Trillion Dollar Coin Explodes: Krugman, Congress is talking about it

Krugman talks long and loud on the Coin:

“First, as a legal matter the Federal government can’t just print money to pay its bills, with one peculiar exception. Instead, money has to be created by the Federal Reserve, which then puts it into circulation by buying Federal debt. You may say that this is an artificial distinction, because the Fed is effectively part of the government; but legally, the distinction matters, and the debt bought by the Fed counts against the debt ceiling.

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

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

Krugman does not know it yet, but he will figure out the coin is Platinum Coin Easing. If we are forced to use the coin, the accounting shows the impact will be similar to quantitative easing.

It’s just a matter of time before Obama brings up the coin. It’s a few months at most. Here is Rep. Jerry Nadler talking about the coin:

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

I asked whether he was serious.

“I’m being absolutely serious,” he said. “It sounds silly but it’s absolutely legal. And it would normally not be proper to consider such a thing, except when you’re faced with blackmail to destroy the country’s economy, you have to consider things.”

I don’t think the coin will be used, but the idea of the coin has now hit critical mass. He’s a congressperson, so he only knows what his aides are telling him. If his aides are talking about it, you can be sure all of the democratic aides are talking about it over drinks. It’s just part of the everyday conversation in the support staff of congress.

Nadler is right – it’s not normally proper to consider such an extreme tactic. It is terrible it had to come to this, but here we are. It would be good if we just didn’t have a debt ceiling at all. Then, it would be so much nicer if the government had a well established, and commonsensical method to allow for the Treasury to print money directly – along with rules on how much and when this could be done.

But we don’t have those nice things, so we’re forced to watch the spectacle of the greatest country in human history resorting to a legal trick, in order to pay its bills.

If you look back at my writings on the Traders Crucible, I was against the Coin for a long time. I thought it was a farce, and degraded our nation. But I was wrong.

The coin is easy to understand. I can explain how it works to my 65 year old mom, and she totally gets it. The coin makes explicit we are printing money. We’re making money out of nothing, and it can help our society. Those are some of the good part of the coin.

But there are bad parts of the coin too. The dangers of printing too much money exist. These dangers are far from us today, almost comically far away. But this will not always be the case, and now everyone knows we can print money.

Giving the power to politicians to print money is a bit terrifying – this power has caused problems before. Although, looking at the list of hyperinflaitons, you’ll be struck by the lack of long term impact of hyperinflation. Poland isn’t doing all that badly today, and recovered faster from their bout of hyperinflation than we have from our little depression.

Every policy, every choice, every action has a string of consequences – and not all of these consequences are good, even if the overall impact is positive.

(Update 1-4-2013 4:44pm  The most interesting man in the world could decide to end the debt ceiling crisis at any time. https://twitter.com/DosEquisSR/status/287323265981112320  )

(Update 5:31pm I finally get my dream of a Zero Hedge Post on the Trillion Dollar coin, with a completely awesome chart on the total value of platinum available. )

(Update 6:36pm We are going international with an article in Spiegel Online)

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Admin
3 years 4 months ago

Good for Nadler for stepping up to suggest something out of the box. I would note that he misspoke here…
“There is specific statutory authority that says that the Federal Reserve can mint any non-gold or -silver coin in any denomination, so all you do is you tell the Federal Reserve to make a platinum coin for one trillion dollars…”

Of course its the US Mint that strikes coins, not the Fed. Just as with the Bureau of Printing & Engraving (which prints currency), the Mint is part of the Department of the Treasury.
Nadler’s got the right idea though and I’m pretty sure the federal squirrels in the Tsy building will know who to call. :o)

Guest
Clonal Antibody
3 years 4 months ago

Sign the White House Petition

we petition the Obama administration to:
Direct the United States Mint to make a single platinum trillion dollar coin!

With the creation and Treasury deposit of a new platinum coin with a value of $1 trillion US Dollars, we would avert the absurd-yet-imminent debt ceiling faceoff in Congress in two quick and simple steps! While this may seem like an unnecessarily extreme measure, it is no more absurd than playing political football with the US — and global — economy at stake.

