11, 2013 at 4:34 am

                “‘IMO, WWII eliminated a lot of the excess capacity and excess labor, especially outside of the USA. This allowed the USA to net export (trade surplus) until around 1970 (the world went back to being supply constrained instead of being demand constrained).”

                I think you are correct here, except maybe about the part about being supply constrained.(And I dont like the term excess labor as if those people werent necessary) I’m never sure what someone is getting at when they say we were or are supply constrained. What exactly did we become in short supply of, besides imaginative politicians and CEOs who understand the value of having strong middle class customers, even if it costs them high taxes.?

                Energy, as we currently choose to create it, has supply issues but market prices hardly reflect that. We still manage to have cheap alternatives like natural gas, apparently in abundant supply. Clean water is an issue, but this is not really considered, I dont think, when most economists talk about our supply constrained economy. Mostly they are talking about, it seems to me, things like educated work forces and new capital investment goods. Things which are not truly in short supply, but simply not being paid for……. by choice.

                Being a net exporter explains our status as reserve currency issuer but m not sure it has a lot to do with our change in banking behavior over the last 30 years.

                My comment was mostly addressed at the idea that we are stuck with a bank run monetary system and we should just live with it. We had a very different bank run system during the years I described and we had NO major bank crises and a strong middle class. Moving in that direction some would be better in my view than resigning ourselves never being able to reign in big banks.

                Most of our current politicians grew up in that system and fail to protect that for others.

                • Fed Up January 12, 2013 at 11:31 pm

                  “I’m never sure what someone is getting at when they say we were or are supply constrained.”

                  Supply constrained means when supply increases, the extra supply gets bought so that things like positive productivity growth increase output. Demand constrained means when supply increases, the extra supply does not get bought so that things like positive productivity growth decrease employment.

                  “I dont think, when most economists talk about our supply constrained economy. Mostly they are talking about, it seems to me, things like educated work forces and new capital investment goods.”

                  Educated work forces and new capital investment goods are about the real aggregate supply (AS) side. From what I have seen, economists/macroeconomists tend to skip the real aggregate demand (AD) side. They believe real AD is unlimited (the definition of economics). I don’t believe real AD is unlimited.

                • Fed Up January 12, 2013 at 11:43 pm

                  Here is an example of the kind of garbage I see.

                  http://research.stlouisfed.org/pageone-economics/uploads/newsletter/2013/PageOneClassroomEdition0113_Opportunity_Cost_Scarcity.pdf

                  “Conclusion
                  An understanding of scarcity and opportunity cost is crucial to making good economic decisions. Remember that scarcity describes the condition in which our wants exceed the resources necessary to satisfy those wants. Scarcity requires us to make choices and choosing involves an opportunity cost—the value of the item given up when a choice is made. So, making wise (and sometimes difficult) choices requires considering the opportunity costs.”

                  What about rich entities that don’t seem to face “scarcity” and “opportunity costs”?

      • Philip Diehl January 9, 2013 at 6:09 pm

        You have a good argument re how the context of the law could require the Secretary to mint the coin. If I were back in my old position as chief of staff at Treasury, my advice would be to hang our hat on this argument in order to deflect criticism that we didn’t have to resort to this course.

        A question: how is it that seigniorage earned from a quarter is not self-financing of the government but seigniorage from a platinum coin is not?

        • Clonal Antibody January 9, 2013 at 10:05 pm

          Do you mean is when you wrote “is not?”

          • Philip Diehl January 9, 2013 at 10:48 pm

            Yes, it’s certainly convoluted.

            I’m responding to Robert Rice’s statement:

            ” There is one potential problem I see with the argument above, and that is; what did the ratifiers of the code mean by “meet the needs of the United States”? I don’t know whether the ratifiers envisioned Federal Government self-finance springing forth from these coining codes. I’d like to find out.”

            My question is; whatever the ratifiers intended, wasn’t this settled the first time seigniorage was booked by the treasury and every time it was booked over the next 200 years? If seigniorage from a quarter is considered self-financing, it seems self-evident that seigniorage from a platinum coin would, too. Maybe I’m missing something in Robert’s argument.

            Another point: seigniorage has been used for more than 2000 years to finance governments. Jefferson, the designer of the American coinage system, was a student of coinage matters. It’s inconceivable that he was ignorant of this history of seigniorage. I think the self-financing role of coinage was baked in from the beginning. Besides, Jefferson hated debt, taxes and tariffs. He probably saw the self-financing aspects of coinage as a feature not a bug.

            • Clonal Antibody January 9, 2013 at 11:14 pm

              Thanks. That is what I thought you meant to say. If the quarter, or dollar coin is self financing, then so is the trillion dollar coin. This further feeds into bypassing the limit on the Treasury to issue US Notes, as no limits were placed on the amount of coinage that can be issued by the Treasury. This came from Lincoln’s time.

        • Clonal Antibody January 9, 2013 at 10:06 pm

          Rather I should say is a quarter self-financing, or the platinum coin. My take is that both are self-financing.

  • S D Winkler January 8, 2013 at 10:47 am

    Borrowing and minting are not the only options. There is statutory discretion for asset sales as well. So minting must be weighed against legal asset sales. Also, congress does not tell SecTreas how much to collect in tax receipts, only how much of a percentage to skim. The size of the economy dictates how much is collected.

    • wh10 January 8, 2013 at 11:05 am

      Interest point about asset sales. But your other point seems semantic. Congress still orders the Secretary to find some way to fund expenditures beyond tax revenues received. I think that’s beo’s point. Correct me if I am wrong.

    • beowulf January 8, 2013 at 11:14 am

      Right, the Internal Revenue Code pegs rate and not quantity (like, say, counties do with property taxes) but either way the collection officials don’t have discretion to move the peg.

  • wh10 January 8, 2013 at 10:52 am

    Eric Posner lays out a similar but different argument from the perspective of Obama:

    “…President Obama can make a better argument. Congress has given him an impossible task: to implement a large number of costly public projects with less money than those projects cost. If he cuts spending, then he violates constitutional norms that give Congress the power to determine spending. If he raises revenues by borrowing or trying to tax people, then he violates constitutionals norms that give Congress the power to borrow or tax. In the face of contradictory instructions from Congress, the president can’t avoid choosing—by virtue of his administrative role as collector and disburser of revenues, the president must do something. Where Congress fails to provide him with consistent instructions, he has the discretion to do what he believes is in the public interest. If the economy were to be on the point of collapse, he could cite emergency powers sanctified by tradition as his authority for borrowing beyond the debt ceiling on his own. But a less drastic argument is that the power to resolve conflicting congressional orders is inherent in the president’s administrative role. Indeed, presidents frequently face conflicting statutes as they govern, and they have long enjoyed a great deal of discretion in resolving them.

    So in the face of contradictory orders from Congress, President Obama should do what he believes is in the public interest. And if the House refuses to raise the debt ceiling, this surely means some combination of cutting spending, borrowing beyond the debt limit, and perhaps even searching out new sources of revenue…”

    I can’t help but wonder if he is referring to TPC when he writes “perhaps even searching out new sources of revenue.” However, can the President direct the Secretary of Treasury to raise revenue via TPC? I’m not a legal person.

    http://www.slate.com/articles/news_and_politics/view_from_chicago/2013/01/debt_ceiling_president_obama_has_the_power_to_raise_the_debt_limit_without.html

  • wh10 January 8, 2013 at 11:29 am

    Mike, here’s some stuff exploring the ramifications of defaulting on the US debt, but the word “employment” STILL isn’t mentioned. Sheesh.

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/07/this-is-what-would-happen-if-we-breach-the-debt-ceiling/

    http://ftalphaville.ft.com/2013/01/08/1326693/the-coin-as-negotiating-strategy/

    • wh10 January 8, 2013 at 12:28 pm

      But I think Cardiff has a great point. Obama should NOT threaten the coin in negotiations, as this would maximize the chances that the GOP votes to raise the ceiling. Only use the coin if the ceiling isn’t raised.

      What’s the advantage to threatening the coin in negotiations? I can see two arguments.

      One is that by doing so, you give everyone fair warning and allow it to be publicly vetted. That way, if Obama does ultimately use it, it won’t seem as underhanded. The problem with this argument is that the coin is already being publicly vetted, without the President having mentioned it! In other words, we can have our cake and eat it too!

      The other is if you actually want to maximize the chance of Obama using coin, because you think it will lead to a positive change in the national discourse around govt spending, the debt, etc.

      • Philip Diehl January 9, 2013 at 9:54 pm

        The savvy way for the WH to play this is to let others (in the media, on the Hill, etc) push this proposal and sit back until the 11th hour approaches and their hand is forced. No threats. “We do this in sorrow, not in anger, to save the country from the damage of a default.”

        Look at Jim Carney’s statements over the past week. He seems to be following this path, not endorsing it but leaving the door open, in marked contrast to his emphatic statement about the 14th Amendment.

        Krugman and others are making the economic argument, and Lawrence Tribe has made the legal argument. For what it’s worth, I’ve tried to clarify the accounting and logistics issues. To make this a credible counter to the GOP threat, people on the Hill need to pick up the ball, especially members of Senate Banking, House Fin. Services, and the leadership.

        It’s a mistake to accept the characterization of both the platinum option and the default option as crazy. One is lies in Dante’s Purgatory, the other in the ninth circle of Hell.

        Time is on our side. The House GOP radicals are in deep trouble after the Plan B, fiscal cliff, and Sandy debacles. So 6 weeks later they threaten default. Two weeks after that they threaten to push us over the cliff in Sequester, Round II. A few weeks later they want to shut down the government over the 2013 budget. This is a tight death spiral scenario.

        • wh10 January 9, 2013 at 10:03 pm

          I agree with everything, except why does this need to be a credible threat? The FT’s point is that if it is, then the GOP is less likely to vote to raise the ceiling. Why not keep the Hill quiet about it? Obama can still use it if necessary.

        • Clonal Antibody January 9, 2013 at 10:10 pm

          Could you please clarify your self-financing comment. I believe that a n un resolvable typo makes the meaning very unclear

        • Joe Firestone (LetsGetitDone) January 10, 2013 at 12:49 am

          I agree completely. I’ve always felt, the President should just do it, and create a fait accompli. Then sell it to the American people; and let the Rs deal with it if they can!

          • wh10 January 10, 2013 at 7:41 am

            Well the beauty of it is that it’s already being sold to the American people. I’d be less comfortable if it was an absolute secret.

  • Cowpoke January 8, 2013 at 12:06 pm

    Anyone familure with the “Nondelegation doctrine”:
    http://en.wikipedia.org/wiki/Nondelegation_doctrine
    And how this could affect the legalities of delegated athourity to mint a rather large amount?

    • Nathanael January 13, 2013 at 6:43 pm

      Doesn’t affect it at all. Congress has delegated coining and seignorage powers to the Treasury continuously since the First Congress; this is same-old-same-old. The platinum coin is a valid delegation because the penny is a valid delegation.

  • Joe Firestone (LetsGetitDone) January 8, 2013 at 12:25 pm

    Hi Mike, What about consols and warrants? They’re legal too. So, it seems to me the President has a choice. Of those three, I prefer he use the coin, of course. But he rarely does what I prefer, and he clearly has a choice!

    • beowulf January 8, 2013 at 8:04 pm

      Warrants as in call options or warrants as in let’s arrest someone?
      I don’t know the details of the proposal, who’s said its legal?

      • Tom Hickey January 8, 2013 at 8:58 pm

        Warrant as a check or IOU issued by a government agency

        The term warrant is sometimes used in the US to mean a warrant of payment which is a check or an IOU issued by a governmental agency.

        http://en.wikipedia.org/wiki/Warrant_(finance)#Uses_of_the_term_warrant_other_than_as_an_option_on_equities

        • Nathanael January 13, 2013 at 6:44 pm

          Warrants are debts, legally. I don’t think they’re exempt from the debt ceiling. Legal fail!

      • Joe Firestone (LetsGetitDone) January 8, 2013 at 9:14 pm

        It’s from Randy Wray: http://www.economonitor.com/lrwray/2013/01/04/does-obama-have-a-platinum-coin-up-his-sleeve/

        “When Uncle Sam needs to spend and finds his deposit account at the Fed short, he can replenish it by issuing a nonmarketable “warrant” to be held by the Fed as an asset. With the full faith and credit of Uncle Sam standing behind it, the warrant is a risk-free asset to balance the Fed’s accounts. The warrant is just an internal IOU—from one branch of government to another—really not anything more than internal record keeping. If desired, Congress can mandate a low, fixed interest rate to be earned by the Fed on its holdings of these warrants (to be deducted against the excess profits it normally turns over to the Treasury at the end of each year). In return, the Fed would credit the Treasury’s deposit account to enable government to spend. When the Treasury spends, its account is debited, and the private bank that receives a deposit would have its reserves at the Fed credited.

        “From the Fed’s perspective it ends up with the Treasury’s warrant as an asset and bank reserves as its liability. The Treasury is able to spend as authorized by Congress, and its deficit is matched by warrants issued to the Fed. Congress would mandate that these warrants would be excluded from debt limits since they are nothing but a record of one branch of government (the Fed) owning claims on another branch (the Treasury). The Fed’s asset is matched by the Treasury’s warrant—so they net out.

        “And Congress would not need to increase the debt limit when a crisis hits that results in growing budget deficits.”

        But, regardless, my question remains If consols and warrants are alternatives. then there’s no legal obligation to use “minting.”

        • Tom Hickey January 8, 2013 at 9:47 pm

          Joe, I think that Randy is hypothesizing there. He says further on, “So we could have the Fed act as the Treasury’s bank, accepting a Treasury IOU and keystroking bank reserves. But we don’t do that either—we say that although the Fed is the Treasury’s bank, it is prohibited from directly accepting a Treasury IOU. And hence we created complex procedures that involve private banks, the Fed and the Treasury to accomplish the same thing.”As I understand it a warrant would be a Treasury IOU if not explicitly authorized by Congress. Under current arrangements, that option seems to be prohibited.

          Previously, beowulf speculated that it would be legal for the Fed to “gift” the Treasury the reserve just as it gifted interest from QE to the Treasury acct, there being no provision concerning that.

        • Robert Rice January 8, 2013 at 10:00 pm

          If a warrant is an intragovernmental IOU (I have no reason to doubt this), the question arises why it is the Fed’s purchase of treasuries on the Secondary Market doesn’t result in a conversion of the treasuries to warrants, given the Fed is a federal government agency (i.e., one government agency owes another). If it walks like a warrant, and talks like a warrant…

          Do you have a reference to the U.S. Code wherein warrants are defined as well as the relevant operations?

  • Clonal Antibody January 8, 2013 at 5:28 pm

    Historically coins were not considered to be bills of credit (“paper money”) they were originally made of copper, nickel, silver or gold – each denomination havin a fixed weight. This is why they were considered exempt from the Civil War era law limiting the US Treasury to issuing no more than $350 million in US Notes (Lincoln’s Greenbacks) However, as we have moved away from silver and gold coinage, coins have taken on the characteristics of “paper money.” All coins in circulation (except for pennies) are cheaper to produce than their face value – the TDC just expands the envelope. Theoretically you could issue dollar coins to pay for the spending of the US government.

  • Clonal Antibody January 8, 2013 at 8:16 pm

    Beo,
    What if the US Government was to pay all in one dollar coins. Seigniorage profits count as revenues to the government. No debt is issued. Coins and US Notes are “not debt,” while Federal Reserve Notes are “debt.” The US Treasury id forbidden from issuing more than $350 million in US Notes (from the US Civil War – limit on Lincoln Greenbacks) – The Seigniorage profit goes on to fund the deficit. The rate of profit would determine the size of budget deficits that could be sustained. How about that?

    • Clonal Antibody January 8, 2013 at 8:18 pm

      All its obligations in one dollar coins. Current profit is 525%

    • JKH January 10, 2013 at 5:36 pm

      seigniorage profit is not revenue to Treasury

      it does not affect the deficit

      it is a substitute for debt funding

      • Clonal Antibody January 10, 2013 at 6:33 pm

        Yes, but does not count as debt subject to the ceiling.

        • JKH January 10, 2013 at 6:43 pm

          right – that’s the definite advantage in this situation

  • Morgan Warstler January 8, 2013 at 8:28 pm

    If the Treasury Dept. admits the SS bonds aren’t real, doesn’t that solve the DC issue?

  • Robert Rice January 9, 2013 at 12:15 am

    Clonal,

    Production costs on the $1.00 coin are about $.18:

    http://www.usmint.gov/faqs/circulating_coins/index.cfm?action=faq_circulating_coin

    Assuming production costs remained constant, on every trillion minted, the Treasury would spend $180 billion. Not the most efficient money creative method.

    I also looked into how much metal would be required to produce this quantity of $1.00 coins to see if it would even be practically possible. Section 5112 of the USC does not specify the individual weight and composition of $1 coins (it does specify diameter under (a) at 1.043 inches), which I thought was odd given it specifies virtually all the other coin weights and compositions. 5112(b) however refers to the United States Dollar Coin Act of 1997, saying:

    “The dollar coin shall be golden in color, have a distinctive edge, have tactile and visual features that make the denomination of the coin readily discernible, be minted and fabricated in the United States, and have similar metallic, anti-counterfeiting properties as United States coinage in circulation on the date of enactment of the United States $1 Coin Act of 1997.”

