Monetary Realism

Understanding The Modern Monetary System…

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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  • wh10

    “Dude, you sound like you’re co-writing an Econ textbook with the author of 50 Shades of Grey.”

    How would you know? ;)

  • http://mikenormaneconomics.blogspot.com/ Tom Hickey

    Whether Tsy issues debt or debt-free money, it must make interest payments to maintain a positive short term policy rate.

    Or set the policy rate to permanently zero as Warren recommends.

    Why is it a good idea to have a small group of unelected and unaccountable “technocrats” (many of whom don’t have a clue about monetary operations or actual economics) to set the policy rate. Just how is that not a command system, given what is generally believed (erroneously) about the power of monetary policy to influence the economy? Seems like the antithesis of the free market to me, as well as of democracy.

  • Cullen Roche

    As we say, better to have a tool and not need it than to need it and not have it. I am not a big believer in monetary policy, but I don’t think there’s much rationale behind completely snuffing it out. Besides, the Fed sets the overnight rate, not the price of all money. Banks do that by ultimately setting the price of loans. The overnight rate is a factor in this, but ultimately the price of loans is set by other more important market based factors. This is not even close to a “command system”. It’s about as close to a market based system for money as you’re going to find. Banks compete to make loans based on the demand for their services. Inside money is influenced by outside money, but it’s ultimately the market that determines the price and quantity of inside money.

    And the Fed is accountable. No need to whip out the hyperbole as the Austrians do when they start claiming their stupid “audit the Fed” BS.

  • http://mikenormaneconomics.blogspot.com/ Tom Hickey

    it’s ultimately the market that determines the price and quantity of inside money.

    The yield curve is based on projections from the overnight rate and expectations of future Fed action. Banks use the overnight rate and yield curve is setting interest rates they charge based on the spread that determines the prime rate. Loans are then based on the prime rate with respect to the creditworthiness of the borrower, increasing with increasing risk. So, yes, lender in private sector do set the rates they charge but this is heavily influenced by the price they themselves pay to borrow and their expectations for rate changes in the future.

    In addition, it seems that most experts even operated on the basis of the loanable funds-crowding out model, leading them to think that the Fed actually does control the economy through monetary policy and can micromanage it better using monetary policy than would be possible through fiscal policy.

    So I don’t think that your response adequately deals with the issue of the command nature of monetary policy, or the accountability issue wrt democracy. But whatever.

  • Robert Rice

    I don’t imagine this post will make the cut given my other “entirely out of line” comments here have given the moderator good reason to promote me to the very special MR babysitter, requiring moderator approval before each post, watch list, but if you want to know, he’s just embarrassed someone dear to him forgot a copy of the book at my home after we played our game of touch. What can I say, it was inspirational.

  • Robert Rice

    lol, ironic, apparently I’ve been removed from the watch list ;-)

  • Cullen Roche

    The Fed sets policy based on market conditions. Bond traders front-run Fed. We shouldn’t completely confuse the idea of the Fed setting overnight interest rates with the Fed controlling the economy. The Fed is mostly a group of jokers guessing future economic conditions and attempting to influence the cost of inside money in the way they see appropriate. But don’t confuse that for a command economy. That’s something only economists like Scott Sumner could do. :-)

  • Cullen Roche

    When you’re a bad boy daddy puts you in timeout. When you act like a big boy daddy lets you out of timeout. I may have some “misgivings”, but one thing “mommy and daddy” didn’t do is teach me to treat total strangers on the internet without a certain level of respect. I don’t think it’s too much to ask that you treat your hosts with a certain level of respect. After all, none of this is personal. We’re just kicking around ideas and we’re all heterodox guys/gals who agree on more than we disagree on. Try to keep that in mind. After all, I hate having to monitor the actions of old men who insist on behaving like children. So please don’t make me do it. Thanks.

  • Robert Rice

    Perhaps the hosts should treat their guests with the level of respect they expect? Imagine that, instead of some hypocritical, phony baloney bullshit about me mistreating any one of you. Some of you dish it out, I return the volleys, and you cry about being mistreated because I don’t just sit here and roll over. Man up. Do you need a hug? We can trade jabs, or we can stick to the arguments. I’m all about the arguments.

    Consistency is a virtue.