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Detroit Dan
3 years 4 months ago

Robert Rice– That was brilliant. Thanks…

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PeterP
3 years 4 months ago

I don’t agree that the coin is like QE. What you have described in the post that aims to prove it is:

“Treasury issues $ 1 trillion in bonds. That puts $ 1 trillion in its account at the Fed. Therefore, reserves are down $ 1 trillion. The Fed immediately buys the bonds in exchange for reserves. End result is that Treasury is up $ 1 trillion in its account; Fed is up $ 1 trillion in bonds. On day 2 (illustration purposes), Treasury spends the $1 trillion. Reserves increase by $ 1 trillion. End result – deficit financing of $ 1 trillion with an all-in cost to Treasury of the interest rate paid on reserves.”

The fact that the Fed bought back bonds is irrelevant in the above. It just describes 1T in new fiscal deficit. The coin is identical, therefore I would argue that it is equivalent to deficit spending, not QE.

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Robert Rice
3 years 4 months ago
Krugman: In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. He seems to believe his claim is self-evident. Perhaps I am being obtuse at the moment; why would the Treasury Secretary care to “buy back” money created ex nihilo to fund government spending or utilized to pay down government debt? Is that money creation and subsequent spending not debt free? Where is the resultant liability to the Treasury? The platinum coin proposal is not the fundamental issue before us. What the PC brings to our attention is a much needed conversation on government self-financing, by whatever means. It is the crux. Leaving our history of periodic government self-finance aside and considering its theoretical value, in my judgment, there are many advantages to this policy. The counter-concern of the naysayers is abuse. What if the government creates money in excess and causes harmful levels of inflation, or is wasteful, or whatever? I believe this to be a specious and self-refuting argument, one that could be leveled against the very idea of government itself. What if we give our peers authority to police us, to wage war, to tax, to borrow, to ___________and they abuse it? I do not find the potential abuse of authority to be a sufficient basis for rejecting authority. The implementation of an economically useful and beneficial policy is not to be dismissed over slippery slope what ifs. Yes, government will have to use its authority responsibly, as it must with any of its authority. Responsibility is the essence of our union. There is no government which will operate effectively without the individual choice to honor our authority and hold each other accountable to it.… Read more »
Admin
3 years 4 months ago

We reside in a capitalist economy that constrains the power of govt by design. Why is that so hard for MMT to understand and appreciate? The entire design of our political system constrains the govt in various ways. No branch has unchecked powers. And the power to create money is certainly not something we just leave up to a few people in the govt. Yes, there are loopholes and we all know the govt could (in theory, Modern Monetary Theory) just pluck from its money tree. But that’s not how the system has been designed. It’s almost like MMTers read JKH’s CIA and then just decided to ignore it because it made too much sense.

The govt is constrained by design. For a reason. Just like you’re constrained from killing your neighbor. Yeah, you can do it and the govt kills people all the time, but that doesn’t mean this power is totally unchecked. The govt has chosen to outsource money creation to an oligopoly of pvt entities. That’s 100% in keeping with our govt’s design and our economic design. There’s no reason to go off in the MMT fantasy land where we ignore the actual institutional design and just start stating the obvious (that the govt could, in theory, create money from nothing). We can understand everything MMT teaches and still stay completely within the realm of reality and our institutional design. The MMT myth is totally unnecessary and a complete distraction to understanding reality.

This loophole is a temporary fix to a silly problem. I like Barro’s idea – eliminate the debt ceiling in exchange for eliminating this loophole. No-brainer.

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vimothy
3 years 4 months ago

It comes down to the fact that the government ultimately has two and only two choices when it wants to get hold of some real economic resources: either it expropriates them outright, or it borrows them and replaces them at a later date. That’s it. There is no third choice.

All of these things like taxes, selling bonds, the platinum coin and the “operational” ability to issue as much nominal money as you like are at the end of the day simply ways to achieve (a) or (b), or some combination of the two.