    Having looked this bill up:

    http://www.smalldollars.com/dollar/page18.html

    …you’ll note under section 2(a), it specifies 5112(a) was amended to remove the weight of the $1 coin, which formerly was 8.1 grams:

    “WEIGHT – Section 5112(a) of title 31, Unites States Code, is amended by striking ‘and weighs 8.1 grams’.”

    Additionally, 2(b) of the bill specifies the first sentence of 5112(b) be amended to remove “dollar” from the wording. By inference, the reason for this was so that the ensuing composition for the half dollar, quarter dollar, and dime would no longer also apply to the one dollar coin.

    So, the 1997 bill “undefines” the weight and composition of the one dollar coin apparently leaving that composition a mystery. If I had to speculate why this was done, I would guess to help prevent counterfeiting. Whose’s going to counterfeit dimes, quarters, and half dollars?

    But let’s assume the previous composition and weight of the one dollar coin was reinstated. How much metal are we talking about?

    Well 5112(b) indicates, “…3 layers of metal. The 2 identical outer layers are an alloy of 75 percent copper and 25 percent nickel. The inner layer is copper. The outer layers are metallurgically bonded to the inner layer and weigh at least 30 percent of the weight of the coin.”

    The inner copper core then appears to be about 70% of the coin’s composition. The two outer layers consist of the remaining 30% of the coin, with total coin composition of about about 22.5% copper and 7.5% nickel. In which case, the coin would be 92.5% copper and 7.5% nickel, weighing 8.1 grams. This means 7.4925 grams would be copper, .6075 grams nickel, per $1 coin.

    So for one trillion $1 coins, you would need 7.4925 trillion grams of copper, 607.5 billion grams of nickel. Well, how much is that?

    There are 453.6 grams in a pound, 2,000 pounds in a ton, or about 907,200 grams per ton. A trillion is one million, million. So, roughly speaking, you’d need about 8.26 million tons of copper, about 670 thousand tons of nickel.

    According to this:

    http://en.wikipedia.org/wiki/Peak_copper

    There are about 15 million tons of copper mined worldwide annually.

    According to this:

    http://en.wikipedia.org/wiki/Nickel#World_production

    There’s about 1.6 million tons of nickel mined annually.

    Suffice it to say, for the U.S. to create that quantity of new demand on these metals would undoubtedly drive production costs up, up, up. And what a waste of metal! It’s simply impractical to coin that quantity of $1 coins, especially given we’d likely need more than one trillion $1 coins.

    Great question though. That was a good exercise, and now we know the answer.

    • Michael Sankowski January 9, 2013 at 6:34 am

      Hi Robert,

      FYI: Comments with more than one link are automatically held for approval by our spam filter. We have to manually approve those comments.

      Mike

      • Robert Rice January 9, 2013 at 6:12 pm

        No problem Mike, I understand the need to prevent spam.

    • Clonal Antibody January 9, 2013 at 9:04 am

      One thing you have ignored is recycling the coins. The Mint routinely recycles old coins. I presume that as tax receipts come in, the Treasury can ask the fed for an equivalent number of coins to be returned to the mint for recycling.

      But I agree with you that it is a waste of materials, energy and effort.

  • Adam1 January 9, 2013 at 12:16 pm

    Beowolf,
    Was wondering… you’ve mentioned before that it is likely that nobody has standing to challenge the Treasury is issuing the Platinum coin; however if the government shut down or temporarily defaulted given what we know about the coin’s legality is it not conceivable that the Treasury could be sued for not issuing the coin?

  • Robert Rice January 10, 2013 at 12:30 am

    Philip,

    In comparing the case of a quarter and a trillion dollar coin and the corresponding seigniorage of each, the seigniorage would arise from different operations with different purposes. This is significant for the reason that one set of operations and purposes could have legal precedence and justification while the other fails to. To elucidate…

    The Fed describes currency operations here:

    http://www.federalreserve.gov/paymentsystems/coin_about.htm

    The relevant sections read:

    “As the issuing authority for coins, the United States Mint determines annual coin production. The Reserve Banks, however, influence the process by providing the Mint with monthly coin orders and a 12-month rolling coin-order forecast.”

    “The Reserve Banks distribute new and circulated coin to depository institutions to meet the public’s demand.”

    “Coin held by the Reserve Banks is an asset on the Federal Reserve’s balance sheet and the Federal Reserve buys coin from the Mint at face value. When a depository institution orders and deposits coin from its Reserve Bank, the institution’s account balance is adjusted accordingly.”

    In the case of a quarter, the Fed orders coins from the Mint, purchases those coins at face value, with the motivation of meeting the public demand for coins. Seigniorage on a quarter dollar arises as a side effect of the Federal Government’s interest in meeting the physical liquidity the public desires. Seigniorage realized by these operations and for this purpose has precedence.

    The seigniorage from a platinum coin would arise from a fundamentally different operation with a different purpose. Once the coin is minted, it is not sold to the Fed to meet the public’s physical liquidity desires, the platinum specie is deposited into the Treasury’s General Account at the Fed. This deposit is inspired by an interest in funding Congressional spending commitments and/or to reduce debt. There is no concern for meeting the public demand for physical liquidity, and the seigniorage is not a side-effect. The question then arises whether such a motivation and such a deposit have legal justification.

    For what purpose the two coins are minted and how that seigniorage is realized appear to be dissimilar. If this is correct, before the Obama Administration can implement the platinum coin proposal, they will need conclusive evidence establishing legal precedence, derived from the Constitution itself, for coining to be utilized as a source of Federal Government self-finance, not as a mere side-effect of satiating public interest in physical liquidity. I can envision a number of potential arguments Constitutionally justifying platinum coining (or alternative sources of self-finance), but this post is long enough. The answer to the Constitutional legality of self-finance deserves its own post.

    Now, in response to my distinction-drawing-argument, one might retort–when a depositor deposits cash into a bank account, the individual is “selling” that cash to the bank in exchange for an equivalent increase in the value of their bank account. So it is with the platinum coin; the Mint is in fact “selling” the coin to the Fed, whereupon the seigniorage is realized with an equivalent quantity of electronic dollars deposited into the Treasury’s General Account. Granting the “selling” language for sake of argument, we still find there is a fundamental difference in purpose for coining. That difference remains significant as it relates to legal precedence and the purpose of the law.

    The retort might continue, however; there is no reason an operation should have a single motivation. When the Treasury sells coins to the Fed, it is working with the Fed to meet public demand for physical liquidity, but that’s not to say the Treasury isn’t also motivated to collect a profit to help fund Congressional spending. Why couldn’t the Treasury be motivated by both in a win-win type transaction, thus removing any allegation seigniorage is only a side-effect?

    Concerning ourselves with the intent of the ratifiers reminds me a lot of debates over the meaning of certain Biblical passages, debates which are endless and often difficult to settle. At some point I think we might collectively remind ourselves of the idea behind our Republic, and that is to have enough flexibility and responsibility to create a more perfect union. The economics of self-finance are sound, and the implementation is entirely feasible. Self-finance can be held accountable, and it can be held responsible. One way or the other, it should be enacted. The means of enactment is a secondary issue to me, finding a way to implement the policy the principal concern. Good theory should have sovereignty over law, as law should be made to reflect and protect it.

    • Philip Diehl January 10, 2013 at 2:01 am

      First, the “to meet public demand” language relates to the distribution and circulating or coins, not the minting of coins. Seigniorage arises from the minting of coins not from the Fed’s distribution of them. If seigniorage were booked when the coins left the Fed for the banks, the argument would be stronger.

      Second, I see no reason to read “to meet public demand” as being the exclusive motivation for minting coins, with seigniorage as a mere by-product. I know from experience this, in fact, is not the case. For example, I testified at a House committee hearing 6 weeks ago about a bill to eliminate the dollar note in favor of the dollar coin. The two are substitutes for each other as a medium of exchange, so why bother if that is their only purpose. The primary reason cited for favoring the coin is that it generates more profits for the government (because it has a longer lifespan). The biggest dispute was whether the seigniorage gain was $6 billion or $15 billion over ten years and whether those estimates might be low by a factor of 10.

      Similarly, a decisive argument I used to win support on the Hill for the 50 State Quarters program was the seigniorage windfall the government would receive from the 5-fold increase in quarter demand we expected. The old quarter was doing fine meeting public demand for a medium of exchange. Treasury held the utilitarian view of coinage and opposed the legislation. They were trumped by the seigniorage argument. A whole slew of other “circulating commemorative coins” have followed, none of then necessary to meet public demand for liquidity.

      The story of the Sacagawea dollar and the Susan B. Anthony follow similar lines.

      The dual motives of facilitating commerce by meeting public demand while providing a means of self-financing are not recent innovations. I’m not a scholar of the history of coinage, but I’d wager that one could cite examples of governments minting coins for both purposes back through the centuries.

      It occurs to me that coins can be viewed as a consumer product. Consumers buy them because they’re useful or because they want one of each of the 50 State Quarters, or for whatever other purpose. A producer meets that need, marks the product up, and earns a return. The motives of meeting customer demand and earning a return are tightly coupled.

      • Clonal Antibody January 10, 2013 at 9:35 am

        Thank you for restating so clearly what I have envisioned throughout my involvement with the TDC

      • Robert Rice January 10, 2013 at 1:47 pm

        Philip,

        Once I wrap up with my day job, I have some thoughts. In the meantime, a question; do you know whether seigniorage is booked as an asset on the Treasury’s balance sheet at the time of minting or at the time of selling the coin to the Fed to fill its coin orders or to collectors? For clarification on my prior comments, I wouldn’t expect seigniorage to be realized upon the Fed’s distribution of coins. I could, however, see it being booked at the time of purchase. Perhaps it is at the time of minting and not at the time of purchase.

        I noted your comments below about the distinction between these two case examples, one being seigniorage in exercise of public duty, the other a more capitalist, profit making enterprise.

        Gotta run.

        • Philip Diehl January 10, 2013 at 3:43 pm

          Robert,

          For decades the Mint booked seigniorage upon minting the coin. We changed that in the mid-1990s because we thought it might create an incentive to over-produce. This was considered a technical change, not policy-driven. Thereafter, we booked seigniorage when the coin left the dock for the Fed.

          As for bullion and numismatic coins, the profits are book upon the sale of the coin.

          The Mint’s practice has been to transfer the accumulated seigniorage and profits to the treasury quarterly, but there’s nothing to prevent the Mint from striking a coin, shipping it to the Fed, booking the seigniorage, and transferring the funds to treasury all in a day.

          If I get your reference correctly, my point about the significance of the Fed’s distribution responsibilities is that the “to meet public demand” motive expressly applies to the distribution and circulation of coins by the Fed, not the minting of coins by the Mint. So this language would not preclude self-financing as a motive for minting coins.

          The other part of my argument is that, in practice and through history, coins have been produced for both purposes and that this is widely reflected in policy discussions related to coinage.

          • JKH January 10, 2013 at 4:16 pm

            so I’m suggesting (at this point) that both “seigniorage” and “profits” on Mint books once transferred to Treasury are treated as a substitute for debt funding on Treasury books – that neither is treated like tax revenue

            what I’m not clear on is whether you know for sure that Mint “profits” are treated like tax revenue on Treasury books once transferred to Treasury – or that you are more guessing that’s the case at this stage – I suspect you’re not sure of this?

        • JKH January 10, 2013 at 5:27 pm

          seigniorage would not be booked as an asset on Treasury books at all

          the measure of seigniorage falls out of future Treasury interest margin and corresponding deficit behavior – not from a current asset entry

    • JKH January 10, 2013 at 5:31 pm

      “So it is with the platinum coin; the Mint is in fact “selling” the coin to the Fed, whereupon the seigniorage is realized with an equivalent quantity of electronic dollars deposited into the Treasury’s General Account.”

      But that deposit does not constitute revenue for Treasury books and does not affect the deficit – it is a source of funding that is an alternative to debt funding

  • Philip Diehl January 10, 2013 at 9:50 am

    It occurs to me that there might be another way to skin this cat. (No animals were harmed in the writing of this post.) Profits from collectible and bullion coins are booked by the Mint differently from seigniorage from coinage, going through Mint’s Public Enterprise Fund (at least it did 10 years ago). I believe these are booked as profit, not seigniorage, from direct sales to buyers. I’ guessing but I’d expect these profits to be treated more like tax revenue than bond proceeds when they reach the general fund.

    What I’m wondering is whether the platinum coin could be struck as a collectible with the Fed buying it directly from the Mint, earning Treasury $1 trillion in non-seigniorage profits. This option might well be inviable due to differences in the accounting Treasury-Mint-Fed accounting rules that apply to these funds vs. those for circulating coinage.

    I’m interested in hearing from those of you who know these inner workings of the Fed and Treasury accounts better than I do.

    • JKH January 10, 2013 at 10:20 am

      “guessing but I’d expect these profits to be treated more like tax revenue than bond proceeds when they reach the general fund.”

      That’s the issue.

      I’m guessing (also) – but that they’re treated more like bond proceeds – only because my guessing logic tells me it would be highly dysfunctional from a financial accounting standpoint to treat them otherwise.

      My further guess is that even if the Mint books show a “profit” in that sense, that this is essentially an internal management accounting entry relative to the government’s consolidated books and unified deficit financial accounting – and that that sort of “profit” entry on Mint books would be double entry accounted on Treasury books as funding rather than revenue.

      But that’s the issue, IMO.

      • Philip Diehl January 10, 2013 at 10:37 am

        So your guess is that the treatment of these profits would be the same as seigniorage despite the fact that these profits are income to the treasury and not simply a form of interest-free loan as with seigniorage?

        In the case of bullion and numismatic coins, there is no right or mechanism for a buyer to return the product to the Mint. All sales are final (after a short grace period for numismatic coins). In other words, the profits are permanent. From a business perspective this is analogous to the difference between revenue from sales and debt financing.

        • JKH January 10, 2013 at 10:50 am

          hmm…

          not certain – I’ll have to look at that difference more carefully

          but interesting info on the other thread:

          http://monetaryrealism.com/treasury-and-the-federal-reserve-platinumqe-integration/#comment-13836

        • JKH January 10, 2013 at 10:58 am

          this is a quick reaction, but:

          - I’m not yet seeing the distinction in the type of coin you note being noted as a distinction in the accounting treatment in that linked document on the other post

          - And I would analogize your distinction instead as a funding distinction as between debt and equity funding – rather than a distinction between sales/profit/income and debt financing

          • Philip Diehl January 10, 2013 at 11:30 am

            I’m not getting the numismatic profit=equity analogy. When a customer buys one of these products, he gets a coin, not a stake in the Mint. The numismatic profit=net sales revenue analogy seems more straightforward.

            That said, I don’t know what the actual accounting treatment is. I’m just saying it would be worth knowing in order to weigh whether this is a better option than going the seigniorage route.

            • JKH January 10, 2013 at 4:07 pm

              Philip,

              I’m not following your reasoning in the above sequence:

              “Profits from collectible and bullion coins are booked by the Mint differently from seigniorage from coinage, going through Mint’s Public Enterprise Fund (at least it did 10 years ago). I believe these are booked as profit, not seigniorage, from direct sales to buyers. I’ guessing but I’d expect these profits to be treated more like tax revenue than bond proceeds when they reach the general fund…

              So your guess is that the treatment of these profits would be the same as seigniorage despite the fact that these profits are income to the treasury and not simply a form of interest-free loan as with seigniorage?…

              That said, I don’t know what the actual accounting treatment is…

              viewed as funding, but more like funding from tax revenue rather than debt; seigniorage is more like debt…

              As I understand it, seigniorage is treated as a means of funding similar to debt (as opposed to tax revenue)”

              You seem to be saying in one that you’re guessing at the accounting treatment on Treasury’s books, and in another that Mint “profits” are booked as income, like taxes, on the books of Treasury.

              I’m saying:

              - I’m also guessing until I can confirm
              - That the fact that one version is called “profits” on the Mints books instead of “seigniorage” doesn’t necessarily mean that either is treated as income (like taxes) on Treasury’s books; they are two different sets of books with potentially different treatments in the case of Mint results, whether those be labelled seigniorage or profits on Mint books
              - That the document provided by Ramanan seems to make no distinction between the two as far as Treasury’s books are concerned (until I confirm with more time on the document)
              - That my equity analogy refers not to the ownership characteristic of equity but to the permanent non-debt characteristic – and that equity is a form of funding but not revenue (its certainly not a perfect analogy; in fact I don’t like it; but it goes to funding versus revenue)
              - From a financial accounting flow of funds perspective, revenue (e.g. taxes) is on the income statement and affects the deficit in the case of government, but funding (e.g. debt and what I think we’re talking about in either case here) is on the sources and uses of funds statement and the balance sheet, but not the income statement, and does not affect the deficit in the case of government

              • JKH January 10, 2013 at 4:10 pm

                i.e. that in any case its not the classification on Mint books that determines the accounting treatment for the deficit – its the accounting classification on Treasury books proper for whatever funds the Mint passes onto Treasury that matters – and the Mint’s accounting classification doesn’t necessarily determine Treasury’s classification

                that’s my guess at this point

            • JKH January 10, 2013 at 5:21 pm

              again, the equity analogy, which is very crude and only partial, is with respect to the characteristic of equity funding as permanent and debt funding as finite, but both of which are funding versus revenue – and I’m talking about external equity funding, not retained earnings or profit – its actually a terrible and only partial analogy and I only use it to distinguish between the redeemable/non-redeemable characteristics of the two different types of coins in that respect only

        • JKH January 10, 2013 at 11:01 am

          i.e. I’m guessing that with both types although the Mint may record it as a sale with profit etc., Treasury views it as funding – that was my original instinct on congruent accounting treatment from a Treasury and unified budget standpoint

          • Philip Diehl January 10, 2013 at 11:32 am

            Yes, viewed as funding, but more like funding from tax revenue rather than debt; seigniorage is more like debt.

