Monetary Realism

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Quick and Dirty Update on Platinum Easing Discussions

Interesting discussions.
One way of looking at this is to consider analogous exit plans.
For conventional QE exit, the Fed must sell bonds into the market.
For platinum QE exit, the Fed must sell platinum back to Treasury.
The implication of this is that Treasury must refund its original platinum funding with bonds – in order to pay back the Fed from its TGA account.
Thus, both CQE and PQE exits require the sale of bonds into the market – existing bonds and new bonds respectively.
It’s the same exit requirement from a monetary standpoint.
Returning to original QE “entrance”, it is a FACT that analytically one can achieve the same funding result for the cumulative deficit under either conventional or platinum easing.  (Mike and I have both summarized this in separate posts). That funding result is expressed as a mix of reserves, currency, and bills/bonds.
However, analytically, it is important not to confuse ex post and ex ante cumulative deficit comparisons in the illustration of this equivalence:
The issue that motivates consideration of PQE is the risk of debt ceiling impasse. That risk threatens to shut down the government – because it imposes an obstruction to already approved spending by shutting down the normal bond channel for deficit financing. PQE is a considered response to the dysfunctional shutdown of spending that Congress has already approved.
Therefore, in comparing the technique of PQE with CQE, one must consider the ex ante scenario of continued deficit spending – as that is the situation that PQE is designed to address.
In this regard, deficit spending can proceed in conjunction with the implementation of either form of QE. In that scenario, the result of CQE and PQE is the same in terms of ultimate funding mix for the cumulative deficit.
CQE takes bonds out of the market in parallel with Treasury issuing them.
PQE holds market bonds constant in parallel with Treasury not issuing them.
Same result.
I think there’s been some analytical confusion in cases where an attempt has been made to compare PQE  with CQE, while holding the cumulative deficit constant – i.e. prior to the deficit spending that PQE is designed to enable. That won’t work – and it doesn’t need to – because PQE is by design a potential antidote for the obstruction of ex ante deficit spending by a debt ceiling impasse.
And the reason the analysis won’t work – and doesn’t need to – is that PQE is designed to inject Treasury balances prior to spending and actual deficit creation – so one needs to work through that scenario in which the objective of facilitating further spending is accomodated in order to compare properly the cases of CQE and PQE .
Now, an interesting point has been made (by commenter James) about the quality of the asset held by the Fed in each case.
In this regard, asset quality depends on fiat capacity in the case of either bonds or platinum.
CQE assumes a capacity to sell bonds from Fed inventory on exit. PQE assumes a capacity to issue new bonds from Treasury on exit. Both assume an original capacity to have sold bonds into the market prior to the assumed event of either form of QE.
These are all fiat based capacities.
There are two minimal type arguments for fiat power:
First, you can always credit bank reserves (operationally) to pay off a bond – that’s a liquidity argument.
Second, you can always tax to adjust and/or pay down the cumulative budget deficit – that’s an equity/capital/solvency argument.
Similarly, the capacity for Treasury to deposit /sell platinum to the Fed is a fiat capacity within the internal institutional organization of government.
Putting that all together, its fiat, fiat, fiat.
Thus, there is really no difference in the fiat underpinning of CQE or PQE.
Finally, regarding policy:
Love it or hate it, CQE is a response to unusual economic stress at the zero bound.
PQE responds to operational stress due to debt ceiling dysfunction, which becomes a further risk for economic stress.
So the ultimate risk management motivation is the same.
Arguably, PQE requires more operational coordination between Treasury and the Fed.
But that does not threaten the existing framework of Fed policy independence – because that characteristic is a function of the Fed’s role in setting the Fed funds target, and using unconventional techniques as necessary at the zero bound – techniques that may be necessary for macro risk management under economic stress.
Therefore, given the demonstrated technical compatibility of the two easing modes – CQE and PQE – it follows that risk to the integrity of institutional responsibilities and to the robustness of the monetary policy framework ultimately is not an issue.
One last technical point – PQE leverages up already completed CQE due to operational risk associated with debt ceiling inflexibility. It may therefore leverage up overall QE to a degree not otherwise intended under CQE.  If that happens, there is a policy adjustment available to accomodate that. That is –  the Fed can issue term deposits to match the term structure that might otherwise have been associated with bond issuance. The only difference is that PQE will capture that protective term structure via banking system intermediation – as opposed to largely non-bank absorption under bond issuance.
Finally – once again on this issue of Treasury/Fed operational coordination in the context of Fed policy independence – there is an intriguing precedent of sorts here:
In the early stages of the financial crisis, the Fed undertook “credit easing”, in which it effectively swapped government bonds it held for financial claims on the private sector. It began to run low on bond inventory as a result. When this happened, it started to create excess reserves beyond the desired level – which was a problem because the authority to pay interest on reserves was not yet in place. That resulted in some loss of effectiveness in the interest rate control function. So, prior to getting that authorization to pay interest on reserves, the Fed requested that Treasury issue a special tranche of treasury bills – in order to drain reserves- which it did, parking the money in its TGA account at the Fed. That reserve drain had the desired effect on rates (or at least helped to improve the situation). In other words, Bernanke asked Geithner for help in coordinating monetary policy implementation. But nothing was sacrificed in terms of the actual independence of policy formulation itself.
See the comparison?
This time, it would be Geithner asking Bernanke for help, but without necessarily sacrificing the integrity of the existing differentiation of policy responsibilities between Treasury and the Fed, given the technical tools available for operational coordination.
This whole thing is becoming less far fetched using rational analysis of consistent policy and technical feasibility.
But of course its unlikely to happen.