The government is obviously limited in its ability to borrow as much as it likes from the real resources of the economy because its ability to return those economic resources is itself limited. And if the government does not intend to return what it borrowed, because, for example, there is no entity above it that can force it to do so, then it did not borrow the resources; it expropriated them.

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vimothy
3 years 4 months ago

Mike, I agree that the government can create output, value, wealth or whatever. But how does it do so? It can’t just magic things out of thin air. It has to do get hold of some economic resources (people, land, stuff), and put them to work, just like anyone else who wants to create something. Then the question is, how does it get hold of those resources, to which the answer can only be (a) or (b).

Admin
3 years 4 months ago

Its like Kipling said…
“For the strength of the pack is the wolf, and the strength of the wolf is the pack.”

Admin
3 years 4 months ago

Hey V, the govt can put resources to work by redistributing them. So, take from Peter to pay Paul via taxes for X work or it can deficit spend by selling bonds to Peter thereby obtaining funds to pay Paul for X work. I like to think of this as a perpetual flow of income (plus NFA in deficit spending). In a time like now when the output gap is wide this is positive. In essence, MRists are demand siders when the economy is operating below full capacity. Thoughts?

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vimothy
3 years 4 months ago

I think that we’re all agreeing here, but I’m just not being very clear about what I’m saying.

The question I was trying to address is, given that if the government wants to do something, it needs to take control of some resources to do it, how does it go about doing so.

It can either borrow resources or it can (ultimately) expropriate them as taxes. Some of these activities will make the economy bigger, some (I think we can probably agree) smaller and some will have no effect.

Whatever happens, it remains the case that the resources it used to do so had to come from somewhere.

Admin
3 years 4 months ago

I can’t say that you’re empirically right, but I would certainly guess that you’re right. The govt could theoretically do some very stupid things with the way it procures funds and then utilizes those funds. I think that’s ultimately the problem most people have with pvt vs public spending. Pvt spending is inherently more efficient because if it’s not efficient then it dies whereas public spending that is inefficient suffers no consequences in many cases.

But yeah, ultimately, the govt must move resources from pvt to public. The system we’ve designed is rather brilliant because the govt chooses to use inside money for its spending purposes. And inside money exists because it has supposedly undergone some private approval process (loan creation). I would argue that the problems are multiplied when the pvt sector doesn’t appropriately manages risks at the loan level and then govt uses these resources in inefficient ways. Lots of moving parts there. Richard Werner has written about this “disaggregation of credit” which is a concept I think blends rather nicely with all of these understandings….

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vimothy
3 years 4 months ago

Mike, Where the issue might be is that I don’t find the government’s ability to issue money (or platinum coins for that matter) to be that economically significant as a source of finance. Ultimately, it’s just another way to skin the same cat.

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vimothy
3 years 4 months ago

I agree that monetary recessions can happen. To me, a monetary recession suggests something where the solution won’t require the governemnt to borrow or expropriate anything. By definition (surely), what it requires is money, which the government can issue without cost.

What I was alluding to up there (and probably a bit opaquely), was how the government finances its spending. I don’t think that the fact that the government can issue currency is that significant as far as being a financing source goes. It’s certainly not true that it gives the government unlimited ability to spend, unless you think that it’s true that the government can expropriate an unlimited amount of the economy’s resources.

Admin
3 years 4 months ago

V, sorry if I am interrupting, but resources precede taxation naturally. So the govt moves resources from private to public domain for public purpose. I think we’re on the same page here. Currency is what MR calls “outside money”. It serves to support inside money (bank money). The money system is designed around the private sector with inside money taking the dominate role and govt using outside money in various ways to influence inside money.

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Robert Rice
3 years 4 months ago

Cullen, government self-finance has been around a lot longer than MMT. They have no monopoly on the proposition. I don’t even think about MMT anymore except when you mention it.