            • Clonal Antibody January 10, 2013 at 2:00 pm

              But Debt that does not come under the purview of the Debt Ceiling. So it would still be deficit, but not subject to the debt ceiling. Would that be a reasonable reading?

              • Philip Diehl January 10, 2013 at 3:04 pm

                As I understand it, seigniorage is treated as a means of funding similar to debt (as opposed to tax revenue), but since it doesn’t require the issuance of more debt, it provides additional funding without moving the needle via a vis the debt limit.

        • JKH January 10, 2013 at 5:17 pm

          “despite the fact that these profits are income to the treasury”

          I’m not clear that you can be certain of that unless you are certain of Treasury accounting treatment versus Mint accounting treatment

          What seems to be the case is that these are booked as “profits” on Mint books

          What is not clear is that they are booked as “profits” on Treasury books (whatever that might mean on Treasury books – in fact I doubt that the “profit” classification has any meaning as a direct accounting classification on Treasury books – this is first and foremost a transfer of funds – not necessarily a transfer of accounting classification)

          My guess is that the funds transfer from Mint to Treasury is booked on Treasury books as funding comparable to debt funding – but not comparable to tax revenue

          • Philip Diehl January 10, 2013 at 6:01 pm

            I’ll do SW digging and see what I can find out.

            • JKH January 10, 2013 at 7:51 pm

              I think now my guess on this specific issue was wrong:

              From the 2012 annual report of the Mint:

              TRANSFERS TO THE TREASURY GENERAL FUND

              The Mint transfers amounts determined to be in excess of the amounts required for Mint operations and programs to the Treasury General Fund periodically throughout the fiscal year.

              Seigniorage derived from the sale of circulating coins and the sale of numismatic products containing circulating coins is an off-budget receipt to the Treasury General Fund. Off-budget means that these funds cannot be used to reduce the annual budget deficit. Instead, they are used as a financing source (i.e., they reduce the amount of cash that Treasury has to borrow to pay interest on the national debt).

              Revenues generated from the sale of numismatic products are transferred to the Treasury General Fund as an on-budget receipt. Unlike seigniorage, the numismatic transfer amount is available to the Federal Government as current operating cash or it can be used to reduce the annual budget deficit.

              You were right.

              I yield.
              :)

              • JKH January 10, 2013 at 7:53 pm

                weirdly, there was no distinction at all about the two different deficit treatments in the earlier document I referenced

                • Michael Sankowski January 10, 2013 at 7:56 pm

                  Is this accurate?

                  The coin cannot be used to retire existing debt. It can only be used to pay for new spending.

                  • JKH January 10, 2013 at 8:11 pm

                    I think we have to be certain of how the coin is classified to say that – if its classified as circulating or numismatic circulating, its a replacement for debt funding; it its classified as pure numismatic, profits are treated similarly to tax revenue, as Philip first noted

                    And I think the question of classification is still up in the air, which was also Philip’s first point

                    The document didn’t say anything about any treatment for any category other than as a replacement for debt funding

                    • Michael Sankowski January 10, 2013 at 8:41 pm

                      Ok, I knew I was losing the thread somewhere. Thanks,

              • Clonal Antibody January 10, 2013 at 8:00 pm

                Yes but if the Fed “buys” the trillion dollar coin, as a numismatic collector’s coin, does the accounting logic still hold? Here I am speaking from the point of view “All money is Debt” until “the Debt is retired upon return to the government in the form of taxes or payments” In other words is it really a sale similar to selling to a private sector collector?

                • JKH January 10, 2013 at 8:07 pm

                  I think your question is similar to my 8:01 below

              • JKH January 10, 2013 at 8:01 pm

                so that goes to your initial question:

                “What I’m wondering is whether the platinum coin could be struck as a collectible with the Fed buying it directly from the Mint, earning Treasury $1 trillion in non-seigniorage profits.”

                IF classified as numismatic, apparently the deficit would be reduced by those profits, as you suggested

                BUT could it be classified as numismatic if sold/deposited with the Fed?

                AND could it be classified as numismatic even if sold to the public in smaller denominations, as some have been suggesting the last few days?

                • Clonal Antibody January 10, 2013 at 8:08 pm

                  If sold to the public, it is no different than taxation as regards its impact on the economy. So I would be very reluctant to do that in the current economic situation. It has to go to the fed in order to create new money!

                  • JKH January 10, 2013 at 8:16 pm

                    It has to be pure numismatic or bullion for it to be treated like taxation

                    It has to be circulating or numismatic circulating for it to be treated as a replacement for debt funding

                    So how is it classified – if sold to the Fed?

                    • Clonal Antibody January 10, 2013 at 8:22 pm

                      I was responding to your suggestion of selling it to the public as a numismatic coin. If that is done, then it has the same economic effect as taxation – same as austerity.

                    • JKH January 10, 2013 at 8:35 pm

                      right

                    • JKH January 10, 2013 at 8:40 pm

                      although its a voluntary type of tax – coming from the higher end probably

                      (assuming they can be sold)

                      frees up equivalent deficit spending capacity without a debt ceiling increase, as would a sale to the Fed without a debt ceiling increase, as would an increase in the debt ceiling

                • Philip Diehl January 10, 2013 at 11:08 pm

                  Selling smaller denominations to the public is a nonstarter. With platinum at $1640 an ounce, the coin is too costly. Also, the Mint doesn’t have the production capacity. And it would take too long to produce and sell the coins.

                  It has to be sold to the Fed. Or the Chinese. Or a Saudi prince.

                  • JKH January 11, 2013 at 2:57 am

                    absolutely agree – at least with respect to the Fed option

                    moreover, there’s no guarantee that the volume of funding (retail and/or wholesale) would be sufficient to cover deficit financing needs while the debt ceiling remains frozen

                    the logistics just seem too awkward for effective integration with the emergency funding requirement in this case

              • Ramanan January 10, 2013 at 10:49 pm

                “Revenues generated from the sale of numismatic products are transferred to the Treasury General Fund as an on-budget receipt. ”

                Very numismatic!

              • Philip Diehl January 11, 2013 at 1:15 am

                Clarifying that treating the coin as a numismatic item generates on-budget receipts has led me to think more clearly about the comparative merits of the numismatic and circulating options.

                The circulating coin scenario has the advantage of more strictly following standard Mint/Fed/Treasury practices. The coin is struck, the Fed orders it, the Mint ships and books it then transfers a trillion dollars in seigniorage to the general fund where it is booked as an off-budget receipt. A well-worn path. Likewise for the return of the coin to the Mint, the reversal of the accounting treatment and the melting of the coin.

                Some critics might claim that the Fed doesn’t buy precious metal coins from the Mint. But it did for many decades, right up until the 1950s and ’60s with the silver Eisenhower dollar and Kennedy half-dollar. Also, some critics will claim that the Secretary is constrained to produce coins solely for the purpose of meeting the needs of commerce. This is refuted by the 50 State Quarter program (and other circulating programs) in which public demand was 5 times the baseline commercial demand due to collecting and hoarding behavior. This increase in “non-commercial” demand was a feature of the program, not a bug. Higher seigniorage profits were a key selling point emphasized in the House committee hearings and the floor.

                If Congress authorizes circulating coins (and makes other coinage policy decisions) to support commerce AND as a means of self-finance, and if the Secretary is MANDATED to produce to meet demand whether it be for commercial or non-commercial purposes, it follows that the Secretary has authority to mint a platinum coin to meet non-commercial demand for self-financing reasons. This authority is reinforced by the broad discretion the platinum coin law grants the Secretary including whether to mint the coin, how many to mint, the denominations of the coins.

                One might even claim the Secretary is REQUIRED to produce the platinum coin if the Fed orders it. While the Mint sets its own production schedules, those schedules are shaped by the Fed’s coin orders which are the only mechanism by which “public demand” is communicated to the Mint. If the Fed communicates to the Mint that there is public demand for the platinum coin, whether for commercial or self-finance purposes, the Mint would seem to be required to produce one.

                Finally, an objection is likely to be raised that the law authorizing the platinum coin references proof (bearing a frosted image and mirror-like field) and bullion coins only. Therefore, a circulating platinum coin is not authorized under the law, and the Mint, Treasury and Fed could not use traditional circulating processes and accounting practices for the coin. The flaw in this argument is that, while proof coins are typically numismatic items, there’s nothing to prevent the Mint from striking a proof circulating coin. Moreover, other sections of the law dealing with other bullion and numismatic coins specify that the coins are to be treated as numismatic items. In the case of the platinum coin, the law is silent.

                While the numismatic option has the advantage of generating on-budget receipts for the general fund, it has the disadvantage of forging a few new pathways through Fed and Mint practices.

                The Fed doesn’t buy numismatic coins from the Mint, though I see no obstacle to them doing so. Also, except for a brief period during which the Mint will accept customer returns of numismatic items, the Mint does not routinely accept the return of bullion and numismatic coins. This policy is designed to protect the Mint from customers speculating on an increase in precious metal prices (or collectible premiums) and returning the coins to the Mint if they guess wrong. With a trillion dollar coin containing $1640 in platinum and held by the Fed, this wouldn’t appear to be an issue. I see no reason why a change in the Mint’s return policy couldn’t be made.

                The most significant departure from practice of going the platinum route is the reversal of the on-budget receipts when the coin is returned and melted. How much of an issue this might be, I don’t know.

                • Ramanan January 11, 2013 at 2:31 am

                  Phil,

                  Very thought out comment!

                  Yes, shouldn’t be any issue for the Fed buying coins from the Mint.

                  If there is any issue with the Fed buying the coin from the Mint, the Mint can hand the coin to one of the “agencies” who will deposit the coin at the Fed (since the Fed is their banker) and receive deposits in its account which it can transfer to the Mint/Treasury.

                • JKH January 11, 2013 at 3:31 am

                  This is superb information on the multiple technical dimensions involved in the optimal design for a solution here

                  I think the circulating option with sale/deposit to the Fed is the cleanest and most efficient

                  Although I’ve suggested weekly tranches of $ 25 billion (or thereabouts, perhaps depending on budget flows and natural requirements for funding) rather than the shock and awe $ 1 trillion model

                  “One might even claim the Secretary is REQUIRED to produce the platinum coin if the Fed orders it. While the Mint sets its own production schedules, those schedules are shaped by the Fed’s coin orders which are the only mechanism by which “public demand” is communicated to the Mint. If the Fed communicates to the Mint that there is public demand for the platinum coin, whether for commercial or self-finance purposes, the Mint would seem to be required to produce one.”

                  That seems a bit tricky. The Secretary requires the coin as a deficit financing solution in the circumstances. The Fed would order it only if requested to do so by the Secretary. The Fed would then order it based on that request, which would mandate production, as originally required by Treasury – a rather happy logical loop, but still reasonable I think.

                  It’s good to know of potential flexibility in the bell and whistle design of coins that the Fed is permitted to buy – numismatic, circulating, bullion, proof, etc.

                  The deficit impact – surplus at issue and reversal at buyback – of the numismatic option in dealing with the Fed would seem to be a bit messy on the surface, but maybe…

                  Again, great information on design options.

                • Robert Rice January 11, 2013 at 3:32 am

                  Champ, we need you ready for prime-time Saturday morning. This has been a good training session, but it’s important in these final hours we put the finishing touches on your skills. I want you to be a machine, an animal, an irrefutable nightmare to your naysayer opponent(s). If I may offer some pre-fight thoughts.

                  Two paths: Circulating and numismatic circulating coins that generate off-budget income versus numismatic non-circulating coins that generate on-budget income. Granting your argument for the legality of path one, the result is a trillion in off-budget income. This is useful for self-financing the interest on the aggregate debt outstanding, it doesn’t, however, address the Federal Government’s base need, i.e., on-budget income.

                  You noted the Fed does not typically purchase numismatic non-circulating coins–the central bank isn’t a coin collector. Now, it would be cute if Bernanke took me up on my suggestion from the other day and purchased for himself a platinum necklace so when he buys the platinum (apparently numismatic) coin, he can drill a hole in it, attach it to the necklace, and wear it as an “I helped save the economy” medallion ;-) In all seriousness, I think it’s going to be difficult to argue the Fed should purschase a collector’s coin so the Treasury can generate one trillion on-budget income for self-financing. Even granting there is no legal obstacle, there isn’t precedence, and it will sound completely silly to everyone. The Fed is buying a trillion dollar collector’s coin from the Mint so the Treasury can finance Congressional spending? I don’t think this is how we want to sell the idea to the country.

                  Interestingly enough, JKH may have inadvertently uncovered the coin’s Achilles’ heel. The most likely route is for the coin to be struck as a circulating/numismatic circulating coin (even that sounds like a stretch given the coin won’t circulate), the problem is it only generates off-budget income.

                  I’ll be curious as to your thoughts in response as well as on my post below. A more viable path, perhaps?

                  Chris has a great show, btw. I haven’t seen it much since the election (or any other show on MSNBC). I did, however, enjoy it thoroughly as it approached. Living on the West Coast, his show begins a little early for Saturday and Sunday morning (5am). I am looking forward to this weekend.

                  • JKH January 11, 2013 at 4:22 am

                    Robert,

                    My own view is that the off-budget flow of funds treatment is quite suited to the immediate debt ceiling problem.

                    And I also believe this solution should be fully integrated with the Fed’s quantitative easing policy, as described in (my) other post.

                    This treatment provides the Fed with cover as a credible enabler of an emergency financing method, where it already has great skill in managing a similar monetary effect via the regular QE route. Yes – I understand that the timing of reserve creation is different from that of regular QE, but I think the point is that the end result is effectively the same when considered on an equivalent deficit period basis – and the reason for considering different reserve creation timing in this circumstance is that the budgetary financing requirement is urgent, and that the proposed solution is legal. I think this would provide full moral responsibility and legal cover for the Fed in responding to Treasury’s intention to deposit the coin.

                    Your concern with on-budget income is certainly valid, IMO, but seems geared more to longer term deficit optics.

                    My sense it that there may be both conceptual marketing challenges and pragmatic logistical challenges in attempting to kill two birds with one stone when responding to the immediate debt ceiling problem.

                    • Robert Rice January 11, 2013 at 11:12 am

                      JKH,

                      I may be suffering from a moment of obtusity, but as a matter of paying bills (not optics or politics), how is off-budget income, utilizable for interest payments only, sufficient to resolve the “budget crisis” in the short term or any term? It pays the interest, perhaps every penny of it, but doesn’t the deficit persist and hence aggregate outstanding debt continue to increase (which itself requires the debt ceiling to be raised in the short term)?

                    • JKH January 11, 2013 at 11:43 am

                      Robert,

                      Suppose Treasury deposits a $ 1 trillion coin with the Fed and that the coin is classified as circulating.

                      That means that the funds deposited with the Fed are off-budget.

                      That means that the inflow is not treated as revenue to the government.

                      In other words, it is not the equivalent of a marginal tax inflow.

                      These funds are treated as a source of financing (not revenue) for the government – an alternative to bond financing. The Mint itself is very explicit on that treatment.

                      It is as if the coin appears as a balance sheet liability on Mint books.

                      That liability is held as an asset by the Fed.

                      The Fed issues a $ trillion deposit liability to Treasury.

                      Treasury spends $ 1 trillion from that balance.

                      That creates the deficit as a budget effect, because by construction Treasury must be spending more than it takes in through taxes.

                      And it converts Treasury deposits at the Fed to bank reserves.

                      Interest payments have nothing in particular or special to do with this construction – they are simply an expense and contribute to the deficit at the margin.

                      So the budget is funded in the short run.

                      There’s no “crisis” in the short run, if the budget is being funded.

                      I think you’re getting at long run sustainability, which is not a debt ceiling issue.

                      It’s a deficit issue if it’s an issue at all.

                      This debt ceiling issue is just about funding the deficit in the short run – or it should be, IMO – not some notion of “sustainability” in the long run as a sort of hostage taking strategy.

                      And neither should it be a hostage taking strategy in respect of some vision of permanent and comprehensive funding of the deficit with bank reserves alone.