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20 Responses

  1. James A. Kostohryz says

    I think I’ll sign off on this discussion now. Hopefully, on another occasion, more value can be added through a better quality of discussion.

    • Robert Rice says

      Well if this isn’t altogether ironic… Room. Elephant. Anyone?

      At least now the one with the stars and stripes halo won’t be shining a light on us America burning wannabe dictators. I’m not sure why the do-gooder would even want to “hang out” or try to have a discussion with the gang of evil doing, democracy trampling, law manipulating, cross dressing (thinking Cullen), kitten drowning, puppy pummeling boogie men who collect here. All this place has is Chief Constitution Crusher Cullen, Michael the Maniac “I will cut you with a spoon” Sankowski, Bludgeon the Law and Burn it Down beowulf, and Just Kill Hamilton JKH (I can see him now working on the time machine, writing his 400,000 page operating manual along with his equally lengthy conspiracy to dispose of our dearest Alexander, all in an effort of course to bring the new republic to its knees before it even gets some gas in the engine and fire out the fanny); not much to miss here.

      Did I mention Hitler worshipping?

      James, I want you to know I will personally miss you. Don’t leave me sugar pie, thou art the apple of my eye. I was looking forward to all the fun we were going to have discussing the history of American government finance, the meaning of the Constitution, and all the juicy related topics, but whatever can I do??? I guess …sigh… I guess I’ll just have to accept the rain check :-(

      If it wasn’t for the Saddam, Satan split, this could be the saddest moment on the saddest of days.

  2. Charles Fucatch says

    Hello Michael:
    “How else are we supposed to respond to such wrongness, which has been presented in such a self-sure and extremely misleading manner?”
    That’s easy. You address the wrongness and not attach negative labels to some supposed personal trait of the individual.
    I will respectfully add that I am surprised that you are again supporting Beowulf´s statement here as you did with Beowulf’s blatant lie with the false accusation that James called this blog’s participants Nazi.
    Were you joking when you warned James Kostohryz of banning for making a statement that did not exist?
    This blog purports to foster “economics without politics”. When a blog blindly supports improper conduct of a favored supporter, this is no better than “economics with politics”.
    Hopefully none of this was what you intended.
    Respectfully yours

    • beowulf says

      “I will respectfully add that I am surprised that you are again supporting Beowulf´s statement here as you did with Beowulf’s blatant lie with the false accusation that James called this blog’s participants Nazi.”

      You should google Godwin’s Law to glean why its generally considered unsporting (if not offensive) to making Hitler or Nazi comparisons in a political discussion. He was talking about the writers on this site and and then segues into a discussion of the evils of the Nazi regime (that this doesn’t makes sense is kind of my point). To be fair he changes the subject the lot, but yes I did take it personally.