Government self-finance isn’t a fairy tale fantasy, the Treasury has this authority right now. How “loopholee” the platinum coin is, is up for debate. I’ve argued it isn’t that loopholee, but it’s irrelevant even if I prove mistaken. The creation of U.S. notes is current Treasury authority for government self-finance, but as we’ve discussed before, the quantity is limited by a relic of a law that could simply be updated. Update the limitation and print million dollar notes. Same effect as the platinum coin, no one can argue it’s a loophole, problem solved.

You can only go so far with debt given interest becomes excessively burdensome at some point. If we stay on our current trajectory, the government has no choice but to eventually create money.

Admin
3 years 4 months ago

No, the Treasury prints cash to meet the demands of federal reserve banks who issue it to banks whose clients need it to draw down accounts in inside money. The Treasury does not print cash to finance its spending. Cash is a facilitating feature in a system designed around inside money. Neoclassicals and some heterodox schools get this relationship entirely backwards. The entire monetary system is designed in a very specific and deliberate way to ensure that no entity has too much power. Not even the banks control the money supply because their issuance is demand based! It’s quite logical. This shouldn’t be controversial. Anyone arguing for self issuance does not appreciate or care for the actual deliberate dispersion of powers here. You might as well get rid of all the checks and balances in govt if this is the line of reasoning that is to be used because nothing is more powerful an potentially corrupted than the ability to create money.

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Robert Rice
3 years 4 months ago

There is a difference between Federal Reserve Notes, which as you pointed out the Treasury prints on behalf of the Fed to meet the needs of the public demand for cash (and what not), and United States Notes, which the Treasury used to print (and still has the authority to print but chooses not to because of redundancy with FR notes) for government self-finance. Government self-finance via “Green Backs” is how the Union funded the Civil War:

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

For the Federal Goverment to carry out its duties, it needs money to spend. When taxes are insufficient, borrowing is not always an option. This leaves government self-funding, which has worked in the United States before. It can work again.

But frankly the historical precedence is irrelevant. Our concern is the truth value of propositions and the soundness of arguments. Here’s my argument:

P1: Government needs money for spending to operate and accomplish its duties.
P2: There are three avenues to funding government spending; taxes/fees, borrowing, and money creation for self-funding.
P3: Taxes/fees and borrowing are incapable of funding government spending in all circumstances.
C: Therefore, money creation for government self-funding is necessary under some circumstances.

The argument is valid, and as long as the premises are true, the argument is sound. In which case, which premise is false? The only one I can imagine you disputing is P3. Proving the converse strikes me as a tall order, but if you’d like to take a swing, I’m open-minded to your thoughts.

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Oilfield Trash
3 years 4 months ago

Robert

Here’s my argument in response

P1: Government needs money for spending to operate and accomplish its duties.
P2: There are three avenues to funding government spending; taxes/fees, borrowing, and money creation for self-funding.
P3: Taxes/fees and borrowing are incapable of funding government spending in all circumstances.
C: Therefore, money creation for government self-funding is necessary under some circumstances.

Your current wording of P2 is not necessarily ‘descriptively false,’ but it definitely implies restrictions to create money for self-funding are absent from your argument. Nothing wrong with that, until you analyze your argument in the domain for which it was offered.

A domain specifies the conditions under which a particular argument will apply. If those conditions do not apply, then neither does the argument.

Since in the USA there are restrictions to the creation of money for self-funding; P2 with it current wording will not apply. If you remove P2 C is false.

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Robert Rice
3 years 4 months ago

OT,

I appreciate your comments and genuine attempt to deal with the argument.

If you remove P2 C is false.

No, if you remove P2, the conclusion wouldn’t necessarily be false, the argument would be invalid.

As to the argument’s validity and the truthfulness of P2, I was making an argument for the necessity of FG self-finance. The implication of the argument is; even if I was to grant current policy/law does not allow for self-funding, it should change. In other words, current law/policy is irrelevant to what the FG ought to be doing. Ought was my concern.

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Oilfield Trash
3 years 4 months ago

Robert

“No, if you remove P2, the conclusion wouldn’t necessarily be false, the argument would be invalid.”

You are correct, my logic is somewhat rusty, and C would be invalid not necessarily false.