                    • Clonal Antibody January 11, 2013 at 12:18 pm

                      JKH and Robert,

                      If we take the MMT position that the Government creates money by spending and destroys money when it receives it as taxes or as payments, and that high powered money is a Government IOU, then a circulating coin would be a Government IOU. However, a numismatic coin would yield revenue to the government as a payment for a service rendered (supplying the platinum coin). So a circulating coin is technically creating new money, while a numismatic coin is draining money from the economy (Whether that is really true when the Fed buys it is a matter for debate)

                    • JKH January 11, 2013 at 12:34 pm

                      agree, MMT or otherwise in fact

                      the numismatic coin is sold in exchange for revenue, which is a marginal budget surplus (net of costs)

                      the circulating coin is used as a funding instrument (as an alternative to reserves, banknotes, or bonds), in order to fund a marginal budget deficit

                    • Robert Rice January 11, 2013 at 12:29 pm

                      JKH,

                      “Off-budget means that these funds cannot be used to reduce the annual budget deficit. Instead, they are used as a financing source (i.e., they reduce the amount of cash that Treasury has to borrow to pay interest on the national debt).”

                      If the off-budget funds cannot be used to reduce the annual deficit (it would need to eliminate it), the aggregate debt outstanding continues to increase, which is the reason for the needed debt limit increase. That’s how I read it. The Mint seems to indicate the off-budget funds are income usable to reduce the interest on the debt, only. It isn’t income than is treated like normal income. It seems you are reading the Mint’s comments of off-budget income more like off-budget borrowing. Issuing a platinum circulating coin allows the Treasury to generate seigniorage, which is treated like borrowed money that isn’t recorded on the Treasury’s balance sheet as a liability. It’s an alternative borrowing source without it “counting” as borrowing.

                    • JKH January 11, 2013 at 12:50 pm

                      “Issuing a platinum circulating coin allows the Treasury to generate seigniorage, which is treated like borrowed money that isn’t recorded on the Treasury’s balance sheet as a liability. It’s an alternative borrowing source without it “counting” as borrowing.”

                      I agree with that totally.

                      But the deficit is the same whether you issue bonds or a circulating coin.

                      That’s what it means for the coin to be off-budget.

                      By analogy, bonds are also off-budget.

                      But numismatic coins are on budget, meaning that they generate revenue net of costs which contributes a marginal surplus flow into the budget – i.e a surplus at the margin – the same as taxes at the margin

                      Worth emphasizing – the debt is not the deficit.

                      Debt is a financial instrument used in the flow of funds that finances the deficit.

                      The deficit is the difference between revenue (e.g. taxes; numismatic coins) and spending.

                      The definition of the deficit makes no reference to debt.

                      The funding of the deficit makes reference to debt.

                    • Joe Firestone (LetsGetitDone) January 11, 2013 at 8:55 pm

                      Absolutely, JKH. Admirably clear statement!

                    • Clonal Antibody January 11, 2013 at 12:50 pm

                      Robert
                      you said

                      the aggregate debt outstanding continues to increase, which is the reason for the needed debt limit increase.

                      Circulating coins (currently no limit on how many can circulate) and US Notes (subject to their own separate limit dating back to the US Civil War) are technically debt, but are not subject to the debt ceiling limit. The debt ceiling limit is very clear on the instruments it covers. The traditional way of Government financing is done through instruments that are covered by the Debt Ceiling Limit

                    • Robert Rice January 11, 2013 at 12:52 pm

                      JKH et al,

                      I’ve got to run to a few appointments over the next few hours. Running a business is inconvenient sometimes… We’ll pick up soon. Go grab some lunch!

                • Joe Firestone (LetsGetitDone) January 11, 2013 at 8:28 am

                  Philip, why return the coin? Why not just have the NY Fed keep it on its books for good?

                  • Philip Diehl January 11, 2013 at 8:56 am

                    I think you could, but from an optics and political perspective this is inadvisable.

                    It’s hard enough beating back suspicions that this is an unprecedented power grab by the executive of the congressional power of the purse. Of course, it is not, and I’ve had success arguing to open-minded but skeptical lay audiences that it is not. But they seem to relax on this point with the argument that TPC is a temporary exigency forced upon the Secretary by the (irresponsible) refusal of (radical) members of the House (GOP) to allow the Secretary to pay the bills Congress has already racked up, irrespective of the likely (disastrous) effects on the economy. (I insert the more pointed rhetoric depending on the audience and how much caffeine I’ve taken.)

                    For a similar reason, I think the off-budget route of the circulating option preemptive claims that TPC is a Trojan horse that will allow the government to expand deficit spending without restraint or wipe out the debt with 17 TPCs.

                    Discretion is the better part of valor here.

                    • JKH January 11, 2013 at 9:17 am

                      totally agree

                    • JKH January 11, 2013 at 9:19 am

                      sorry, with all of that – except that I didn’t get the meaning of the second last paragraph

                    • Philip Diehl January 11, 2013 at 9:58 am

                      JKH

                      “sorry, with all of that – except that I didn’t get the meaning of the second last paragraph”

                      One argument I’ve heard against TPC is that the law would allow the government to eliminate the debt, poof, by producing a bunch of the coins. Whatever the merits of this claim, the concern would seem to be legitimated if the numismatic option were used and the trillion dollar were on-budget, no?

                    • JKH January 11, 2013 at 10:12 am

                      That’s an argument to be aware of … and that goes to the presence of roughly two different groups that you may be getting feedback from here.

                      One needs to take a position with respect to that argument, and I think I know your position on it, and I agree with what I expect that would be.

                      But as far as operationalizing a possible debt elimination strategy is concerned, it looks to me that the on-budget or off-budget choice is moot just with respect to that dimension.

                      If Treasury/Fed creates open-ended platinum sourced balances in the TGA, and that is on budget, both the debt and the cumulative and current deficit can be eliminated.

                      If Treasury/Fed creates open-ended platinum sourced balances in the TGA, and that is off budget, the debt can be eliminated but the cumulative and current deficit remain.

                      The difference is that platinum balances in the second case become a funding substitute for the deficit, but without affecting the accounting for the deficit.

                      In the first case, the funding balances eradicate the deficit, as if they were tax surpluses sufficient to wipe out same.

                      Its an excellent point to highlight – because it points to the fact the the debt and the deficit aren’t the same thing.

                      Debt is a funding instrument for the deficit.

                      And so are platinum sourced TGA balances, if treated off-budget.

                      Debt is a balance sheet/flow of funds accounting measure.

                      The deficit is an income statement accounting measure.

                    • Joe Firestone (LetsGetitDone) January 11, 2013 at 6:59 pm

                      Exactly, and once the distinction is clearly made and accepted, then perhaps we’ll be able to make this framing stick: http://neweconomicperspectives.org/2012/12/government-financial-asset-addition-deficit-government-financial-asset-destruction-surplus.html

                    • Robert Rice January 11, 2013 at 10:37 am

                      So the position of some in an attempt to rebut the platinum coin is; it’s legitimate to pay off the national debt via increased taxes and lowered spending (how well has austerity worked around the world?) but it is illegitimate to pay it off via controlled, responsible money creation? Undoubtedly they would appeal to concerns over potential abuse of money creation and the possibility (nay, they would argue likelihood to certainty) of ensuing inflation, but as many (myself included) have argued, inflation doesn’t result from money creation in the midst of depressed economies, it raises demand and hence employment. It is the antidote, not the poison. Moreover, the potential for abuse is not an argument against authority given the same argument could be made against any form of authority (e.g., policing, waging war, collecting taxes, etc., etc., etc.), potential abuse is an argument for authority with accountability, i.e. checked and balanced power. We need accountable money creation, less paranoid delusions over a self-created debt crisis and inflation.

                    • Joe Firestone (LetsGetitDone) January 11, 2013 at 7:45 pm

                      PCS can’t be inflationary in itself! The argument, using Scott Fullwiler’s framework is here: http://neweconomicperspectives.org/2012/12/platinum-coin-seigniorage-issuing-debt-keystroking-deficit-spending-and-inflation.html

                    • Joe Firestone (LetsGetitDone) January 11, 2013 at 4:49 pm

                      Great answer! But you take discretion; and I’ll take valor. I want the debt off the table as a political issue. No more debt instruments issued and IOR by the Fed.

                    • Clonal Antibody January 11, 2013 at 6:01 pm

                      You said

                      One argument I’ve heard against TPC is that the law would allow the government to eliminate the debt, poof, by producing a bunch of the coins. Whatever the merits of this claim, the concern would seem to be legitimated if the numismatic option were used and the trillion dollar were on-budget, no?

                      Yes – if you eliminate the debt, you convert interest paying Treasuries for non interest paying money. You can do that whether you use the circulating coin, or the numismatic option. That depends entirely upon where the funds from self-financing will be used and where they come from. But the debt is really not eliminated, because $ coins and dollar bills are just as much of a Government debt as are US Treasuries. But Coins and Dollar bills are not considered to be debt in the popular mind set.

                      It is the Government’s decision whether it wants to provide “no risk,” interest bearing instruments to the public or not. Interest bearing instruments encourage personal savings – which allow for families and individuals to weather the ups and downs of personal life.

                      As a matter of fact, Government is the ultimate creator of money, and all constraints upon the power are voluntary. So my preference is for a $60T or a $100T coin – this lays out the way to an open discussion about what money is, and what it isn’t and what it should be doing for our country.

              • MRW January 12, 2013 at 6:16 am

                Who does the Mint maintain that the Treasury borrows the cash from? (If the Treasury can be self-funding.)

                “i.e., they reduce the amount of cash that Treasury has to borrow to pay interest on the national debt.”

                Thank you.

    • JKH January 10, 2013 at 5:24 pm

      so I’d guess the differential treatment on Mint books does not necessarily determine a corresponding differential treatment on Treasury books

      who knows but you – the differential treatment on Mint books may have had something to do (indirectly if at all) with executive compensation at the Mint
      :)

      • Philip Diehl January 10, 2013 at 5:58 pm

        Ha! I wish. Net “profits” (circulating and numismatic) my last year were $2.6 billion so a performance bonus based on a very small percentage of our ROI would have me writing from a villa in Tuscany now.

        • JKH January 10, 2013 at 6:06 pm

          sigh … that’s the way it goes

          but that may only be because Treasury treated your operation’s profit contribution as substitute for debt funding rather than tax revenue

          (I’d go back to them if that’s not the case)
          :)

  • wh10 January 10, 2013 at 2:01 pm

    Eric Posner (son of Richard Posner, http://www.law.uchicago.edu/faculty/posner-e) says the coin is too legally and politically risky for Obama and that he should instead “rely on his emergency powers or on his inherent administrative authority to borrow money” instead of choosing default. I think he makes a good argument.

    http://www.slate.com/articles/news_and_politics/view_from_chicago/2013/01/the_platinum_coin_poses_a_risk_of_impeachment_for_president_obama.html

    • Philip Diehl January 11, 2013 at 2:01 am

      The Posner article in Slate is riddled with holes. I’ll get to it later today. Maybe I can persuade Slate to give me a rebuttal op..

      • wh10 January 11, 2013 at 9:09 am

        That would be excellent. Go for it!

        • Philip Diehl January 11, 2013 at 9:41 am

          I have a request in to Slate to give me a chance to respond.

    • Philip Diehl January 11, 2013 at 9:51 am

      Richard Posner, the Dr. Evil, Esq. genius who launched the deregulatory meme that devoured all skepticism about concentrated economic and political power and spread throughout the economy to finally set up the 2008 financial collapse? That Richard Posner?

  • Robert Rice January 11, 2013 at 12:55 am

    Philip,

    Let’s recap for the sake of focus and progress:

    You’d inquired as to whether there is any manner in which seigniorage on a quarter is distinct from seigniorage on a platinum coin. My response concentrated on the difference between the how and the why behind each path to seigniorage, noting the how/why platinum path would need legal/historical precedence itself, it being a distinct how/why path from the current Mint/Fed and Mint/collector operations, while offering possible rebuttals to this distinction, some of which you echoed, and which would render, if sound, the distinction without substance. I believe if you and I were to delve into the minutiae more minutely, we could settle that discussion with utter clarity, detail, and agreement. The thought is tempting. However…

    I happen to have this trusty crystal ball handy–and trust me, crystal balls are handy–and after consulting with the mediums, who were gracious enough to provide me a glimpse into the parallel universe where you and I do pursue that route, our fortune foretold days of mutual, lengthy, written labor. It was at this point it occurred to me there is a more efficient manner to get to an answer on whether coining to deposit to enable self-finance has historical, legal precedence supporting it, which is after all the principal concern. And since I’m certain we are both interested in efficiency, I figured you’d understand and oblige.

    In which case, here’s the efficiency focused question: If coining to deposit for Federal Government self-finance does in fact have legal/historical precedence, why isn’t the Treasury already creating coins and depositing them into its General Account to fund Congressional spending? Why hasn’t it be doing this all along? I am not aware of this particular practice occurring certainly in recent history. I realize there are restrictions on the type of coins as well as their value, which, when considering resources, may tie the Mint’s hands. I also realize the platinum coin law is a relatively recent addition (its official name, per yours truly, is Philip’s Platinum Coin Code). The fact that there are these restrictions, as well as the fact a law like the PPCC is relatively new, suggests to me minting to deposit to fund self-finance has not been a recent practice whatsoever. In fact, based on JKH’s quite perceptive idea of looking at the 2012 Mint Report, money generated from seigniorage is specifically kept off-budget. It is as though the Treasury is purposely avoiding generating income via seigniorage that can be used for general spending (this begs the question of whether selling certain kinds of numismatic coins for a profit should be regarded as seigniorage; “profits” are kept on budget… avoiding the imprecise language rabbit trail though, as you catch my drift). This leads me to believe there is counter-coin precedence; a concern indeed. The true adventurer though is not disuaded by the risk of the rocky path lying ahead. What sayeth our longer term history? It may reveal more supportive evidence.

    And indeed, there is hope for self-finance yet. I’ve mentioned this elsewhere on this site with mixed reviews, but our Union has used self-finance before, not so much with coining (that I’m aware of), but in the form of paper currency. For example, Continentals and U.S. Notes were utilized to fund the Revolutionary and Civil Wars, respectively (the former assisted with funding, utilized along side Red Giant sized borrowing, the latter, from what I gather, was the primary source of Civil War funding). So as a country, we do have some historical and legal precedence (U.S. Notes were reviewed in the Legal Tender Cases and found Constitutional) for creating money to self-finance. It doesn’t appear this self-finance was funded much from coining though, and this makes perfect sense. Metal resources were difficult to come by in sufficient quantities, paper currency was much easier to generate for spending, and a platinum million, billion, trillion dollar coin in yester-year did not exist in a monetary system with computers, and hence lacked an easy path to necessary liquidity, which if coined and deposited in times past, would have required paper currency anyway.

    The question of Constitutional authority to self-finance remains open, but I do believe there is significant evidence of self-finance both historically and legally via paper currency. We do not need to utilize paper currency per se to self-finance; frankly it would cost the government less to coin platinum trillions than to print currency (unless maybe it printed a trillion dollar note rather than a million, million dollar notes), or even better, an order from Congress compeling the Fed to mark up the Treasury’s General Account held on a computer so materials aren’t used at all. I think an argument for self-finance can be made historically and legally, and most importantly theoretically. As I wrote yesterday, law should reflect and support good theory. For now though, a good legal, historical argument would be most helpful. I think we should all focus on identifying and developing this. You never know, the Federal Government might just appreciate a little help from the citizenry.

    Hi ho, hi ho.

    • Philip Diehl January 12, 2013 at 2:50 am

      Robert,

      I’ve finally had a chance to turn to this post and at 3:00 am, I know I won’t be able to do it justice with a full response, but I’ll hit a few points.

      I think the small denominations of US coins are an insurmountable barrier to self-financing on a large scale, so much so that if anyone conceived the idea, they wouldn’t have pursued it. Yes, you could produce and store billions upon billions of dollar coins, but it would take many years to mint enough of them to matter, there wouldn’t be enough space in all the Fed vaults to store them, and the cost of production and storage would probably exceed the cost of debt financing.

      However, I know of examples of seigniorage being used for micro self-financing. During the days of pay-go, I would shop coin program ideas to my allies on the House appropriations subcommittee offering the program’s seigniorage as a way to pay for some expenditure on their agenda. If I recall correctly, we did this with the 50 State Quarters program, which I think was scored high enough to generate real interest.

      Another, more complex, example comes to mind. As part of our remaking of the Mint, we asked our appropriations committee to allow us to operate from internal earnings, which would also allow us to escape the appropriations process. Treasury laughed at the fool’s mission of asking appropriators to give up the power of the purse. But the appropriators agreed for a number of reasons, one of which is relevant here.

      By removing us from their appropriations, they “freed up” our appropriations for other purposes. Then we took a portion of our seigniorage to replace the “lost” appropriations, thereby indirectly self-financing whatever it was they funded.

      Pay-go made transparent the self-finance side of coinage and the purposeful intent of Congress to use coinage in this way. As I’ve said, this little wrinkle was not invented in the late 20th century. I think it’s part of the DNA of coinage probably since the earliest coins were struck by a caesar or king looking to line his treasury.