      If your chain of reasoning is such that someone taking offense at being compared to Nazis must therefore be a blatant liar, then I fear that, like Diogenes, your search for an honest man is gonna take a while.

  3. Charles Fucatch says

    Hello Beowulf:
    I have been reading with interest the comments of this blog.
    It is obvious that you put a considerable effort into your own contributions.
    I will respectfully submit, however, that I do not see why a writer of your apparent intelligence and education would need to resort to statements of arrogance in addressing participants of opposing views with such unflattering statements as:

    “You have no idea what you’re talking about, do you?”

    Such statements contribute nothing meaningful to the discussion.
    Please let us readers decide who knows what they are talking about.
    Respectfully yours

    • beowulf says

      These two threads started out about Economics and when we addressed your points , you detoured into History (Revolutionary War through Modern African). Your assertions were answered and then you started talking about the rule of Law, after which you were shown the relevant case law.

      You then you change the subject to Sociology (e.g. institutions and customs) and when you were called out on changing subjects, you changed the subject to Psychology. If we keep going on this, I fear you’ll end up cycling through English Literature, Art History and Gender Studies as well.

      No mas! You’ve proven your point! You don’t know what you’re talking about in any subject in the Liberal Arts curriculum.

    • Michael Sankowski says

      Hi Charles, it is just a bit tough when someone presents a statement which “isn’t even wrong”.

      How else are we supposed to respond to such wrongness, which has been presented in such a self-sure and extremely misleading manner? MR is not the token liberal on fox news, and we’re not the Washington Generals playing the Globetrotters.

      • James A. Kostohryz says

        “..wrongness, which has been presented in such a self-sure and extremely misleading manner”

        Great, arguments, Michael. Don’t bother to focus on the substance of my arguments. Let’s just whine about style and throw red herrings around.

        “MR is not the token liberal on fox news, and we’re not the Washington Generals playing the Globetrotters.”

        I’ll let the psycholgists comment on that one.

  4. BF says

    James, TDC is a legal option (ask Beowulf), one can rant about illegitimacy and moral indignation but no one is violating any laws. The TDC is not ideal but a possible option to mitigate otherwise unthinkable possibilities that would be beneficial to no one.

    BTW, JKH, well done in converting the TDC into something like QE. If platinum coinage was ever required under a less than desirable scenario it is good to know the proceeds could be spent on an incremental basis (and not require some massive upfront T-bond buyback with destabilising effects).

    • James A. Kostohryz says

      BF, not enforcing the 14th ammendment is also an option. It’s “legal” in the same way that TDC is.

  5. James A. Kostohryz says

    1. The Fed acted within its institutional mandate during the crisis. Indeed, there have been no serious legal challenges to Fed actions during this period that have been entertained by the court system. And you know well, that many people disagreed with the Fed’s policies.

    2. Regarding what you said here:

    “I don’t think it is rationale or reasonable to live with the “inconveniences” of a system if the protagonists are irrational and liable to inflict much harm. Oh wait the TDC option is 100% legal. I mean it’s not like the Democrats won office in a democratic election and have any legitimacy to implement the policies of their choosing right? I’ll have to check my facts on that one.”

    No, niether Democrats nor Republicans — regardless of the majorities they may have in the House, Senate or Executive, have any legitimacy to violate the laws and institutions of the US.

    And yes, it is proper for a citizen to live with the “inconveniences” no matter what your opinion of your political rivals are. Don’t forget, if TDC shenanigans were allowed to occur, when the Republicans regain the presidency, they will enact their own shenanigans when it is their turn.

    Whether TDC could withstand judicial review: I highly doubt it.

    The bottom line is this: American-style democracy is and always has been highly “inconvenient” due to separation of powers, bicameral legislature, senate filibusters, presidential veto, judicial review and etc. You don’t like this style of democracy? Well, work through the proper channels to get the constitution, laws, regulations and institutions changed. The TDC scheme is utterly illegitimate as a method of governance. Such an institutionally and morally illegitimate ruse would be highly insidious and dangerous to American society.

    • beowulf says

      You have no idea what you’re talking about, do you? This is true:
      “Indeed, there have been no serious legal challenges to Fed actions during this period that have been entertained by the court system.”