We agree (I hope) that in the context of the current domain C is invalid and therefore not relevant.

“As to the argument’s validity and the truthfulness of P2, I was making an argument for the necessity of FG self-finance. The implication of the argument is; even if I was to grant current policy/law does not allow for self-funding, it should change. In other words, current law/policy is irrelevant to what the FG ought to be doing. Ought was my concern.”

In this context your argument, at least to me, seems to be transforming to one that is heuristic; since C as structured in the current domain is known to be invalid, but as you state above C was offered as a first step towards the more general conclusion that the FG ought to be doing self-finance.

No problem offering C in a heuristic context, but without offering empirical evidence C would generate a positive heuristic, you run the risk of reasonable criticism C has an ideology bias.

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Oilfield Trash
3 years 4 months ago

To long a day Substitute “the argument” for C

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Jan
3 years 4 months ago
Hi Robert, You wrote; “Here’s my argument: P1: Government needs money for spending to operate and accomplish its duties. P2: There are three avenues to funding government spending; taxes/fees, borrowing, and money creation for self-funding. P3: Taxes/fees and borrowing are incapable of funding government spending in all circumstances. C: Therefore, money creation for government self-funding is necessary under some circumstances. The argument is valid, and as long as the premises are true, the argument is sound. In which case, which premise is false? The only one I can imagine you disputing is P3. Proving the converse strikes me as a tall order, but if you’d like to take a swing, I’m open-minded to your thoughts.” Some comments below; P1: Agree. (if you belong to that ideological camp) P2: Money creation for self-funding is complicated as you need to take time/cycles into perspective. Short term; yes, it is possible to do this. Long term: it is possible (we have done it) although not sustainable in long term as money creation is simply slicing the pie of wealth into additional pieces – as such, printing money does not create more wealth and if it did, we could all be happy campers just printing all day long. (wouldn’t that be great) P3: Agree. However, as any responsible person or business entity abiding to common rules – if you are out of money to spend, you shall not spend. Period. C: Unfortunately, your Keynesian conclusion is what has brought us this financial bomb we are in currently since we have gradually spent above our means over several decades and consequently Nixon had to close the gold peg due to too much of this (lost correlation with the scarce amount of gold due to too much paper money per ounce reserves). After 1971 and the… Read more »
Admin
3 years 4 months ago

The argument is only valid as long as the govt changes the way it finances itself. At present, there is no need for US Notes because they “serve no function that is not already adequately served by Federal Reserve Notes”. Of course the US govt could choose to finance itself if it wanted to. But again, this is a very specific change in the way the govt issues money. Right now, the US govt must procure funds via taxes or bonds or this one loophole. And I very seriously doubt this loophole will exist in 5 years. We all know the US govt could pluck from its money tree if it wanted, but that is not the current design of the system. Perhaps in extraordinary times (like a civil war) the US govt might change the laws for various purposes, but until that happens this whole “self funding” thing is a moot point. The US govt is designed in a very deliberate fashion so as to disperse the power of money creation AWAY from the govt. Again, this shouldn’t be controversial. Anyone who understands the structure of our govt and economy can see that this all makes complete sense.

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Robert Rice
3 years 4 months ago
The argument is only valid as long as the govt changes the way it finances itself. By definition, an argument is valid if the conclusion necessarily follows from the premises. The reason my argument is valid is because the conclusion does in fact necessarily follow from the premises. There is no contingency “if such and such changes, then the argument is valid;” it already is valid. If you’d like to dispute that, then like a good logician, show the formal fallacy. Because you won’t be able to show the formal fallacy (there is none), the conclusion follows from the premises. And because the premises are true, the argument is also by definition sound, which implies the conclusion is true. Money creation to fund government spending is a necessity within some circumstances. In which case, to be consistent with the truth (i.e., good economic theory), if you believe the government can only tax or borrow, then you must also believe the government’s existing system is flawed or the circumstances wherein self-funding is required will rarely if ever arise. I don’t imagine you believe the latter since I can point to a number of circumstances in U.S. history where self-funding was needed and used, which is to say the empirical evidence stands against such a belief. So what are you arguing with me about exactly if you are being consistent and hence believe the government system is flawed? I’m advocating for government self-finance because it is a matter of rational economic theory; your point in opposition is what? You want to focus on the secondary issue of current U.S. fiscal operations? Current U.S. fiscal operations do allow for U.S. government self-finance. It’s already on the books–regardless of your belief about trillion dollar platinum coins and loopholes, U.S. Notes were explicitly created for… Read more »
Admin
3 years 4 months ago