      We are only now discovering it because the PPCC (thanks!) and its progeny, the TDC, have led us to rediscover it.

    • Nathanael January 13, 2013 at 10:53 pm

      “why isn’t the Treasury already creating coins and depositing them into its General Account to fund Congressional spending? Why hasn’t it be doing this all along? ”

      The banking lobby (formerly known as the “Money Trust”), and a bunch of right-wing economists, have discouraged the government from doing it.

      Look up your history. That’s the only reason why it hasn’t been done.

  • Philip Diehl January 11, 2013 at 9:06 am

    I have also made the case in interviews that TPC will neutralize this debt limit hostage-taking business in the future by revealing to the gunman that his weapon has no rounds in the chamber. Then, after the passage of some time, an agreement could be struck in which the TPC law is revised in exchange for the reform or repeal (good luck with that) of the congressional debt limit process.

    If I’m reading you all correctly, I suspect some of you wouldn’t want to bargain away the future use of the TPC option in this way.

    True?

    • JKH January 11, 2013 at 9:15 am

      probably

      but “some of you” is definitely not all of us, particularly given that it’s an option that doesn’t expire until exercised and free at least in that sense

    • wh10 January 11, 2013 at 9:20 am
      • Philip Diehl January 11, 2013 at 9:40 am

        Good to know.

      • JKH January 11, 2013 at 9:47 am

        that’s what I agree with, if it wasn’t clear

      • Tom Hickey January 11, 2013 at 10:27 am

        But no deal can bind future Congresses, just as no law can prevent future Congresses from changing it. The US needs to design a better moron filter if this kind of idiocy is to be fixed permanently.

        That means an educated and informed public, which involves reforming the educational system and media. Canada actually has a law against lying on the air, which effectively keeps Murdoch out.

        • Robert Rice January 11, 2013 at 10:55 am

          Exactly, Tom.

          I think Cullen’s personal animosity against MMTers is largely motivating his argument for the status quo, i.e., funding Federal Government spending from bond auctions and taxes/fees only. The economic theory underlying the platinum coin, or any other money instrument created for Federal Government self-finance, is sound. Why he isn’t out beating that drum is revealing. Instead, it’s “that’ll never happen” and “let’s be realistic” (right, because good arguments should be secondary to accommodating false beliefs…). Self-fulfilling prophecy if you hold that position. I hold the position similar to that held during the Civil Rights era, or the Revolution, or you name it. Progress, against all odds, can and should be made.

          • Cullen Roche January 11, 2013 at 12:14 pm

            Robert,

            The reason I am not out “beating the drum” on this has zero to do with my mythical “animosity” towards MMT and self financing. By the way, I know MMT has tried to claim the coin idea was theirs all along (as if someone owns a law in the USC, ha), but NO ONE has beat the drum on the coin more than I did. The ONLY reason it’s mainstream is because of Joe Weisenthal. And the ONLY reason Joe knows about it is because he reads Pragcap and talks to me very regularly about things like the monetary systme. So this idea would have never caught on if I hadn’t been banging the drum on it in 2011. So please stop with the pity party about how I am not contributing to the idea.

            I don’t advocate for changing the system through MR’s platform. MR is not a platform for a progressive agenda. It is a description of the way the monetary system is designed. I’ve been very clear about this. I don’t know why the rest of the world feels as though it’s impossible to create a clear distinction between what is and what can be.

            The current system is designed in a manner that disperses power away from the govt in terms of money creation. So, the current design places the banks in the lead money issuer role and establishes the govt as a user of bank money. That’s just the way it is. That’s totally in keeping with most things in our monetary system and govt in terms of checks and balances and capitalism. It shouldn’t be that controversial. It could change. If it does change I’ll have to revise the MR owners manual. So what?

            Not sure why you think it’s personal or why you think it’s political. Those are just bad excuses for misunderstanding my position.

            CR

            • Robert Rice January 11, 2013 at 12:49 pm

              lol, yes, I was sobbing incessantly, Cullen, in my personal pity party.

              I appreciate the clarification on your position, and for any undeserved attribution, my apologies. I do not find the excuse of advocating to keep things they way are because they are already this way particularly persuasive (a circular, question begging argument). Some scientists at least allege objectivity for their reason to keep themselves free from discussions of should and ought. I think their presupposition that objectivity and possessing convictions are mutually exclusive is self-refuting nonsense. After all, are they not convicted the two should be kept separate since they are “mutually exclusive”? These folks are more concerned with appearances and avoiding false accusations. Ultimately, the way things currently are affects you, me, and everyone else, sometimes quite negatively (British imperialism, slavery, genocide, general injustice, ad nauseum). There is always a way things should be, which none of us should ignore.

              Come out of the bubble, Cullen, it is quite comfortable out here ;-)

              • Cullen Roche January 11, 2013 at 12:55 pm

                I don’t “advocate” for keeping things the way they are. I just don’t use my website as a way to promote a policy agenda. I don’t think it’s my responsibility to try to push for change through what has become a very public forum that is disseminated to millions of people monthly. I help people better understand the world we have. What they do with that understanding is up to them. I don’t think it’s remotely fair for you and other MMTers to constantly attack me for taking that stance.

                • Robert Rice January 11, 2013 at 1:08 pm

                  I’m not an MMTer, Cullen. I cannot generally stand those people. Call my beliefs “Rice Theory” if you need to give it a name. And as you well know, I do not agree with them on some important issues. In fact, one of the principal arguments against their position that I have made (money is not destroyed when taxes are collected… money is recycled), you have co-opted, at least the money is not destroyed portion (perhaps not the language I’ve used to frame it).

                  And your article does advocate for keeping things the way they are by eliminating the “platinum coin loophole,” a potential source of Federal Government self-financing. And you have written elsewhere self-financing is at best a pipe dream, and we should simply stick to the status quo of borrowing indefinitely to fund deficit spending. Advocating by any other name is still advocating.

                  I don’t have time now for this. I’ll be back soon, should you wish to continue. As I see it, I’ve made my argument, and we are getting off topic. If you want to respond to that, okay, I’m all eyes, but I honestly don’t see where this is going.

                  • Cullen Roche January 11, 2013 at 3:53 pm

                    Why do you even care what I am an advocate for or not for? Maybe you and the MMTers should start spending a bit more time selling your ideas based on their merits and a lot less time attacking other people for the positions they hold. Your approach, like theirs, is combative, offensive and counterproductive. A lot more people will listen if you don’t attack people and instead sell your own ideas on their own validity. If you’re right, people will listen to your message. If you insult people, they will listen, but not to the right part of your message. Personally, I have no idea what “Rice Theory” even is because all you do every time we interact is insult me or leave some message about how busy you are and how you’re too important to be able to take the time to respond or some other semi-condescending message….

              • Joe Firestone (LetsGetitDone) January 11, 2013 at 8:53 pm

                Didn’t Voltaire have something to say about this disagreement?

        • Philip Diehl January 12, 2013 at 12:19 am

          We’ll have to figure out a way to work it into a reality TV show and People magazine stories. Like hiding medicine in Fido’s dog food.

          True, that one Congress can’t bind another Congress. But after these two debt limit fiascos, it will be damn tough to get a debt-limit-process reform repeal 60 votes in the Senate then muster the votes to override a presidential veto.

        • Philip Diehl January 12, 2013 at 1:22 am

          As a progressive, I am chagrined to discover I am a small baller. I have been told otherwise in the past. :-)

          I have been guilty of taking the narrow view of using the TDC to neutralize the debt limit threats, permanently, more out of ignorance of the alternative than consideration of the merits. That said, my initial reaction is that this approach would be a very tough sell politically. In my considerable experience now with the media re TDC, I’ve avoided this issue by noting, as you do, that the coin would never leave the Fed’s vaults and that it would be returned to the Mint and the trillion dollars removed from the TGA once the debt limit was raised. This has left me on the high ground.

          I understand that changing political mind-sets takes strong advocacy, time, and the cooperation of events, and in the fullness of time perhaps the political realities I see (maybe I’m mistaken) will change and open up to PCS as a means of fighting the let’s-bleed-the-patient austerity types. (Is it a myth that that’s what killed Washington? There’s an allegory for our day.) But of course, that day will come too late to deal with the current crop of quacks who prescribe bleeding.

          I have a question re the inflation argument. When Treasury spends a trillion dollars derived from PCS to pay the bills, isn’t this equivalent to putting an additional trillion one dollar bills on the street, irrespective of the fact that the TDC sits in the Fed vaults? And isn’t this different from deriving those funds by issuing debt, where one trillion dollars that is already in the economy is cycled through Treasury and back again as the bills are paid, in a zero-sum process?

          Thanks for bearing with my plodding through this.

          • Clonal Antibody January 12, 2013 at 1:07 pm

            Philip,
            Would have loved to see you on Chris Hayes. Stephanie did partially address this issue. But of course was not allowed to complete her argument. Stephanie and Joe did a great job. The other side did not know what they were talking about, but that is current mainstream thinking – which is what we have to overcome.

            The video can be seen here

            There has been a lot of stuff written at the New Economic Perspectives blog by both Joe Firestone and Stephanie Kelton. Of course also at Cullen’s site and here at Monetary Realism.

            • Philip Diehl January 12, 2013 at 1:35 pm

              Thanks. My ego is shattered by being bumped. If only it had been for Krugman I could have survived it. :-(

              • Michael Sankowski January 12, 2013 at 2:05 pm

                Well, they did quote you at least! Stephanie and Joe did a great job.

                • Philip Diehl January 12, 2013 at 2:26 pm

                  Yes, that’s a pretty good consolation prize. I’ll pour a couple fingers of Oban tonight and watch the show, then I’ll be alright.

              • Cullen Roche January 12, 2013 at 2:26 pm

                It could have been worse. You could have been bumped for Greg Walden who obviously knows nothing about all of this, but initiates a bill based purely on ideological grounds.

                This debate will continue and you’ll continue to be an important voice in it.

                • Michael Sankowski January 12, 2013 at 2:32 pm

                  It’s true. The work you’ve done here with JKH on the accounting treatment will be the subject of papers a few years down the road.

                  How does it work when the government mints money? What does minting or printing really do in the accounts at the fed? How must it work given the existing legal structure? What are the implications for the larger economy?

                  These questions had not been examined closely, at least not in the last 50 years. Let’s face it – someone who is working at the mint or fed is probably reading through this to help them think through what needs to happen.

                  Thank you for all of the work and insight. :)

                • Philip Diehl January 12, 2013 at 2:43 pm

                  Ha! Yes, that would have been worse.

                  Walden is a good opponent in some ways in that he is so worthless in making the other side’s case. But for the sake of a more edifying conversation to educate policy makers and the attentive public re TDC and PCS, an opponent who brought a bit more game would be good.

                  In days past conservatives offered the country the intellect of William Buckley. Today, it’s William Kristol, a sign of how far they’ve fallen.

          • Joe Firestone (LetsGetitDone) January 12, 2013 at 3:52 pm

            Well, it seems like a post-mortem now, because the President has destroyed our momentum; but I don’t think the politics of a very big coin would have been very difficult as long as the President would have used the seigniorage to pay down the debt while making a strong drive to pay it off as it falls due. He would have been very popular for doing that because the American people, not understanding that the debt instruments are just like savings accounts at a bank, hate the debt. So, as soon as they got used to the idea of having money set aside to pay the whole debt, and an additional $43.6T to cover any new debt incurred for deficit spending over the next 15-25 years, they would have found this no need for austerity situation much more comfortable than the one we have now. I have a speech about that the President could make at the end of this post: http://neweconomicperspectives.org/2013/01/4244.html

            An orator like Obama, with this kind of speech, his mailing list, his support among the progressive veal pen organizations, and some of the blogs, along with strong action to take care of the debt, could make minting a $60 T coin a great political success.

            Again, the demand-pull inflation issue is handled in this post: http://neweconomicperspectives.org/2012/12/platinum-coin-seigniorage-issuing-debt-keystroking-deficit-spending-and-inflation.html I think that a TDC coin would be used to redeem bonds the Fed is holding. So the $1 T wouldn’t go into the private economy. New deficit spending would then occur using debt. So, there would be no inflation issue.

    • Clonal Antibody January 11, 2013 at 10:32 am

      Another major purpose of the TPC is to demonstrate that inflation is the only constraint on the ability of the Federal Government to spend. The TPC use as currently envisaged will not produce inflation. Just as QE did not. So ultimately the idea is to weaken the hands of the deficit hawks, and strengthen the hand of the deficit doves, and hopefully bring the deficit owls into mainstream thinking.

      • wh10 January 11, 2013 at 10:43 am

        That’s why part of me wants to see TPC. Although, it’s likely that the Fed would sterilize anyways, so you won’t be able to prove your point.

        • Philip Diehl January 12, 2013 at 10:49 am

          I don’t understand why the Fed would sterilize (I think I know what this means) if they had ordered the coin. The only way PE happens is if the Fed orders the coin and the Mint ships it. It would have to be a coordinated response between the Fed and Treasury, I think.

          • wh10 January 12, 2013 at 1:22 pm

            I am saying The Fed would sterilize, at some point in the future (meaning, sell bonds to soak up reserves/deposits created from the govt having used the coin), because they would fear it would be inflationary. That doesn’t mean it *actually* would be inflationary. I am just saying they likely will sterilize because that’s the way the mainstream economic community thinks. I’ve also read prominent economists, like Krugman, suggest they could and probably would sterilize at some point.

            Some of us here believe that the inflationary impact of printing without bond sales is way over-stated, so using the coin without sterilization would be a grand experiment to prove this point.

            • Philip Diehl January 12, 2013 at 1:29 pm

              Ok, I get it. I was missing the “at some point in the future” as opposed to immediately. And I suppose any risk of inflation due to the experiment could be addressed by withdrawing the TDC or replacing it with a smaller denomination DC and reversing the accounting.

      • Philip Diehl January 12, 2013 at 10:44 am

        But is this contingent upon the economic context of the policy, QE or PE? In other words, QE has not increased inflation in the Great Recession and its aftermath, but would the same be true of QE/PE when growth is stronger?

    • Joe Firestone (LetsGetitDone) January 11, 2013 at 6:06 pm

      Not me. I never swap something for nothing. If I have PCS; why do I need to have repeal of the debt ceiling? Now, what I want to do is use the seigniorage to repay the debt and get it off the table. Why should I care a damn about the debt ceiling!

      • Philip Diehl January 12, 2013 at 1:33 am

        I see your point about giving up something for nothing, except that I think we do get something in the bargain. By removing this debt limit brouhaha from the table we can move on to other things like immigration reform, gun control, drug law reform and other items on the progressive agenda that have merit on their own terms but also have the virtue of being wedge issues to drive into the fault lines of the GOP.

        • Joe Firestone (LetsGetitDone) January 12, 2013 at 3:30 pm

          Again, the debt limit brouhaha is over if we mint a really high value coin and then pay off the Inter-agency and Fed debt in a few days. That takes us to $10 T in debt subject to the limit, nearly 40% than now. So, debt limit over. We can move on to the issues you mention!

  • Clonal Antibody January 11, 2013 at 10:39 am

    JKH

    Debt is a balance sheet/flow of funds accounting measure.
    The deficit is an income statement accounting measure.

    A very important point, and relevant to my 10:32 comment

    • Clonal Antibody January 11, 2013 at 10:43 am

      Sorry took the wrong quote out. The relevancy is in

      If Treasury/Fed creates open-ended platinum sourced balances in the TGA, and that is on budget, both the debt and the cumulative and current deficit can be eliminated.

      If Treasury/Fed creates open-ended platinum sourced balances in the TGA, and that is off budget, the debt can be eliminated but the cumulative and current deficit remain.

      • Joe Firestone (LetsGetitDone) January 11, 2013 at 6:31 pm

        Don’t care about the deficit being gone; only the debt so Pete Peterson has to shut up about our grandchildren.

        • Clonal Antibody January 11, 2013 at 7:55 pm

          Yes you don’t want the deficits to go away, as cumulative federal deficits = private sector NFA — The deficits going away would be severe austerity – unless of course all the losses are absorbed by the FED – which is possible but would raise political questions.

  • Robert Rice January 11, 2013 at 7:15 pm

    JKH,

    I don’t find myself reading the Mint’s comments in the same manner as you. I’d like to try and sort this out. Do you know of any resource which defines in more detail what you’ve indicated?

    Thanks in advance.

  • Oilfield Trash January 11, 2013 at 7:20 pm

    The discussion on this issue is simply amazing; this web site has turned into a 21st version of a Revolutionary Tavern in colonial America. The founders of MR should grinning ear to ear.

  • Philip Diehl January 11, 2013 at 9:51 pm

    FYI all, I arrived in NYC tonight to a call informing tomorrow’s segment on Chris Hayes’ program has been cancelled. So I will remain incognito and my friends will gratefully sleep in.

    What a pain in the ass.

    • Clonal Antibody January 11, 2013 at 10:12 pm

      It would have been good to have seen both you and Stephanie Kelton on UP with Chris Hayes. I am presuming that the entire segment on Mint the Coin has been cancelled.