      For the same reason this is false:
      “Whether TDC could withstand judicial review: I highly doubt it.”

      Nobody has standing to sue is either event. You know these aren’t philosophical questions, the law is (as Holmes said) nothing more than prophecy of how courts will rule in the future, and the best guide for that is how they’ve ruled in the past.

      There is no present or imminent injury to which appellant can point with any degree of specificity, and it is beyond our power to address injuries that are merely conjectural… There is no reason to believe that a declaration ultimately resulting in presidential appointment of the entire FOMC would benefit the appellant in any manner whatever, even assuming that a concrete injury caused by the appellees could be established. The same type of decisions would be made by the FOMC, contributing to both increases and decreases in interest rates, the rate of inflation, and other financial indicators….
      Finally, even if appellant could overcome these obstacles, he would be faced with the fact that his is a very generalized grievance, one held in common, to some degree, by virtually all members of the public… In conclusion, we affirm the district court and hold that appellant lacks standing to sue, both as a legislator and as a bondholder. In neither capacity has he met his responsibility “to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute and the exercise of the court’s remedial powers.”
      Reuss v. Balles, 584 F.2d 461, 462-65, cert. denied, 439 U.S. 997 (1978)

      • James A. Kostohryz says

        Wonderful argument: “Let’s go ahead and do whatever because it is unlikely that anybody could establish standing to challenge it.” Two points.

        1. That is not a way to do politics. Again, its just legalistic abuse of the legal system to promote particular interests. The interests promoted may be wonderful, but this means of promoting these ends are the problem. And in a liberal democracy, when people have lost the moral compass that enables them to make these distinctions, we are in trouble.

        2. I am very aware of the standing issue. That is one reason that I phrased it as “whether TDC could withstand judicial review…” I implicitly questioned the premise of standing, and my comment was on the substance. I know that you like to focus on narrow legal issues — as long as they suit your policy. That’s fine. I am focusing on broader and more fundamental issues that I believe are of far more significance.

        If policy transformations with enormous implications such as TDC are going to be decided by a few lawyers parsing legalese, the US is going to be screwed.

        One of the interesting things about this whole debate, is that I happen to agree that the debt ceiling is a bad law and that the fact that people are using it to play damaging games of chicken is a bad thing. The difference hinges in that I think that it is very unwise to trash very good fundamental institutions evolved over a century in order to overcome this impasse.

        I think that everybody that is arguing for TDC could benefit from living in and learning about countries that have bad institutions and dysfuncitonal cultures in which institutions are not respected. I think they would feel very different about things.

        American’s tend to have no idea how good they have it. And the TDC proposal needs to be placed in Exhibit A.


        I’m signing off.

        • Michael Sankowski says


          That is not what beowulf said at all, and I do not think it was his intention. I suspect his intention on pointing out the discrepancy was to call you on your bullshit. He called you on your bullshit.

          Here is an essay I think you should read. It’s called “On Bullshit”

          #2 means you knew what you were saying about the legal challenges to the fed and the possible challenges to the coin were technically true. But not entirely true, or entirely false either.

          You were intentionally bullshitting us and the readers here at MR with these statements. Not lying, because what you said was factually true, but bullshitting.

          You stated there was no legal challenges to the Fed actions after the crisis as though this was a sign of the validity of those actions – and you frackin’ knew there couldn’t be legal challenges! You knew! It’s not a lie. There were no legal challenges to the fed actions. It’s just bullshit – because it’s not really the important part of the truth about the lack of legal challenges.

          Then, you knew there was no standing to sue on the coin, and used really finely grained language to slide past that point. “whether TDC could withstand judicial review…” wow – You did know about this obscure legal area!! But oh man. This is awful bullshit.

          beowulf knew it this law too, and he’s a sharp enough reader to point out you probably knew the whole truth too. So he called you on your bullshit.

          I don’t even care if there is legal standing to sue on the coin – it is simply something I would have never even considered. One of the reasons we have a great team here is due to the fact we have a great spread of different strengths. beowulf is one of the very best in the world, and we’re lucky to have him here.

          We don’t engage in bullshit here at MR. I’d say the a major focus of MR is to cut through the bullshit which surrounds most economic analysis.