  • Cullen Roche

    “Man up”? See, this is the problem. You seem to think the internet is your playground where you go can around “jabbing” with other people. I used to box and play football back in another life. That was where men “man up”. The internet? Not so much. The internet is a place where civilized people can kick around ideas and communicate in a convenient and friendly manner. Unfortunately, the lack of a face to face interaction leads SOME people to believe they’re “arguing” when really they’re just sitting in front of a computer tapping letters into a series of tubes where some jerk in his underwear is screaming into the other end. Make no mistake – I may sound contentious at times, but I am never attacking the person on the other end. At worst, I am vigorously questioning the validity of their IDEAS.

    My advice – take your internet “arguments” a bit less seriously and you’ll avoid going from a well reasoned discussion to talking about people’s “misgivings” and parents. Or not. I don’t really care.

  • http://mikenormaneconomics.blogspot.com/ Tom Hickey

    Well, we don’t, but “they” do. And they not only have the ability to influence rates across the board but they do in practice based on false ideas. While that may not be a command economy in the totalitarian sense, it is a lot more power and influence that a bunch of bozos should be granted as a matter of “political independence.” But when you add all this up, that is all the independent central banks and related international organizations like the IMF, run on neoliberalism and monetarism, it’s a significant global influence for the worse.

  • Robert Rice

    Do you actually believe the self-righteous back patting that comes from your keyboard? Pontificating about proper internet etiquette after mocking me yesterday for an argument I didn’t make:

    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! ;-)

    and,

    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.

    … both of which solicited my comments to you about bearing false witness and how mommy and daddy Roche should have taught you how not to do that. I’m sure there is a wannabe victim’s anonymous counseling available for you should your feel bads still be feeling bad. Lying in the bed you made, bud. Now, don’t forget what Jesus said about 2x4s and slivers.

    By arguments, I didn’t mean “heated discussions,” I was using the term in the technical sense used by logicians, just as I meant validity yesterday. Evaluating propositions for their truth value through an evaluation of whether a conclusion follows from true premises–I’d much prefer discussion on this. Fair enough? What do you say we let sleeping dogs lie, and return to an evaluation of ideas through genuinely respectful conversation that employees the virtues you so eagerly defend in word. Jabbing is of no interest to me, although I don’t have a problem dishing it back, should that be necessary.

  • Cullen Roche

    Uggg. The mole comment was a joke. Hence the stupid wink accompanying it. You really need to lighten up. I wasn’t attacking you or “bearing false witness”. And I am sorry if it came across like that. Sheesh.

    Have a glass of wine and take the edge off.

  • Jan

    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 break from the gold peg money printing has become unrestrained (since paper is not pegged to anything static any more) and therefore we currently have an unprecedented credit expansion which we can only overcome, as Ludvig von Mises put it, in one of two ways, a) we acknowledge that we have spent above our means now being broke and subsequently stop spending (very deflationary and hard/impossible politically) or b) we continue living in our fantasy land and go on printing to continue spending above our means and subsequently reach currency collapse due to hyperinflation/lack of trust in the paper.

    This has been proven many many (and most importantly all) times to be the outcome of irresponsible printing/dilution of money.

    Respectfully,
    Jan

  • Robert Rice

    1. Why should anyone be concerned with 2.5 billion in interest paid on every trillion of excess reserves created from FG self-finance, which the Treasury wouldn’t be paying anyway (this is a Fed IOR program)?

    2. Then by your own admission, U.S. Notes have been a fiat currency again for over four decades. And what’s confusing about U.S. Notes being utilized in FG self-finance, given it is legal and with precedence, the only obstacle being a needed update on the relic limitation?

    Whether the Treasury uses platinum coins, printed notes, or quantities of electrical current running through transistors to fund its spending, I really don’t see why we should be too terribly concerned with the means. By whatever means, we need responsible FG self-finance implemented into fiscal policy.

  • Lars

    The only wrinkle in the experience with US Notes was the high inflation it caused. A govt that monetizes its spending sounds nice to liberals because then the government has total control. Inflation be damned.

    http://macromarketmusings.blogspot.com/2011/03/three-monetary-systems-during-civil-war.html

  • Cullen Roche

    In fairness, the bigger issue during the civil war was the collapse of production. The government spending that exacerbates inflation is a secondary factor. I’ve written about this quite extensively….

  • Robert Rice

    No one is ignoring the potential for FG self-finance to lead to inflation should the FG create excess money that leads to excess demand. However, responsible money creation is not going to lead to inflation. As I argued previously, the potential abuse of authority is no argument against having the authority. It’s an argument for having checks and balances on that authority. In other words, the implication is authority with accountability.