      • Philip Diehl January 12, 2013 at 12:01 am

        That’s what I heard, but I’m not certain that’s the case. Maybe they bumped me in favor of Krugman. I would.

        • Cullen Roche January 12, 2013 at 12:37 am

          Philip,

          You might enjoy this interview I did with CBC where Greg Walden comes in in the second half. Fast forward over my stuff to the second half and hear how little he actually understands about all of this….It would be funny if it wasn’t so sad.

          http://www.cbc.ca/day6/popupaudio.html?clipIds=2324866945

          Cullen

          • Philip Diehl January 12, 2013 at 1:42 am

            Thanks. I’ll view it when I get home. My apple mobile devises don’t support flash.

            Is this an exchange between you and Walden or are you two in series.

    • Michael Sankowski January 11, 2013 at 10:20 pm

      Ugh. I hope you get to at least have a good time while you are there.

      • Philip Diehl January 11, 2013 at 11:58 pm

        My entertainment tonight was a 40 minute discussion of TPC on a conservative talk radio program on SiriusXM. Fun but not Chris Hayes-level fun.

  • JKH January 12, 2013 at 9:40 am

    RESPONSE to “MRW’:

    http://monetaryrealism.com/obama-will-be-forced-to-issue-the-coin/#comment-14012

    Question:

    Who does the Mint maintain that the Treasury borrows the cash from? (If the Treasury can be self-funding.)

    “i.e., they reduce the amount of cash that Treasury has to borrow to pay interest on the national debt.”
    ……….

    Answer:

    When Treasury issues a circulating coin produced by the Mint, the difference between the face value of the coin and the production cost of the coin is defined to be seigniorage.

    The seigniorage component becomes a source of financing for Treasury – as an alternative to funds raised through bond financing for example

    And actually, the entire face value is a source of financing. But production costs for the coin are a budget expense. So we can net out the production cost component of the face value – as a source of financing that is required to cover the expense associated with producing the ‘thing’ which is the instrument of financing. The financing component that funds the production cost would not have been necessary if the coin had not been produced and used in the first place.

    So, dealing now with the seigniorage component of the coin as a source of financing:

    Now, both bonds and coins are financing instruments that enable Treasury to deficit spend (under current rules). And therefore, the seigniorage component of coins enables Treasury to deficit spend – just as would have bonds.

    But there is a secondary effect on the deficit – which is the comparative effect on interest expense, since interest expense is a marginal contributor to future deficits.

    Treasury has issued coins paying no interest – instead of bonds paying interest.

    On the basis of that sort of comparison, the use of circulating coins reduces future deficits from what they might have been, relative to the interest expense that might have been incurred using bond financing instead.

    This is an opportunity cost/benefit type of measure. In that sense, it is a somewhat subjective, although pragmatic measure of the budget impact of the seigniorage benefit. But this is still only real world comparative measurement basis on which the effect of seigniorage can be translated to an effect on the deficit in the case of circulating coins.

    I.e. the upfront present “value” of seigniorage – expressed as the difference between face value and production cost – really has no financial meaning on its own, in the sense of an impact on the budget and the deficit.

    So:

    “i.e., they reduce the amount of cash that Treasury has to borrow to pay interest on the national debt.”

    … means that using coins as a financing instrument reduces the future deficit cost of the interest expense (which is a cash cost) that would have been incurred had Treasury issued bonds instead of circulating coins as the instrument of financing for the deficit

    • Philip Diehl January 12, 2013 at 10:37 am

      Exactly. I think we can say that seigniorage is a twofer: you get an interest free loan for the life of the coin (typically 30 years or so; forever if it’s never returned to the Mint) and you have new receipts to spend that do not count against the debt ceiling.

  • Fed Up January 12, 2013 at 12:33 pm

    Hey guys, why not ask bernanke on January 14, 2013?

    http://www.fordschool.umich.edu/events/calendar/1447/

    Chairman Bernanke will also take questions from the audience and from Twitter.

    Join the conversation on Twitter: #fordschoolbernanke

    • Philip Diehl January 12, 2013 at 1:22 pm

      Hmmm. Good way to continue the buzz though we don’t want to create an opportunity for him to throw cold water on the TDC. But it would be interesting to see if he takes the same tack Jay Carney has ttaken over the past week or so.

      • Fed Up January 12, 2013 at 3:15 pm

        The economy seems to be set up so all NEW medium of exchange (MOE) & medium of account (MOA) have to be “borrowed” into existence using the hedge fund/banking model. Why???

        • Nathanael January 13, 2013 at 10:50 pm

          In order to give money to evil bank CEOs.

          Seriously, that’s the purpose. Look up the history.

    • wh10 January 12, 2013 at 2:51 pm

      Wow. I wonder what their reasoning is on why it cannot be used.

    • Philip Diehl January 12, 2013 at 2:51 pm

      Yep. Game over. For now.

      It’s going to be damn interesting to see how the President intends to back up his statement that he won’t negotiate over the debt limit. To paraphrase Reagan, “Where’s the leverage?”

      If wishes were horses…

      • Clonal Antibody January 12, 2013 at 3:06 pm

        Very likely, the Fed baulked, as it would considerably weaken the power of the Fed vis a vis the Treasury. Very likely many in the Fed did not want to have a replay of the times before the Fed/Treasury Accord. And very likely there would need to be much negotiations on the limits of the powers – as has been suggested by Mike and JKH in their new posts.

        • Philip Diehl January 12, 2013 at 3:14 pm

          I agree. And they needed to preempt it now because we had succeeded in creating more momentum than anyone would have expected.

          BTW, several days ago I received a phone call from a very high official at Treasury who wanted to talk. This came after I sent a brief over making the case. I have little doubt it was about the TDC, but we missed connecting a couple of times and then he went silent. I sort of expected a request to back off, but who knows.

          • Joe Firestone (LetsGetitDone) January 12, 2013 at 3:22 pm

            Well, that means we shook the system a bit! Time to keep pushing on it and posing it as an anti-austerity measure. It can be done anytime, not just as a response to the debt ceiling!

          • Clonal Antibody January 12, 2013 at 4:13 pm

            Let us see how Greg Walden’s bill proceeds through Congress. This will tell us much about how the political cards lie.

            Joe – you have to keep the pressure up. We still have to build up the populist wave around the HVPC and from there to creating money for the Public Purpose.

            • Joe Firestone (LetsGetitDone) January 12, 2013 at 4:52 pm

              Don’t worry clonal, I’ll be on the line tomorrow at all my usual haunts. I’m taking the evening off tonight thought! All work and no play makes Joe a dull boy!

            • Philip Diehl January 12, 2013 at 9:10 pm

              I think that bill or one like it will probably move in the House and be attached to a vehicle to send it to the Senate. I’m not sure what happens there. It might depend on enlisting a liberal on the Banking committee (Warren? But she may not be ready to take on such a controversial issue so soon) to slow the bill down. If the bill stalls, we might have a shot at generating an educational debate around the TDC and PCS. But unless the Senate Dem leadership resists, I’m pessimistic a bill can be stopped.

            • Clonal Antibody January 12, 2013 at 9:28 pm

              Tim Duy has an interesting take on this – On The Disruptiveness of the Platinum Coin

              “The platinum coin idea was ultimately doomed to failure because neither the Federal Reserve nor the Treasury could allow for even the remote possibility it might be successful”

        • Joe Firestone (LetsGetitDone) January 12, 2013 at 3:26 pm

          The Fed can be forced to cooperate. The coin is legal tender. The Fed has to accept and credit it. It doesn’t have the option to go to Court because the Fed law says that in cases of disagreement between the Fed Chair and the Treasury the Secretary’s view shall prevail. So, if Obama backed off this, it was his choice. He has the responsibility. He is to blame. We shouldn’t allow him to place this on the Fed!

          • Philip Diehl January 12, 2013 at 9:01 pm

            I don’t think so. I think it’s in their sole discretion whether or not to order the coin. And if the coin isn’t ordered it can’t be shipped and booked by the Mint. The plan depends on the cooperation of Treasury and the Fed.

            • Nathanael January 13, 2013 at 10:52 pm

              Wrong. The Treasury can mint whatever coins the Treasury Secretary wants, regardless of what the Fed suggests.

              Furthermore, the Treasury can force the Fed to accept any and all coins as payments for expiring T-bills and T-bonds. That’s what legal tender means.

              Yeah, that may be unconventional… but it works.

              • Philip Diehl January 14, 2013 at 12:53 am

                No, the Treasury (Mint) can produce only the coins specifically authorized by law and must do so to the precise specifications expressly stated in the law. These specs are remarkably detailed. That’s what makes the platinum coin provisions so unique: they give the Secretary total discretion regarding the specs.

                As to your second point, the Treasury cannot force the Fed to order a coin. (Even if they had the authority to do so, in the real world, they wouldn’t.) If the Fed doesn’t order the coin the Mint would not, maybe could not, ship the coin to the Fed. If the Mint doesn’t ship the coin to the Fed, the seigniorage can’t be booked and transferred to the TGA.

                The bottom line is that the Fed and Treasury have to be on the same page for the TDC plan to work.

      • Joe Firestone (LetsGetitDone) January 12, 2013 at 3:10 pm

        Folks, he can still use consols!

  • Joe Firestone (LetsGetitDone) January 12, 2013 at 3:35 pm

    I’ve written on it too. here’s my post. It applies to any face value coin TDC, $100 T, Quadrillion: http://neweconomicperspectives.org/2012/12/platinum-coin-seigniorage-issuing-debt-keystroking-deficit-spending-and-inflation.html

    It’s based on Scott’s framework. Stephanie hasn’t written about it explicitly and only covered it briefly in the Hayes vids

  • Ramanan January 12, 2013 at 3:37 pm
    • Cullen Roche January 12, 2013 at 4:00 pm

      I think the Fed would have substantial legal backing in refusing the coin though I am surprised they announced this BEFORE the debt ceiling fight. I would have thought they’d wait and at least bluff on it (though I didn’t think this would ever actually be implemented). If this shows anything, it shows that the Fed is not part of the US govt. It’s a strange hybrid entity that can keep its distance when it so chooses….

      http://jpkoning.blogspot.com/2013/01/would-bernanke-accept-trillion-dollar.html

      • Michael Sankowski January 12, 2013 at 10:52 pm

        That’s an interesting post. I had seen that the other day – it’s the only legal argument that has any merit. We should reach out to JP.

        • Philip Diehl January 13, 2013 at 10:54 am

          If anyone’s interested, I could write a brief debunking this argument, but otherwise, I’m not particularly inclined because the merits are so weak it wouldn’t be very interesting to refute them.

          • Clonal Antibody January 13, 2013 at 11:42 am

            I think that this would be worthwhile. It is well worth squashing down the meme that “the Platinum coin law was meant only for commemorative or collector’s coins, and was not meant for circulating coins.”

            • Philip Diehl January 13, 2013 at 12:29 pm

              That issue I’ll addressing in the paper whose opening section I posted here this morning.

      • Philip Diehl January 13, 2013 at 10:49 am

        Take my word for it, this piece is so riddled with factual errors, starting with the fact that the law nowhere refers to the platinum coin as being either a “commemorative” or a “collectible” coin and that the law’s intent was not to authorize a commemorative coin, that it is virtually worthless.

        That said, I believe the Fed has full discretion to refuse to order or accept delivery of the TDC. But the basis for this discretion has nothing to do with the arguments made in this piece.

        And, yes, the Fed is, and was created as, a different kind of government agency, a quasi-independent agency. It has evolved over time to become a quasi-independent agency on steroids. This evolution has been the result of the expansion, complexification, if you will, and globalization of the US economy and repeated failures of Congress and multiple presidents to effectively manage the nation’s fiscal policy.

        As a consequence, the Fed has become something resembling a fourth branch of the government.

        • Joe Firestone (LetsGetitDone) January 13, 2013 at 11:21 am

          Clearly, a 4th branch of Government is unconstitutional! Of course, standing is a problem as Rep. Henry Reuss (D-WI) and Senator Phil Hart (D-MI) found out in the 1970s when they tried to challenge its constitutionality. Nevertheless, its blatant unconstitutionality and subordination to Wall Street interests can be used against it politically.

        • Nathanael January 13, 2013 at 10:43 pm

          The Fed has no discretion to refuse a legal tender coin *as payment for debt*. Does the Fed own any T-bills which are coming due? The Fed is legally obliged to accept US legal tender as payment for those.

          • Morgan Warstler January 14, 2013 at 9:11 am

            I’d still like to get an answer… if the Treasury Dept. declares that the SS trust fund bonds aren’t really real, does that create room under debt ceiling.

            • beowulf January 14, 2013 at 1:50 pm

              Morgan, I take your point that the SS trust fund bonds aren’t real (the Secretary of the Treasury is both lender and borrower– he’s managing trustee of SS Funds), but Congress does not. Tsy can’t unilaterally reverse Congress’s position that these bonds actually are part of the public debt subject to limit.

              • Oilfield Trash January 14, 2013 at 2:55 pm

                Beowulf

                Do you have an opinion if the TDC option is within the Treasury’s discrection to redeem the special issue Treasury bonds of the Social Security Trust Fund?

        • Oilfield Trash January 14, 2013 at 11:18 am

          Philip

          What would be your opinion of the ability of the Treasury using the TDC option to redeem the special issue Treasury bonds of the Social Security Trust Fund?

      • beowulf January 13, 2013 at 5:04 pm

        This goes back to my very favorite legal topic, the validity of Humphrey’s Executor v. United States. As I’ve written elsewhere:
        The 1951 Tsy-Fed Accord ended a decade of Tsy calling the shots for the Fed that began shortly after Pearl Harbor. However prior to 1935, the President was deemed to have the power to hire and fire any executive branch agency official and he may yet again. As Brett Kavanaugh (ironically, a Team Scalia DC Circuit judge) recently pointed out, the 1935 decision tying the President’s hands, Humphrey’s Executor, is the last anti-New Deal Supreme Court ruling from that period that hasn’t been overturned… yet. I agree with Kavanaugh’s point that Humphrey’s Executor is probably not long for this world. When it is overturned, it will hit Dodd-Frank and the Federal Reserve Act like a tornado.
        http://tinyurl.com/cmez7se

        That’s why if the President pushed the Fed on the TDC, they’d back down because the Fed governors would be insane to go up against the President in federal court on the question of ¿Quién es más macho? There is an absolutely zero chance they’d win that fight.
        http://answers.yahoo.com/question/index?qid=20100418161251AAMwlBA

      • Nathanael January 13, 2013 at 6:50 pm

        The Fed would be legally required to accept the “legal tender” coin as payment for debts owed by the Treasury to the Fed. Assuming there are any such debts (does the Fed hold T-bills, for instance?).

        • Clonal Antibody January 13, 2013 at 7:28 pm

          I believe that before a Trillion dollar coin was considered to be legal tender, it would have to be declared to be such by a gazette notification. I am sure that the US Treasury could do an emergency notification – that it be considered legal tender. But I do believe that a certain minimum time may be required.

          • Nathanael January 13, 2013 at 10:49 pm

            You are wrong.
            It’s a US coin. It’s legal tender automatically upon minting.

            31 USC 5013: United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.

            31 USC 5111:
            (a) The Secretary of the Treasury—
            (1) 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;
            ….

            (b) The Department of the Treasury has a coinage metal fund and a coinage profit fund. The Secretary may use the coinage metal fund to buy metal to mint coins. The Secretary shall credit the coinage profit fund with the amount by which the nominal value of the coins minted from the metal exceeds the cost of the metal.
            ….

            There you go. The law says that the seignorage profits are booked *immediately upon minting*, actually, as miscellaneous receipts.

          • Philip Diehl January 14, 2013 at 12:35 am

            I think the minting itself and the lawful issuance of the coin from the Mint (through the Fed or by direct sales to customers) makes the coin legal tender. I’m not certain, but its possible the coin is not considered legal tender if, for example, it were stolen out of the Mint. Probably would be, but there are some complicated scenarios that aren’t worth exploring here.

        • Philip Diehl January 14, 2013 at 12:30 am

          Here’s how I understand how things work:

          The Fed is not required to order a coin from the Mint; that’s at their discretion. If the Fed doesn’t order the coin, the Mint won’t, probably can’t, ship it to them. And if the Mint can’t ship the TDC to the Fed, the seigniorage can’t be booked and transferred to the TGA. In the real world, the TDC game plan requires cooperation between Treasury and the Fed.