          James, you make really good points about usefulness of institutions, and abiding by precedent. Those are great points! It’s a big deal to use the coin because it upends well established procedure, and using legalistic methods to slide around long standing tradition can result in terrible long term outcomes!

          We can use the coin – but should we considering the damage it might do to our well established, historically proven procedures? Those are good critiques, and make for a good question. Should we use the coin?

          But you didn’t need to bullshit about the fed and the coin, and you didn’t need to compare our legalistic techniques to those of the Nazis on your very first post about MR. Nazis! On your first post about us – when you were trying to “engage” us – you bring up Nazis! I hate Nazis! Everybody hates Nazis!

          Part of the reason we focus on the accounting is to cut through the bullshit. This is especially true when JKH is doing the accounting. He’s a no-bullshit kind of guy, as many people around here know. JKH is also one of the best in the world.

          If JKH says something like “The accounting of the coin shows the effects of the coin are almost exactly the same as quantitative easing, despite the differences in the source of the funding.”, then this is good enough for me. Using the coin is platinum coin easing, until JKH says different.

          From the classic essay “On Bullshit”:

          “The fact about himself that the bullshitter hides, on the
          other hand, is that the truth-values of his statements are of no
          central interest to him; what we are not to understand is that his
          intention is neither to report the truth nor co conceal it. This does
          not mean that his speech is anarchically impulsive, but that the
          motive guiding and controlling it is unconcerned with how the things
          about which he speaks truly are.

          It is impossible for someone to lie unless he thinks he knows the
          truth. Producing bullshit requires no such conviction. A person who
          lies is thereby responding to the truth, and he is to that extent
          respectful of it. When an honest man speaks, he says only what he
          believes to be true; and for the liar, it is correspondingly
          indispensable that he considers his statements to be false. For the
          bullshitter, however, all these bets are off: he is neither on the
          side of the true nor on the side of the false. His eye is not on the
          facts at all, as the eyes of the honest man and of the liar are,
          except insofar as they may be pertinent to his interest in getting
          away with what he says. He does not care whether the things he says
          describe reality correctly. He just picks them out, or makes them up,
          to suit his purpose.”

  6. BF says

    Hi James,

    What are your views on what the US Fed did in 2008 in respect to the Bear Sterns takeover and AIG? I do not recall those quasi-fiscal bailouts being signed off by congress in any legislation.

    It would be duplicitous to suppose that it’s okay for the Fed to bailout big finance as it pleases up to whatever amount it deems necessary all without congressional approval or oversight but find matters objectionable if the Fed were assist the Treasury to avoid something as preposterous as the fiscal cliff.

    I know not of your views on the Fed’s behind closed bailouts. If the past is any guide US politicians will pontificate and then arrive at some compromised position to raise the debt limit. But let’s think just for a moment what could happen if no agreement were to be reached.

    Okay, with no agreement to lift the debt limit, the US Treasury would before it maxed out its debt limit hastily re-organise spending commitments to meet only those absolutely essential. But what are the US federal government’s essential services? Should the government stop paying the wages first of doctors or military personal serving overseas or homeland security officers or teachers? Will everyone take a massive pay cut or just work for free?

    Mass public sector layoffs might not be good for economic growth. Presumably, the US Treasury would want to remain current on its debt liabilities, or else what would happen? Quite possibly if the US government were to default the carnage in global financial markets would make the bankruptcy of Lehman Brothers look like a storm in a teacup.

    If the US government were to default how many notches would private credit agencies downgrade? Pension funds might have to sell all T-bonds due to ratings downgrade to junk status … wait no … if there is a default perhaps the US government might going entirely bankrupt or via privatisations be able to scrape together enough money to pay 10 cents in the dollar on its debt.

    I presume you realise that US T-bonds function as an international reserve asset. It is possible that bankruptcy proceedings for the US government could put the balance sheets of certain foreign central banks underwater: would they have to be closed down too? Supposing more realistically that the US government will raise the debt limit and not voluntarily go into default or bankruptcy all the posturing on the US congress is not good for the US international standing.

    My point is that the TDC is not policy choice number one but preferable to some nasty possibilities. A prudent policymaker prepares for all contingencies and one would expect that it is why the platinum coin is a legal option. One could think of a few more damaging things than minting a platinum coin and calling it money.