    And the last thing motivating me to encourage FG self-finance is some nefarious interest in power. I have a different theory on my motivation, and it has something to do with the common welfare of us all. Is it possible I might be motivated by that? I could have the same motivation our founders had in wanting to make the Union a happy union.

    Paranoid concerns of boogie men in every closet and under every bed… I understand being skeptical–some skepticism is healthy–but then have a good rebutting argument.

  • Lars

    Self financing would almost certainly lead to high inflation as our system is arranged because you’d have dual money issuers. Not only would there be banks issuing money as loans, but there would be a government issuing money without liabilities. You would be better off nationalizing the banking system and then having the government issue all the money in one concentrated system. Otherwise, your idea is a recipe for inflation.

  • Robert Rice

    “…almost certainly lead to…”

    Show me price stability and self-finance are mutually exclusive in terms of a sustainable economic system. I’d be very interested in seeing that argument.

  • Lars

    Just do the math. The government spends $1 trillion per year (as they’re doing now) plus the banking system is handing out loans as usual. The self financing is new additional money in the system on top of the regular loan process. You don’t think this would cause inflation at all?

  • Robert Rice

    I don’t believe FG self-finance has to cause inflation; that’s the difference. Self-finance and price stability are compatible goals. The achievement of those goals depends on the appropriate set of policies.

    Economists might feel at times they are in similar shoes with physicists, who have spent decades trying to reconcile General Relativity with the Standard Model, but I don’t believe it is nearly as difficult to reconcile price stability and FG self-finance into a sustainable economy.

  • Oilfield Trash

    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.

  • Greg

    lars

    The amount of credit money would decrease likely if there were more debt free govt money. People dont WANT to go into debt to banks, they HAVE to. Bank loans would likely drop if there were more govt money. Of course this is exactly why banks fight this type of proposal. They want everyone spending every last dollar on debt servicing.

  • Robert Rice

    And that is exactly what I’m foreseeing in terms of policy shifts and revisions to law; the creation of a lot more debt free money, and the reduction and tightening of debt based money. The encouraging side effect is; the populace will live less as servants to the rentier class, who live in riches from no useful labor. By the time the average citizen finishes paying off the principal and the corresponding interest on their home’s 30 year mortgage, they will have paid somewhere in the neighborhood of double the purchase value. Add to this student loans, vehicle loans, credit card, etc.–apparently the citizenry enjoys living as the bankers’ servants in service to their debt’s interest payment. Many amongst the populace end up slaves, milked for their money, with just enough freedom and comfort to shut them up. Explicit slavery leads to revolutions, most will accept quite a bit of difficulty surviving as long as they have a little freedom and comfort. This is not just. Our existing system is designed to benefit the few over the many. We need more economic fairness.

  • Lars

    Most loans are consumer mortgages. So unless the government starts giving people money so they can buy homes you’re likely to be wrong. I don’t think any of you have thought this through entirely. It sounds like a typical liberal policy panacea that sounds cute in theory and would probably be disastrous once it was actually implemented.

  • Robert Rice

    Hi Jan,

    P1: Agree. (if you belong to that ideological camp)

    The hint of underlying relativism in your comment is a little concerning. Consistent with the correspondence theory of truth, a proposition is true regardless of one’s opinion or presupposed ideology, insofar as it correctly describes reality. I may be making more of your chosen wording than I ought and do not mean to be patronizing–sometimes we need to be more concerned with trying to understand each other versus picking apart each other’s comments (reading between the lines if you will; we are all in this together, right?)–but I don’t see how accepting the proposition “governments require money to operate” as true arises from a prior ideological commitment. I suppose in theory, a government could be outfitted with volunteers or dictators and their slaves, but even then. At the very minimum, I think we can agree this premise is true (that it reflects reality) of most governments, certainly those operating in capitalist economies.

    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)

    True, as we approach full employment/full production, continuing a self-finance strategy, without sufficient offsetting taxes, is likely to lead to harmful levels of inflation. However, self-finance is very useful in insufficient demand environments to provide the government with comfort to spend sufficiently as a remedy–the funding is certain to be available, the deficit hawks can’t complain about “unsustainable, accumulating debt,” and so on. The objective is to have an additional fiscal policy tool, and to use that tool in a safe and beneficial manner. Taxes and even borrowing will continue to have their use too.