          • beowulf January 14, 2013 at 10:14 am

            According to the Fed…
            “The Federal Reserve’s role in coin operations is more limited than its role in currency operations. As the issuing authority for coins, the United States Mint determines annual coin production. The Reserve Banks, however, influence the process by providing the Mint with monthly coin orders and a 12-month rolling coin-order forecast. The Mint transports the coin from its production facilities for circulating coin in Philadelphia and Denver to all of the Reserve Banks and the Reserve Banks’ coin terminal locations.”
            http://www.federalreserve.gov/faqs/currency_12626.htm

            “Any Federal reserve bank may receive from any of its member banks, or other depository institutions, and from the United States, deposits of current funds in lawful money…”12 USC 342
            “Federal reserve banks… when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks.” 12 USC 391
            “No public funds of the postal savings, or any Government funds, shall be deposited in the continental United States in any bank not belonging to the system established by this chapter: Provided, however, That nothing in this chapter [12 USC Chapter 3 - FEDERAL RESERVE SYSTEM] shall be construed to deny the right of the Secretary of the Treasury to use member banks as depositaries.” 12 USC 392

            • Philip Diehl January 14, 2013 at 11:03 am

              Here’s how I read these provisions:

              The Fed influences the production of coins through its ordering process, but the actual booking of seigniorage occurs when the Mint responds to instructions from the Fed and ships the coin accordingly. This I know from direct experience with the law and in practice.

              I read the second part of this language as requiring the Fed to accept legal tender in payment or as a deposit. But, if the coin has not been shipped to the Mint and the seigniorage has not been booked–in other words, if the Fed had not previously ordered the coin and put it into circulation, tendering the coin to the Fed couldn’t happen.

              Of course, the latter assessment is not based on experience since there’s no precedent for this scenario.

              • beowulf January 14, 2013 at 1:45 pm

                Thanks Philip, I guess you’d know these things. :o)
                I can remember discussing this before with Ramanan, and he took exactly the same position on this as you do– the Fed has to order the coins.

                Then we’re back to the FRA section I mentioned in Bataan update (Fed/Tsy conflicting power resolved in favor of Tsy), but that’s such a B-52 raid of a legal position its hard to imagine a President or a Fed Chairman ever letting things get that far.

                I think Cullen’s speculation there was some bank lobbying to kill this is all too plausible. After all, if Tsy and the Fed agree that the Fed must order the coin, it could be used to avoid default without taking away any of the Fed’s money creation powers. Does the Fed really think default is a preferable outcome to that?

                • Philip Diehl January 14, 2013 at 3:40 pm

                  Yes, bank lobbying might have come into play, but I think three factors determined the outcome:

                  1) The WH and Treasury came to the conclusion it was too tough of a sell, and grew concerned about the ridicule the TDC would bring down on them. We saw just a taste of that over the last two weeks. It would have become much worse for them, and would have changed the narrative from “those crazy, irresponsible Republicans” to “the ridiculous President”.

                  2) The WH feared pursuing the TDC would create a huge, extended distraction and would poison the water on the Hill such that other items on their agenda (immigration reform and gun control, next) would be endangered. It’s no accident that immediately after the announcement that nixed the TDC, the WH announced their plans to move immigration reform quickly.

                  3) IMO, the WH is convinced the House GOP has once again set themselves up for a big defeat by the President. As with the 2011 debt limit deal and the 2012 fiscal cliff deal, I think the WH believes the Senate GOP will seek a last-minute compromise, then they’ll force Boehner to eat it with a minority of the GOP conference voting for it.

                  Moreover, the WH may be looking ahead to this approach being a semi-viable governing strategy, especially with immigration reform coming up next: strike a deal in the Senate that gains some GOP support, then send it to the House and let the Republicans argue among themselves over the value of Hispanic support in future elections.

                  It’s a good wedge issue strategy, if that’s what they’re thinking.

                  But they’re counting on the Senate GOP to blink.

            • Joe Firestone (LetsGetitDone) January 14, 2013 at 11:48 am

              I’ve been waiting for you to pull that one out of your back pocket. -:) -:) -:)

    • Philip Diehl January 13, 2013 at 10:30 am

      You could sue but it would be dismissed forthwith.

  • Joe Firestone (LetsGetitDone) January 12, 2013 at 3:54 pm

    Great thread here, btw. But what happened to Carlos? Wonder why he’s been absent the past few days!

  • Philip Diehl January 12, 2013 at 8:58 pm

    A possible explanation for Treasury’s statement re the TDC today is that McConnell threatened massive retaliation if the WH used the TDC tactical nuke. The momentum we developed and the WH’s equivocating statements this week might have led McConnell to act. I’m speculating but it’s entirely plausible.

    In any case, considering the President’s apparent abhorrence of realpolitik and his academic approach to the office, he would have never pushed the button on the coining press anyway. Maybe he found his inner Teddy Roosevelt/community organizer during the late stages of the campaign but there’s no FDR or LBJ in there to tap.

    My hope was that he’d use the TDC option as leverage, but given his style, it might not have been credible anyway.

    Unless the President has a trick up his sleeve, I think he’s left to counting on the Senate GOP, out of an instinct for self-preservation, to seek a resolution in the 11th hour then push it to the House for passage with support from a minority of GOP votes. In other words, they’d follow the 2011 debt limit and 2012 fiscal cliff scenario.

    As I said a few days ago, this approach has merit in terms of the long game by continuing to kindle the institutional and psychological NN pathways to forge some kind of quasi-viable governing process.

  • Philip Diehl January 13, 2013 at 9:26 am

    Friends,

    I’ve written the opening section of an article re the legal foundations for the TDC. It provides background on the proposal and sets the stage for exploring the legal questions. Anyone willing to make comments, criticisms, suggestions is encouraged to do so. Here it is:

    The Statutory Foundation of the Trillion Dollar Platinum Coin

    In early January 2013, a curious proposal to mint a trillion dollar coin (TDC) drew intense and widespread media attention. The TDC was proposed as a means of allowing the Treasury Department to continue paying the government’s bills if Congress failed to increase the debt limit before the limit was reached.

    The proposal had circulated and been refined over two years by a small group of monetary policy wonks and had briefly receive modest attention during the debate leading up to the debt limit crisis of 2011.

    By January 1, 2013, Treasury had reached the debt limit and began taking extraordinary measures to avoid default. At the time, estimates were that these measures would buy another six to twelve weeks before the government began to default on its obligations or make extraordinary cuts in entitlement and discretionary domestic and defense spending.

    As they had during the 2011 debt limit crisis, many Republicans in Congress threatened to block legislation that would raise the debt limit unless the President and congressional Democrats agreed to large cuts in government spending. Since the Republican were largely opposed to cuts in defense spending, the cuts they proposed were in entitlement and domestic discretionary spending.

    Thus, the TDC proposal arose as a way to allow Treasury to continue paying the bills while avoiding both default and drastic cuts in spending without unilaterally raising the debt ceiling or encroaching on congressional authority over the debt limit. The proposal also posed no threat to the “power of the purse” granted to Congress in the Constitution in that it enabled Treasury to pay only the bills related to expenditures Congress had previously appropriated and did not provide authority to spend that had not been appropriated by Congress.

    In other words, the TDC proposal would allow Treasury to pay the bills for expenditures Congress had already approved but would deny Treasury the authority to pay by blocking an increase in the debt limit.

    In the meantime, the cadre of TDC proponents had staged the proposal in anticipation of the 2013 debt limit redux, and in early January 2013, the proposal became the focus of a media frenzy. On January 12th, the frenzy ended when the Treasury Department and the White House stated the administration would not use the TDC to counter GOP threats to take the country into default.

    The discussion surrounding the TDC generated many questions and much confusion about how money is created, the implications of creating money, the economic and political consequences of implementing the TDC proposal, and the legal foundation for the TDC proposal. This paper addresses the legal foundation of the TDC.

    • JKH January 13, 2013 at 9:56 am

      pristine

      although ‘Republican’ should be plural

      - but not everyone might agree with that :)

    • JKH January 13, 2013 at 10:03 am

      you mentioned William F. Buckley before

      my two favorite Buckley created words:

      - dehobgoblinization (really rolled off that tongue)

      - repristination (used with reference to the revealed needs of the Republican party)

      • Philip Diehl January 13, 2013 at 10:29 am

        Yes, he was a master in the minting of new words, if you will.

    • Joe Firestone (LetsGetitDone) January 13, 2013 at 10:46 am

      Very good opening section> Clear and concise!

    • Clonal Antibody January 13, 2013 at 11:23 am

      Philip,

      Very well written start. I also want to ask about the rather odd way that the non-use of the platinum coin eas released to the press – through a spokesperson of the US Treasury. This is the end of the 112th. Historically, Geithner was the one to shoot down the TPC in 2011 (or so I hear.) There is going to be a new Treasury Secretary dealing with the 113th.

      Are the pronunciations of the previous Secretary binding on the new Secretary? I do not think so. So I would presume that all bets are off as we go further into the year. Am I being too optimistic?

      • Joe Firestone (LetsGetitDone) January 13, 2013 at 11:50 am

        Clonal, I don’t think it’s binding on either Geithner or Lew. PCS is still in the law. The issue is whether Obama will change his mind. From my point of view, this is all Obama. Geithner will do as he is told. And the Fed really must accept what the Secretary says according to the Act establishing the Fed in case there is a dispute, I have the reference to the code in one of my posts, but haven’t had a chance to find it. They’re trying to blame it on Geithner and the Fed, to give Obama cover!

      • Philip Diehl January 13, 2013 at 12:08 pm

        Yes, Treasury’s statement could be reversed in the future, but it won’t be. As a former Treasury chief of staff, I can say with certainty that the decision reflects a consensus among Treasury, the Fed and the WH. It won’t (at a confidence level of 95%) be reversed.

        Treasury’s statement was so definitive I doubt the WH could resort to the TDC even if the GOP drove us into default, a prospect I don’t dismiss but which the WH appears to find beyond comprehension. (I share Krugman’s outrage at the WH decision and his skepticism about their ability to keep the President’s word that he won’t negotiate over the debt limit.)

        Actually executing the TDC would require intense preparation of the public, key members of Congress, and world financial markets between now and D Day. With this announcement, the WH has precluded that opportunity.

  • beowulf January 13, 2013 at 1:45 pm

    Hey folks, wasn’t online much this week. Did I miss anything?
    :o)
    A few points:
    1. Philip, if MSNBC ask you to be on TV again, NBC does have a Dallas affiliate. Tell them it’d generate a much smaller carbon footprint (this is MSNBC after all), if you were just interviewed from there.
    2. I agree with Cullen that trading platinum coin for debt ceiling is a fair trade.
    3. Philip’s point here is actually what makes the trillion dollar coin such a doomsday weapon for House Republicans: “we asked our appropriations committee to allow us to operate from internal earnings, which would also allow us to escape the appropriations process.”
    This makes it impossible for the House to de-fund the Mint in an appropriations bill! The only way they could kill the platinum coinage is by getting the Senate and the President to pass a law to do so (a much tougher slog).
    4. Good discussion on budgetary vs. debt impact. As I’ve mentioned before, if the dollar coins folks had pass their bill last month (and they didn’t), it would have inadvertently put TDC revenue on-budget. I don’t like the accounting, but it certainly would have made budget talks more interesting.
    http://monetaryrealism.com/will-congress-accidentally-double-down-on-the-coin/

  • Philip Diehl January 13, 2013 at 2:23 pm

    I like the carbon footprint response. In this case they wanted me in the NYC studio in the usual panel format– until they decided they didn’t. :-)

    #3 is correct, though I’m less optimistic than you that legislation eliminating the TDC won’t be passed. I think the chances are pretty good the House will move a bill, and unless there is a well-position, strong advocate for the TDC in the Senate, I think the bill could move there as well. And I have my doubts the President would veto it.

    Moreover, a separate bill eliminating the TDC is not necessary; it could be included in another bill, for example as an appropriations rider, that the President could not veto.

    I think the provision enabling the TDC is in danger of repeal, and preventing or stalling repeal will depend on finding some Senate champions.

    I testified in favor of that dollar coin bill at a House Financial Services subcommittee hearing in November. I’ll have to study up on the accounting fallout you reference.

    • beowulf January 13, 2013 at 2:45 pm

      The TDC has gotten enough press that I don’t think Harry Reid would let it be abolished without getting something big in exchange. In fact, Reid just wrote a letter to Obama promising to back his play if he sidestepped the debt ceiling.
      http://www.businessinsider.com/debt-ceiling-senate-dems-urge-obama-to-consider-alternatives-if-republicans-refuse-to-raise-the-debt-ceiling-2013-1

      To save a link through, I was referring to section 2(d) of the COINS Act
      “Clarification With Respect to Seigniorage- The ninth proviso of section 5136 of title 31, United States Code, is amended, by inserting after ‘miscellaneous receipts’ the following: ‘and such amount shall be included as an estimated receipt of the Government and a receipt of the Government under paragraphs (6) and (7), respectively, of section 1105(a) in any budget submitted [by the President] under such section’.”

      • JKH January 13, 2013 at 2:51 pm

        what would have been the corresponding accounting treatment for redemption of (circulating) coins?

        a budget expense equal to face value?

        • beowulf January 13, 2013 at 3:42 pm

          Yup, though as we discussed last month, it’d probably be a one way trade. The Fed would hold on to the coin and simply drain reserves with its term deposit facility.
          http://www.frbservices.org/centralbank/term_deposit_facility.html

          The TDF has been around since 2010 but seems to be a little known program, just today I was reading an exchange between @moneyriddle and the estimable Steve Roth.
          @.”The Fed could simply offer Term Deposits and do away with government bonds altogether.”
          S.”Absolutely… Just because people want to receive interest on perfectly safe securities doesn’t mean that the government is obligated to provide it.”

          I wonder why the Fed hides its light under a bushel…. probably has something to do with what SF Fed president Janet Yellen said in 2009:
          “An alternative approach that could accomplish the same goal, and perhaps do it better, would be something completely new for the Federal Reserve—that’s to issue interest-bearing debt broadly to private investors. Let’s call this debt Fed bills. Congress would have to authorize this, but it too is a tool available to many central banks.”
          http://www.zerohedge.com/article/bernanke%E2%80%99s-fed-bills-coming-bank-near-you%E2%80%A6how-fed-proposes-issue-its-own-debt

          See this kind of bugs me, the Fed apparently is opposed to Tsy issuing coins that Congress has authorized but has no problem issuing Fed bills (what else do you call an auction of 1 month CDs?) that Congress has not authorized. It’d be an interesting topic for a congressman or senator to ask Ben Bernanke about at hearings.
          :o)

          • JKH January 13, 2013 at 4:15 pm

            a month ago is a long time in this discussion
            :)

            yeah, that program has been around; its only received publicity when they’ve done test runs, which the Fed has been transparent on

            the point of it is that its one tool for prospective use in the QE exit plan

            and the coin could have been integrated with QE, as in my post, by adjusting the net unified QE dial by using the term deposit mechanism, along with all the other adjustments available to the Fed – so you and I are saying the same thing I think

            but the problem is that the Fed would never hold onto the coin forever – full exit involves completely unwinding excess reserves, which would require redemption of the coin (since banknotes must be collateralized with Treasuries), and a $ 1 trillion deficit increase as that’s done (i.e. had that accounting change been made, or had the coin been pure numismatic under exiting accounting)

            there’s absolutely no way Bernanke would have changed the Fed’s commitment to full reserve unwind – he’s not yet quite an MMTer or even a contingent institutionalist
            :)

            a little bit of unnecessary volatility in that accounting, to say the least

            BTW, Philip made an important clarification that the $ 1 trillion dollar coin could have been circulating, receiving current (sensible) off-budget seigniorage accounting treatment, and would not necessarily have had to have been pure numismatic (or pure proof numismatic) and on-budget

            - maybe you made that point along the line as well, wouldn’t be surprised, but can’t recall

        • Philip Diehl January 13, 2013 at 5:42 pm

          If I understand your question correctly, rather than being “a budget expense equal to face value”, I think it would be equal to the seigniorage booked, I.e., the face value minus the cost of production.

          • JKH January 13, 2013 at 6:55 pm

            “If I understand your question correctly, rather than being “a budget expense equal to face value”, I think it would be equal to the seigniorage booked, I.e., the face value minus the cost of production.”

            Ah … good one

            But would it?

            Under current accounting, the face value booked when the coin is issued is sufficient to finance a deficit of an equivalent amount.

            Part of that deficit will be the production expense of the coin as a marginal impact on the budget that wouldn’t be present without the production of the coin.

            The rest – seigniorage – will be available for other spending. So the coin finances a total deficit equal to its gross value and a net deficit (after its own cost) equal to its seigniorage – under current accounting.

            But if the coin is moved to on budget treatment, then isn’t the entire value of the coin treated as gross revenue to Treasury – like taxes?

            And the net budget result of that – under revised accounting – would be a marginal surplus equal to the face value minus the production cost – which again is the seigniorage amount – as a subset of the principal value of the coin.

            On the return trip – redemption – wouldn’t Treasury have to treat the entire face value of the coin as an expense? (the same way it treated it as revenue on issuance?)

            And so the net trip would be a budget deficit equal to the original production cost of the coin –

            and against that, over the full life of the coin, future budgets will have benefited from the zero interest paid on it – which is a comparative measure of future seigniorage effects for future budgets, due to the zero interest paid on the coin over that sequence of budgets

            (the true seigniorage is always expressible in terms of future interest margin, IMO)

            That’s my first shot at it. Could be wrong though.

            think?