    Perhaps money should only be other metals or paper, oh, wait most modern money is electronic having no physicality exist as blips on computer screens. So private banks being able to create money ex nihilio for whatever purposes (say a housing bubble the fallout of which explains why public debt volumes expanded so much) is okay in your view but under no circumstances can we violate the sacrosanct nature of Fed independence (a fabrication of neoliberal minds)? Going back in time if liberal governments had not used the monetary system to serve the public purpose the fascists might have won.

    You seem to have strong reservations about the Treasury potentially being able to create as much money as it wants and worry greatly about Fed “independence”. Again should the Fed serve the public interest or limit itself to behind closed door bailouts of the financial establishment?

    The fact of the matter is that Republican “tea party” ideologues are a danger to the stability of the global financial system. I don’t think it is rationale or reasonable to live with the “inconveniences” of a system if the protagonists are irrational and liable to inflict much harm. Oh wait the TDC option is 100% legal. I mean it’s not like the Democrats won office in a democratic election and have any legitimacy to implement the policies of their choosing right? I’ll have to check my facts on that one.

  7. James A. Kostohryz says


    I think you have clearly understood one of my main objections to TDC: Namely that QE and TDC are fundamentally different in that under TDC, to state the matter in its most simple terms, the Treasury “gets something for nothing,” whereas under QE, this is not the case since a debt obligation was established. You have also understood my argument regarding the institutional damage that would be wrought by TDC.

    However, by digging deeper into the heart of the matter, your arguments in this essay ultimately serve to strengthen my points and thereby weaken the case for TDC.

    1. The equivalence between TDC and QE that you are attempting to construct in this essay depends upon there being a requirement for “exit.” A critical component of my argument assumes that the Treasury is NOT restricted in this way — i.e. that it can simply sell the coin to the Fed and that it is never obligated to buy it back. If you build into the TDC proposal the REQUIREMENT that the Treasury buy back the coin at face value at A SPECIFIC DATE, then the argument for equivalence is strengthened (though not all the way). This would be the functional equivalent of the maturity and redemption of US Treasury bonds held by the Fed. However, if you do not build in the requirement for “exit” then TDC and QE are fundamentally different at the most essential level.

    So here is a question: How do you build in a requirment that the Treasury actually buy the coin back? Well, you in fact cannot do it, unless Congress passed legislation to that effect. But, to assume such legislation as part of a TDC proposal would be patently absurd since the whole point of TDC is to evade congresisonal authority regarding increasing the public debt.

    Therefore, the conclusion is that TDC is NOT the same as QE at the most basic level. QE has a legally built in “exit” requirement — which is another way of saying that the Treasury must pay for the value that it obtained; the treasury it does not get something for nothing under QE. TDC does not have such an exit requirement, nor can it reasonably be expected to be built in. Thus, the whole argument for the equivalence of QE and TDC fails.

    2. The way you approach the institutional analysis in interesting, but it ultimately serves to prove that which you are trying do disprove.

    Yes, it is certainly true that the TDC proposal need not NECESSARILY end central bank independence, in purely formalistic terms. However, as a practical matter, I think your argument fails for two reasons:

    A. It is really not that relevant that both institutions remain formally “independent” in your scenario. Because if the Treasury has unlimited authority to create as much money it wants and whenever it wants to, then there is really no need for an independent central bank at all. In practical terms, granting this power to the Treasury makes Fed indpendence largely irrelevant, a moot point — it defeats the purpose of granting Fed independence in the first place.

    B. Related to the point above, if the Treasury can simply create money whenever it wants, Fed independence is essentially destroyed as a practical matter. Why? Because, the Treasury can in effect say: “Fed, I need you to buy my bonds (i.e. enact QE).” If the Fed say’s “no,” then the Treasury simply says, “if you do not do it then we will simply issue you another coin.” In other words, the Treasury holds all the “trump cards.” Thus, as a practical matter, the Fed will have lost all independent control of monetary policy.

    Again, the deeper you get into this, the more clear it becomes how damaging the TDC proposal is (or would be, if implemented), particularly from an institutional standpoint.