    Inflation does not follow from money creation in a deterministic manner. I cannot determine if you meant to suggest such, but your comments somewhat read in this manner. Certainly money creation influences prices insofar as it leads to higher demand. But, for inflation to mechanically follow from money creation, one would have to argue inflation results in all money creative circumstances. I personally believe price stability and FG self-finance through money creation are compatible goals and can be implemented into a sustainable economy.

    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.

    True. Currency users by definition use currency, which implies they are spending restricted by income. However, the Federal Government can operate from a different paradigm. It should operate from a different paradigm. It has that authority today via platinum coins or U.S. Notes, although the latter, as has been beat to death in related conversations, is restricted by law to a useless amount. A simple update would change that.

    C: Unfortunately, your Keynesian conclusion…

    The conclusion is just a conclusion. Money creation for FG self-finance was around long before Keynes. What matters is whether it’s true, not whether I follow Paul and you follow Apollos. If we all followed ourselves and stopped seeking hero worship or to be on the hero’s team, I think we could all be more productive as a society.

    …or we continue living in our fantasy land and go on printing to continue spending above our means and subsequently reach currency collapse due to hyperinflation/lack of trust in the paper. This has been proven many many (and most importantly all) times to be the outcome of irresponsible printing/dilution of money.

    The failure of previous generations to execute FG self-finance without harmful side effects is no argument against its proper execution today. What I would like to know is what your justification is for believing price stability and FG self-finance are mutually exclusive, given this is the implication of your position?

  • beowulf

    Policymakers can wrap their brain around platinum coin easing, and part of its appeal is how similar it is to current QE arrangements– leaving the Fed in control of short-term rates. Perhaps its not the most confidence-inspiring idea to then suggest Fed should stop controlling short-term rates anyway and just let it go to 0% permanently.
    There’s a convention in science fiction that there should just be one “out of this world” thing going on with everything else staying pretty factual. When you throw in a second magical element, you lose the audience as their suspension of disbelief snaps. For example the recent Bruce Willis movie Looper was a great time travel movie until the moment it turned into a mediocre time travel AND telekinesis movie.

    That’s a sound principle. Defusing the debt ceiling crisis by funding the US Govt with platinum coin easing… THAT is a pretty dramatic dramatic plot twist. Its a good story which, as Henry Kissinger would say, has the added advantage of being true.
    I don’t think it improves the story (or, for what its worth, the economy either) to insist the govt throw its monetary policy steering wheel out the window at the same time. That would only happen after policymakers accepted a third point, they should replace it with a fiscal policy steering wheel– and add power steering while they’re at it (e.g. adjust payroll tax rates quarterly based on something like Mike’s TC rule). One step at a time, Tom, you gotta save some of the plot twists for the sequels. :o)

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

    Lars,

    You’d think we would have some good way to empirically determine how much inflation this would cause.

    We don’t because economists have been ignoring the sector balances for such a long time. They don’t even know the basics about the relationship of the money economy to the real economy – basics like how much money is actually being created at any one time.

    Until we start using Lavioe/Godley to determine these basics, we’re just bullshitting. Nobody really knows how much spending would cause inflation.

    On the other hand, you should really look at the treatment of the Platinum Coin by JKH. It’s clear – it should be called platinum coin easing because it is so similar to quantitative easing.

    So far, quantitative easing has not resulted in much inflation at all. We are at generational lows in inflation here in the United States. It seems like another 30% or so of quantitative easing would have very little or no impact on inflation.

  • Robert Rice

    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.

  • beowulf

    “Then by your own admission, U.S. Notes have been a fiat currency again for over four decades.”
    Robert, there are no US Notes circulating in the economy (the official “in circulation” total is basically what private collectors have squirreled away). Do you not see the point that Tsy can mint ANY sum of legal tender right now under current law but can only print $300 million in US Notes (and most of that is locked up by collectors)?
    Why are you focused on building a counterfactual reality that would take an enormous amount of political capital to ever pass Congress and become real (and let’s be honest, will probably never be real). Even if somehow you make your dream come true, what does that give you? Tsy would have then have the authority to print ANY sum of legal tender— in other words, what Tsy has right now with coin seigniorage under current law! Let’s not over-complicate this. Its the same basic principle that a girlfriend in real-life is better than a girlfriend in Worlds of Warcraft (though, we can agree to disagree if you wish). :o)

  • http://pragcap.com Cullen Roche

    This is why I tend to avoid theory. What you’re talking about is a total change in the way our monetary system currently operates. In order to allow self financing on any significant scale you’d have to first convince the most powerful industry in the history of mankind that their profits are about to be sliced. Banks rule the monetary system. They dominate Washington DC. So, in order to pass self financing on any meaningful scale you have to first convince the banks, bankers and capitalists that they’re about to take a back seat. Good luck with that.