Robert, you and I both know there is a statutory limitation of $300 million for US Notes. If you want to argue that that sufficiently backs your argument in a system where the govt has over $16T in liabilities then fine. Then I also have a black mole on my ass that sufficiently categorizes me an African American! 😉

These notes are not only a relic of the pre-Fed era, but they are totally insignificant in the larger scheme of things and there would need to be a required change in the statute to make them relevant. So, your point is irrelevant unless laws are changed. Unless 0.018% is statistically relevant to you….

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Robert Rice
3 years 4 months ago

You’d mentioned awhile back that mommy and daddy gave you a good education. Well, I’d hate to fault mommy and daddy for your shortcomings, but they should’ve taught you not to bear false witness about another man. Perhaps you weren’t a good listener? Whatever the case is, when you want to deal with my arguments, let me know and we can have a substantive conversation. I’ve been clear, and you seem to be going out of your way now to oversimplify and otherwise misrepresent my position rather than making a genuine effort toward an evaluation. It’s all rather ironic given the other day you were railing against the academic economic establishment for their failure to hold their beliefs as falsifiable. What was it Jesus said about taking the 2×4 out of your own eye before you insist on removing the sliver from another’s? I think that transgression begins with an “h”.

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Robert Rice
3 years 4 months ago

Cullen,

You wrote:

Being able to issue 0.018% of the outstanding liabilities is your solution to the problem?

Prior to this I wrote:

The creation of U.S. notes is current Treasury authority for government self-finance, but as we’ve discussed before, the quantity is limited by a relic of a law that could simply be updated. Update the limitation and print million dollar notes. Same effect as the platinum coin, no one can argue it’s a loophole, problem solved.

Still having difficulty identifying the misrepresentation? I never argued or even suggested the current quantity of U.S. Notes the Treasury has authority to issue is the solution to our spending shortfall and/or debt.

At any rate, I’m certain there are more productive, fruitful endeavors for me to pursue. You of course remain welcome to deal with my actual arguments.

Admin
3 years 4 months ago

You’re just being difficult for no reason. You explicitly stated that US Notes were evidence of existing self financing:

” Current U.S. fiscal operations do allow for U.S. government self-finance. It’s already on the books–regardless of your belief about trillion dollar platinum coins and loopholes, U.S. Notes were explicitly created for government self-finance.”

Then I pointed out that your point was irrelevant because it would require law changes to be statistically significant. A point you agreed with from the start. So we agree. You know this law must change. No need for the screaming, I am better, my time is so important stuff….you made a statistically irrelevant point knowing it was irrelevant. Big deal. So Congress can change the laws. But dont just blatantly misconstrue what US Notes actually are so you can say “once upon a time”….it’s a waste.

I don’t see the big disagreement here and what’s worth getting upset over. The US govt is currently designed so that it is not self financing. Yes, there is the coin loophole and your $300MM measure which allows the govt to spend for a few minutes. Yes, we could change the laws. But these laws are self imposed for good reason. There is a very rational dispersion of power that has been designed. There’s nothing irrational about it and it’s totally in keeping with our form of govt and our capitalist economy. I don’t see the big fuss.

Admin
3 years 4 months ago

“Bear false witness”? Bartender, I’ll have what Robert’s having!

I said US Notes were statistically irrelevant and would require a law change in order to be relevant. This whole conversation has been about cash and its relevancy as a self funding source. In your initial response to me you said we could:

“Update the limitation and print million dollar notes.”