    Readers that wish to see my original critique of TDC can do so here:

    I also suggest that folks follow the following thread where I respond to various objections to my critique:

    • JKH says


      1. The undertaking in whole is a mutual arrangement between Treasury and the Fed, along the lines of the cooperation indicated in the reference to Bernanke and Geithner. This covers both both entrance and exit plans.

      2. The Feds’ commitment to conventional QE exit does not require Congressional approval. (Neither does its commitment to low rates). With Treasury cooperation, neither should PQE exit as a matter of joint Treasury/Fed undertaking.

      3. Treasury has no reason not to cooperate with the Fed on both entrance and exit plans, and vice versa. PCE entrance is rationalized by a Congressional impasse on the debt ceiling. And if adopted, PCE exit is planned and contingent on the lifting of that impasse. This is not a rogue operation by either the Fed or the Treasury. They’re in it together, however it is interpreted. And both are capable of agreeing to resume normal Treasury funding operations when Congress gets out of the way. In total, including commitments and technical equivalence as described, that might be a package that in theory is at least more marketable to the public than facilitating Congress driving the country into another recession.

      4. Congress can intervene in the operating relationship between the Fed and Treasury at any time in either direction. The whole CTRB idea is premised as an institutional structure option that Congress could exercise in the direction of a more permanent fiscal/monetary policy integration and easing of the existing bifurcated constraints. Presumably it can go in the other direction and heighten the existing bifurcation as well – by precluding joint Treasury/Fed operational cooperation in this case. But that’s an option, not an inevitability, and it would still face issues of public perception over the degree of political brinksmanship required to impede the financing of already approved expenditures – in the sense of reversing an existing legal capability as outlined by Beowulf.

      • James A. Kostohryz says

        JKH’s quote says it all:

        “PCE entrance is rationalized by a Congressional impasse on the debt ceiling. And if adopted, PCE exit is planned and contingent on the lifting of that impasse. This is not a rogue operation by either the Fed or the Treasury. They’re in it together, however it is interpreted. And both are capable of agreeing to resume normal Treasury funding operations when Congress gets out of the way. In total, including commitments and technical equivalence as described, that might be a package that in theory is at least more marketable to the public than facilitating Congress driving the country into another recession.”

        What you have just described is the essence of what occurs in authoritarian states. It’s folks getting together and saying:

        “Guys, Congress in not going its job, so we need to step in and make sure nobody gets hurt because of the ineffectiveness of these clowns” “When Congress gets its act together and do what they should be doing, then we can back off and let things get back to normal. Until then, we need to do whatever needs to be done to save the nation.”

        Do you really need for somebody to spell out for you what is wrong with this approach?

        I know you guys are passionate about TDC. And Gold Bugs are very passionate about going back to the gold specie standard, invoking all sorts of intelligent sounding legal and constitutional arguments. Both arguments are very much of the same ilk, just on different ends of an ideological plane. Only that most folks that advocate a gold specie standard at least seem to accept that that cannot be achieved without a profound political transformation that would enable a Gold Standard to be enacted through the very “inefficient” democratic process in the US. TDC advocates seem to prefer to dispense with that whole constitutional democracy mess, and when necessary, just govern by executive and bureaucratic fiat. By simply exploiting ambiguities, gaps and incosistencies in the legal system, the executive branch can do pretty much whatever it wants.

        TDC folks say that the “regret” having to resort to such shenanigans. But they justify it on the grounds of some higher order good they are defending.

        My suggestion to you: Read and learn some history. That’s what they all say.

  8. Detroit Dan says

    But “exit” is not necessary, right? The Fed can keep the bonds / coins forever …

    • JKH says

      IMO, exit ideally is contingent on but expected as a result of reversing the conditions that led to entrance – i.e. that Congress get out of the way in terms of impeding approved expenditures with debt ceiling games. See my response to James below.

      That’s all. Otherwise, IMO, Treasury and the Fed should play within the rules for bond financing, allowing for conventional quantitative easing as deemed necessary by the Fed.

      A permanent change in the rules for bond financing would require more comprehensive treatment. That is not something I have a particularly strong view on, but an institutional template for such change might be the CTRB structure I’ve suggested as an institutional option/contingency.