  • beowulf

    >>“Dude, you sound like you’re co-writing an Econ textbook with the author of 50 Shades of Grey.”
    >How would you know?
    http://www.youtube.com/watch?v=AJXKVOxqkWM

  • Robert Rice

    I might disagree with you on whether a girlfriend in real life is preferrable to a girlfriend in WoW ;-) I can tell you of what use girlfriends in real life have served, but that would probably be a little inappropriate. I will just say it’s been one degenerate after another… Have you seen some of those cartoon ladies? I don’t play WoW, but I know a couple who does, and my god; where can I purchase my ticket into the matrix? I guess I’d grant your point in this way; if Cinderella existed in real life and not just her evil step sisters, well that’d be different. I’m sure the good, well-rounded girls who have their crap together are out there, just all too few and far between IME. I’ve never run across one.

    At any rate, the reason I brought U.S. Notes up was to provide evidence the FG has in fact engaged in self-funding before and retains this authority on the books. There is historical and legal precedence. You don’t believe that strengthens the argument for the use of a TPC?

    Now, some argue the TPC is a loophole. As much as I generally disagree with that claim, they cannot level that allegation against U.S. Notes; they were created for the very purpose of self-funding. So, to try and draw all my points together and clarify them as well as I can, I’m killing three birds with one stone:

    1. There is historical and legal precedence for self-funding.
    2. U.S. Notes are not subject to the “loophole” rebuttal.
    3. In the event the TPC is regarded as too much of a loophole, the authority to print U.S. Notes for the purpose of self-funding remains an alternative “plan B” already on the books, although the limitation will need to be raised/lifted (which may be no more difficult that raising the debt ceiling and hence require no more political capital; self-funding, btw, is a preferable long term solution to doing away with the debt ceiling).

    You’ve seen me defend the use of a platinum coin here on this site. You’ve also seen me mention, I don’t know how many times over the last six months, that there is a limitation on U.S. Notes issuable. You’ve seen me do both, rather vigorously in fact. Have you considered that you are missing the point of my comments?

    There is an underlying theoretical belief we should be arguing for in conjunction with the present means available to the FG for self-funding (e.g., the platinum coin, U.S. notes plus changed limitation, you name it); the FG needs to self-fund in some contexts. This is the economic theory underlying the legal argument.

  • Robert Rice

    I feel so sad for the bankers :-(

    J1pIMagDPck

  • Robert Rice

    Video didn’t embed, ruined my joke. Twice sad :-( :-(

    [youtube http://www.youtube.com/watch?v=J1pIMagDPck&w=420&h=315

  • Robert Rice

    I give up…

  • Oilfield Trash

    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.

  • Oilfield Trash

    To long a day Substitute “the argument” for C

  • beowulf

    “Now, some argue the TPC is a loophole. As much as I generally disagree with that claim, they cannot level that allegation against U.S. Notes”

    That’s because you can’t call something that’s flatly illegal a loophole.

    “In the event the TPC is regarded as too much of a loophole, the authority to print U.S. Notes for the purpose of self-funding remains an alternative “plan B” already on the books, although the limitation will need to be raised/lifted”

    There is no authority to print US Notes for the purpose of self-funding. Tsy will first need the cooperation of Congress to raise the US Notes ceiling (and the prohibition on using US Notes as reserves would have to go). What makes this plan less than optimal is that the entire crisis is due by the lack of cooperation of Congress with Tsy on raising the debt ceiling. That’s not a solution, that’s a crisis swap.

    “Have you seen some of those cartoon ladies? I don’t play WoW, but I know a couple who does, and my god; where can I purchase my ticket into the matrix?”

    Words fail me.

  • Greg

    Lars
    Most loans are consumer mortgages. So unless the government starts giving people money so they can buy homes you’re likely to be wrong. I don’t think any of you have thought this through entirely. It sounds like a typical liberal policy panacea that sounds cute in theory and would probably be disastrous once it was actually implemented.

    Yes most loans are consumer mortgages but they make a lot of their money at the margins with credit card debt, student loans and car loans too. I don think giving money for people to buy homes is a policy suggestion by anyone Ive seen.

    Reducing the NEED to acquire credit just to exist, even if by only 10-20%, would make a significant impact I believe.