In other words, CHANGE THE LAW AND PRINT MILLION DOLLAR NOTES. So US Notes require a law change because they do not presently meet the needs for self funding. Which is exactly what I said from the start. You already agreed with me before you declared your Pyrrhic victory and then accused me of “bearing false witness”. I didn’t bear false anything. I didn’t misrepresent your position. I used your own quote against you. You already agreed with me that US Notes require a law change, which was the point I originally made (the system is not currently designed for self funding of govt)….Sheesh. No need to get upset. We agree that self funding is an option if rules are changed or loopholes are used. What’s to get get worked up about?

Oh, and for future reference, you should leave people’s parents and personal insults out of future comments. Insults are where losing arguments go to die. You will NEVER build your own argument up by tearing someone else down personally. Never.

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Robert Rice
3 years 4 months ago

I didn’t think you had an answer. Your comment was cute though, I’ll give you that.

Admin
3 years 4 months ago

Being able to issue 0.018% of the outstanding liabilities is your solution to the problem? The US govt spends 10 billion dollars a day and 300 million in US Notes is your irrefutable evidence of self funding? Talk about a Pyrrhic victory….Robert, let’s be serious. That’s an irrelevant number. You know it. I know it. The coin idea is silly, but at least it’s not insignificant in numerical terms…US Notes aren’t proof of a damn thing except an era long gone that doesn’t exist in any relevant sense and ain’t coming back.

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Detroit Dan
3 years 4 months ago

Brilliant! Thanks…

Admin
3 years 4 months ago

“There is no reason Government self-finance cannot be implemented with checks and balances to minimize the risk of abuse while allowing for the benefits to flourish.”

The “checks and balances” are already built into the system– Tsy can only spend what Congress appropriates. Any appropriation outlays in excess of receipts (and of course the tax code is written by Congress as well) must be funded by either borrowing or with coin seigniorage.

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Robert Rice
3 years 4 months ago

Sure, I think it is arguably true our current system has sufficient C&Bs. At the time of writing though, my concern wasn’t to evaluate whether appropriate/sufficient C&Bs are in place. The goal was to look at the bigger picture, not get too bogged down in the minutiae of the trees. Even if it proves to be true there isn’t sufficient C&Bs currently, there’s no reason there can’t be. Hopefully you can appreciate I was tryin’ to keep the post at a more manageable length, instead of describing our current system, looking at its pros and cons, you get the idea. Baby steps 😉 Step one, open minds to government self-finance, step two, evaluating implementation.

Bear with the choir preaching, but we have a history of self-finance, which is in some respects currently legal, e.g. the platinum coin, U.S. notes (though not nearly enough), I would argue the Fed using money creation and OMOs to replenish primary dealer accounts so they can in turn purchase more treasuries at auction hence funneling said created money to the Treasury is pretty close to government self-finance (although this money is accounted for on the Treasury’s balance sheet as a liability, which is really just an accounting fiction once the Fed holds the debt; the government owes itself money; why are we worried about that “debt” exactly?). The government self-finance waters are muddy though, not as clean and explicit as they really ought to be. We would all do well to accept the concept of government self-finance and thoroughly clean up the procedures/means of doing such, along with the C&Bs, and what not. This IMO is what our on going debt ceiling debacle and paranoia over boogie man debt encourages us to look toward.

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Robert Rice
3 years 4 months ago

It amazes me Congress commits to spending, and then as a country we sit around arguing about whether to fund it. If Congress commits to the spending, the Treasury needs to fund it, or Congress is setting the country up for default. Is it responsible fiscal policy to commit to spending and then argue about whether to fund those commitments? We should not sacrifice the faith and credit of the United States or even threaten such. That has been a priority since day one, and so it should remain. Government self-finance eliminates the nonsense over whether we’re going to fund the spending. Eliminating the debt ceiling would have the same effect (although a less desirable option IMO, as the accumulating debt affords the deficit hawks regular ammo to deceive the masses into believing the country is bankrupt). If we as a country need to argue, let’s argue about what the spending is being allocated to or about how much, not whether we fund it.

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