            • Philip Diehl January 14, 2013 at 12:19 am

              Here’s how I think the accounting works in my layman’s terms:

              The cost of production is self-funded within the Mint’s books through a portion of the face value, and the rest of that value, the seigniorage, is shipped off to the TGA. When the coin comes back, the seigniorage, not the face value, comes out of the TGA. Just as the physical coin comes back to the Mint and is destroyed, the money that was created and sent to the TGA comes back and is destroyed. In other words, I think the Mint’s costs do not directly effect the deficit, but only indirectly by reducing the transfers into the TGA.

              I think the upshot of all this is that the net effect on the deficit is the same as what you describe. but the accounting is different.

              Now, there’s a difference in the accounting of numismatic products that reflects the fact that they are sold for MORE than their face value. This profit (not seigniorage) is on-budget. I don’t know for certain, but for the accounting to be consistent the difference between the face value and the cost of production (the seigniorage) would be treated the same way as with a circulating coin. Except for one wrinkle: for some numismatic coins, the cost of production is more than the face value, in which case, there is, of course, no seigniorage.

              If the TDA were produced as a numismatic product, since its face value exceeds its cost of productions, I think its accounting treatment would be the same as for a circulating coin, i.e., the difference would be booked as seigniorage and not as numismatic profit.

              But, caveat emptor, I’m not certain about this; I’m just following a chain of logic, and we know how useful that can be in analyzing government practices of about any kind. It’s possible that by law or policy the TDC’s seigniorage would be treated as profit and go on-budget. I could check this out with a former Mint CFO if it would be useful, but I don’t like to go back to him too often to pick his brain. I don’t want to wear out my welcome.

              If my tentative conclusion is correct, the only advantage I see in making the TDC a numismatic coin is that it is anchored a little more securely in the law. The law’s reference to proof coins implies a numismatic coin, but as I’ve said in another Comment, it does not IMO preclude minting a circulating proof coin.

              But the trade-off is that the Fed doesn’t order numismatic coins. I know no reason why they couldn’t and good reason why and how they could. If the Fed and Treasury were on board for the TDC, I wouldn’t think this would be a problem.

      • Philip Diehl January 13, 2013 at 5:35 pm

        In the frenzy of flying to NYC for the Chris Hayes non-appearance, I missed the Reid letter.

        I understand the attraction of the 14th Amendment option but it’s a disaster in the making. It has the scent of FDR’s court-packing scheme, easily framed as a blatant usurpation of legislative power by the executive, and the GOP will frame it as such.

        The WH might have a colorable claim that the 14th Amendment can be interpreted to give them this preemptive power, but the language is so murky in this respect that the PR battle to support the claim will be very difficult. And the narrative will shift from “the GOP is driving the country to economic disaster” to “the GOP is saving the country from an Imperial Presidency”.

        Moreover, if the GOP believe a law suit can get to the Roberts court quickly, they’ll have a strong incentive to drag out the crisis in the hope the court will deliver a defeat to the President. And who knows what the Roberts court would do.

      • Philip Diehl January 13, 2013 at 6:04 pm

        The Reid letter makes me a bit less pessimistic, but it came before the definitive WH statement re the TDC, which might lead Senate Dems to conclude the door is closed on the TDC.

        In any case, there’s too little time before the debt limit is reached for a bill eliminating the TDC option to be passed, so considering the short strategic time horizon typical on the Hill, they might consider the leverage provided by the TDC to be lost.

  • beowulf January 13, 2013 at 4:31 pm

    True, I will send the wayback machine all the way to December 8, 2012:
    Numismatic means its sold to collectors, circulating coins can also be sold to coin collectors. “Specially packaged products containing circulating coins sold directly to the public rather than to the FRB. These products are treated as a circulating and numismatic hybrid product.” [with numismatic coin accounting]
    Since numismatic coins are legal tender at face value, no reason not to circulate numismatic coins as as a “numismatic and circulating hybrid product” [with circulating coin accounting]. Regulation D vault cash definition excludes numismatic coins whose face value is LESS than metal value… no problem there.

    http://monetaryrealism.com/will-congress-accidentally-double-down-on-the-coin/#comment-11587

    • Philip Diehl January 13, 2013 at 5:11 pm

      I’m pretty certain, but not 100%, that the accounting treatment of circulating coins included in numismatic products is the same as other circulating coins.

      There is a crucial misunderstanding, virtually universally held, that the platinum law specifies that the coin be a commemorative coin. Nowhere in the law does the word “commemorative” appear, and I can say definitively that the intent was not to authorize a commemorative coin. At that time, we were moving legislation that would limit the number of commemorative coins. In fact, if memory serves, the commemorative reform legislation was included in the same bill as the platinum coin provision.

      The legislation references bullion (investment quality) and proof coins. Proof would commonly suggest numismatic coins, but there is no reason way the Mint couldn’t produce a proof circulating coin. As far as I know, it has never been done, but it wouldn’t have because circulating coins are produced in massive quantities. Proof coins are more expensive to produce and are produced in much smaller quantities so producing them as circulating coins makes no sense. But of course, that constraint would not apply to a single TDC.

      • JKH January 13, 2013 at 5:22 pm

        “the accounting treatment of circulating coins included in numismatic products is the same as other circulating coins”

        that’s the way both the 2012 annual report and the 2004 GAO report read

        • Philip Diehl January 13, 2013 at 6:09 pm

          And I think these statements are derived from the coinage law.

  • JKH January 13, 2013 at 4:37 pm

    good – as expected

    you do have a bit of a history with this topic, after all
    :)

    I guess one of the questions was the concept of a circulating coin being “bought” or received on deposit by the Fed and being held deliberately by the Fed; Philip had no problem with it from a legal standpoint

    - but maybe that goes to your point about the convenient optionality of whether one wants to consider the Fed as ‘public’ or not

  • Philip Diehl January 13, 2013 at 6:34 pm
    • Ramanan January 13, 2013 at 8:16 pm

      Thanks for posting the link.

      Everyone should read this.

      AWESOME!

    • Michael Sankowski January 13, 2013 at 8:36 pm

      lol totally perfect.

  • Philip Diehl January 14, 2013 at 8:55 am

    My Comment on Ezra Klein’s blog post this morning:

    Ezra, it’s worth noting that the arc of innovation you cite (Greenbacks, going off the gold standard, and I’d add the transition from precious metal to base metal coins and the Fed’s current QE policy) is toward imcreasingly intangible forms of money. That has happened in the physical world of money as well, where checks, credit/debt cards, and ETFs are innovations that.follow the same path. Imagine the reaction if 100 years ago you had presented in payment to a shopkeeper a piece of paper or plastic or offered to transfer some electrons from your account to hers.

    The platinum coin is actually a step back in this evolution of money in that the value is held in a precious metal coin rather than in some set of electrons that somehow become a temporary media of exchange. In this way, the platinum coin is an echo of the days of circulating gold and silver coinage.

    I think selling the concept of the platinum coin to the open-minded (as opposed to ideologues and partisan opponents) is less of a hurdle than you imagine. At base, minting the platinum coin creates money in exactly the same way as minting a quarter does; there are just more zeros involved. And the benefits for the country, some of which you champion, are great in minting the coin.

    Opposition to the platinum coin is rooted in one or more of the following: confusion about how money is created from time immemorial, an ideological attachment to hard money, or partisan opposition to the use of the coin as a viable way to neutralize the threat to block an increase in the debt limit and drive the country into default.

    • beowulf January 14, 2013 at 3:34 pm

      Philip, question for you. Is seigniorage realized when coin is shipped to Fed or a step before that, when its shipped to Mint cashier? This FMS manual use of “cashier” is a bit ambiguous though I think they mean Mint (and not bank) cashier.
      “Transaction N… Coins are shipped to cashier and seigniorage is realized.” http://www.fms.treas.gov/tfm/vol1/v1p2c500.txt

      If seigniorage is recognized at Mint level then, then depositing coinage is the deposit of Mint’s seigniorage revenue. Since the Mint is a part of the govt, it could be put to the Fed (“Federal reserve banks… when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks.”).
      If seigniorage isn’t realized until its purchased by customer, I suppose we’d have to downshift the TDC to a series $100B coins and start calling friendly countries and ask them to redeem Tsy debt or dollar reserves in exchange for jumbo coins. The Fed would have a harder time turning a way a holder in due course wanting to deposit platinum coinage (especially in so far as it’d impinge on President’s power to set foreign policy). Sovereign money laundering. :o)

      • Philip Diehl January 14, 2013 at 4:16 pm

        When I was director we changed the accounting so that seigniorage was booked when the coin went out the door to the Fed. I really doubt it has changed since then, because this accounting adjustment was seen as a way of reducing any incentive for the Mint to over-produce.

        Can you provide me the Section cite you’re referencing here:

        “Transaction N… Coins are shipped to cashier and seigniorage is realized.” http://www.fms.treas.gov/tfm/vol1/v1p2c500.txt

        Also, you, JKH and others might find the follow section interesting. I sure did.

        Vol 1 – Part 2 – Chapter 5000 (T/L 543)

        ACCOUNTING AND REPORTING ON MONETARY ASSETS

        (NON OPERATING CASH ITEMS)

        HELD BY U.S. TREASURY OFFICES

        5025.60 – Federal Reserve Banks (FRBs)

        FRBs and branches hold Gold bullion, coins, and/or certificates for display or *NUMISMATIC* purposes. Changes in the FRBs’ monetary asset holdings are also reported to FMS through the Automated Transcript System (ATS). Procedures for FRBs’ reporting are included in II TFM 5-3000.
        ____________________________________________________________________________________

        While this section relates to gold, not platinum, it’s the first time I’ve seen reference to the Fed receiving or holding bullion or numismatic coins. This might be an opening to the on-budget numismatic coin scenario we’ve been discussing here, though I have misgivings about this approach.

        • beowulf January 14, 2013 at 6:01 pm

          Mint’s 2011 Annual Report has seigniorage still booked the same way you did it… “Seigniorage is recognized when coins are shipped to the FRB in return for deposits to the PEF.”
          That Treasury Financial Manual section I was quoting at the link (Tsy website but could be from the Johnson Admin for all I know) is:
          Section 5040.15 – U.S. Mint Monetary Asset Transactions

          The Fed mentions numismatic coins in Regulation D (reserve requirements of depositary institutions). Its definition of “vault cash” includes,
          “(4) Silver and gold coin and other currency and coin whose numismatic or bullion value is substantially in excess of face value is not vault cash for purposes of this part.”
          Presumably then, “Other currency and coin” whose face value exceeds numismatic or bullion value IS vault cash for purposes of this part. :o)
          http://www.bankersonline.com/regs/204/204-2.html#vault

          • Philip Diehl January 14, 2013 at 9:21 pm

            “The Fed mentions numismatic coins in Regulation D (reserve requirements of depositary institutions).” Its definition of “vault cash” includes,
            “(4) Silver and gold coin and other currency and coin whose numismatic or bullion value is substantially in excess of face value is not vault cash for purposes of this part.”
            Presumably then, “Other currency and coin” whose face value exceeds numismatic or bullion value IS vault cash for purposes of this part.”

            I don’t follow you. Since “depository institutions” refers to private banks, I don’t understand how whether these numismatic and bullion items are treated as vault cash or not is relevant to the Fed’s treatment of numismatic and bullion it holds.

            I must have missed a shift in the subject.

            • beowulf January 15, 2013 at 11:33 am

              Simply making the point that numismatic coin deposits are something Fed has considered within the realm of the possible enough that they mention it in Regulation D, its not something completely from outer space.

          • Philip Diehl January 14, 2013 at 9:44 pm

            I’ve written the opening section of an article re the legal foundations of the TDC. It provides background on the proposal and sets the stage for considering the legal questions. Obviously, you know the history of the TDC concept better than anyone. Would you mind taking a look at this and giving me any comments that come to mind? Thanks.
            _____________________________________________________________________________
            The Statutory Foundation of the Trillion Dollar Platinum Coin

            In early January 2013, a proposal to mint a trillion dollar coin (TDC) drew intense and widespread media attention. The TDC was proposed as a means to enable the Treasury Department to continue paying the government’s bills if Congress failed to increase the debt limit before the limit was reached.

            The proposal had circulated and been refined over two years within a small group of monetary policy wonks and had briefly receive modest attention during the debt limit crisis of 2011.

            By January 1, 2013, Treasury had reached the debt limit and began taking extraordinary measures to avoid default. At the time, estimates were that these measures would provide another six to twelve weeks before the government began to default on its obligations or make extraordinary cuts in entitlement, defense, and discretionary spending.

            As they had during the 2011 debt limit crisis, many Republicans in Congress threatened to block legislation that would raise the debt limit unless the President and congressional Democrats agreed to large cuts in government spending. Since the Republican were largely opposed to cuts in defense spending, the cuts they proposed were in entitlement and domestic discretionary spending.

            Thus, the TDC proposal arose as a way to allow Treasury to continue paying the bills while avoiding both default and drastic cuts in spending without unilaterally raising the debt ceiling or encroaching on congressional authority over the debt limit. The proposal also posed no threat to the “power of the purse” granted to Congress in the Constitution in that it enabled Treasury to pay only the bills related to expenditures Congress had previously appropriated and did not provide authority to spend that had not been appropriated by Congress.

            In other words, in the event Congress failed to raise the debt limit, the TDC would allow Treasury to pay the bills for expenditures Congress had already approved but had denied Treasury the authority to pay. In other words, the TDC was proposed as a way to cut the Gordian Knot Congress had tied itself, and the nation, into.

            In the meantime, the TDC proponents had staged the proposal in anticipation of the 2013 debt limit redux, and in early January 2013, the proposal became the focus of a media frenzy. On January 12th, the frenzy ended with statements by the Treasury and the White House that the administration would not use the TDC to counter GOP threats to take the country into default.

            The discussion surrounding the TDC generated many questions and much confusion about how money is created, the implications of creating money, the economic and political consequences of implementing the TDC proposal, and the legal foundation for the TDC proposal. This paper addresses questions about the legal foundation of the TDC.

            • beowulf January 15, 2013 at 11:43 am

              That looks good Philip. Nothing there I would think to change.

              I think the two big legal questions coming out of this (and I know they’d come later in your paper) is 1. Could the Fed accept the TDC? and 2. Could Tsy (or the WH) order the Fed to accept the TDC?

              Since we’re headed to default and because America loves a scapegoat, If the answer is yes to 1 and no to 2, the villain is Chairman Bernanke. If the answer is yes to 1 and yes to 2, the villain is President Obama.
              If the answer is no to 1 (and necessarily 2), the villain is still Obama, but with less justification. :o)

              • Philip Diehl January 15, 2013 at 5:50 pm

                I’m already pretty certain the answer to 1) is yes and the answer to 2) is no. But re 2), the answer doesn’t really matter. A Treasury Secretary is about 100% certain not to try to force a Fed chairman to accept a TDC. The TDC will only happen if the WH, Treasury and Fed come to an agreement to make it happen. The only other way is for Congress to pass legislation to mandate it, which is highly unlikely, even with a solid Dem majority in the House, considering the supermajority requirement in the Senate. .

                However, there are circumstances where we could have another shot at putting the TDC in the policy discussion. One is when the debt ceiling crisis comes up, maybe during the summer before the 2014 elections.

                The second opportunity is when economic growth in the EU, Japan, and BRIC countries accelerates. Investors who fled to the safe haven of US Treasuries will begin to take their money elsewhere causing the carrying cost of the debt to rise rapidly. This will set up another fight over the debt as it devours more of the budget.

                So, the question will be more cuts, higher taxes, more debt or, as a way out of the cycle of austerity, tax hikes and rising debt, the TDC.

  • Philip Diehl January 14, 2013 at 2:05 pm

    Maybe I missed it, but I didn’t see any mention of this in our discussions. Pimco’s Mohamed El-Erian gave the TDC a partial endorsement. Somewhat helpful and better than a kick in the head.

    http://blogs.reuters.com/felix-salmon/2013/01/11/el-erian-on-the-coin/

  • Philip Diehl January 22, 2013 at 9:03 am

    Fed Up January 12, 2013 at 3:15 pm
    “The economy seems to be set up so all NEW medium of exchange (MOE) & medium of account (MOA) have to be “borrowed” into existence using the hedge fund/banking model. Why???

    Nathanael January 13, 2013 at 10:50 pm
    “In order to give money to evil bank CEOs. Seriously, that’s the purpose. Look up the history.”

    Fed Up and Nathanael,

    Here’s an interesting fact I ran across yesterday re the historical use of coinage to weaken the grip of the banks: after a 32 year hiatus in the Mint’s production of dollar coins, Andrew Jackson, who vowed and tried to crush the corrupt banks of the era, called for the Mint to resume producing a silver dollar which it did in 1836. In doing so, he was attempting to self-fund the government as an alternative to paying interest to his political enemies.

    That coin, the Gobrecht dollar, is particularly significant for our purposes in that it was struck, as I understand, as a CIRCULATING PROOF coin. Thus, the Gobrecht dollar provides a precedent that the reference in the platinum coin law to “proof” coins cannot be read as requiring a TDC to be treated exclusively as a numismatic coin (i.e., sold outside the usual Fed-to-bank distribution channel) but could alternatively be treated as a circulating coin and therefore be ordered and shipped to the Fed as if it were a quarter.

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