Using the Coin = “Platinum Coin Easing”

There is a review of the Coin which has the worry the coin would “Destroy the Currency” of the United States. At one point I would have felt this way too about the Coin. The coin seems to be totally different than what the fed has done in the past.

But we found the coin would have much the same impact as traditional quantitative easing. Issuing and using the coin would be just like QE I, QE II, and the ongoing QE III in impact on our system. It could be considered to be Platinum Coin Easing.

Here is how it the accounting works in traditional quantitative easing (with massive help from JKH):

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.

Here is what happens when using the Coin:

The Mint/Treasury deposits a $ 1 trillion coin at the Fed. That leaves the Fed with a $1 trillion coin asset, which it has bought by crediting the Treasury balance at the Fed, in effect after the internal bookkeeping. 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 – that cost is now reflected as a negative interest margin (no income on the coin minus interest on reserves) that the Fed passes to Treasury. Same result as in traditional QE.

These are effectively the same. This is why using the coin could be called “Platinum Coin Easing”.

As far as we can tell, QE does not have much impact on inflation. So far, a few trillion of traditional QE has had little or no impact on the value of the U.S. Dollar. Oil is only a bit higher today than it was in 2006, 2007, and lower than it was in 2008. The USD is stronger against some major currencies like the EUR. Inflation in the United States is at or near generational lows.

And this is just in the United States. Japan has done it’s own version of QE for over a decade, and their inflation rates are extremely low.

So it’s likely that any Platinum Coin Easing would not destroy the currency of the United States.

 

 

 

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Clonal Antibody
3 years 4 months ago

Mike,
When discussing the Platinum coin, people talk about the debt ceiling, but they forget the other law that is also operational, the 1864 law that limits the Treasury to issuing no more Than $450 million in notes, with no limits on the coins it can isssue. So the Treasury could issue 1 trillion $1 coins to pay everybody. It is perfectly legal, but a bit onerous. The TDC is no different to issuing 1 trillion $1 coins, which is perfectly legal, and the government coud, as in Roam times, choose to pay everybody by coin.

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Robert Rice
3 years 4 months ago

FYI, the amount U.S. notes are limited to is 300 million. It’s changed at various times.

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Clonal Antibody
3 years 4 months ago

You are right on that. It was up to 450 million, and then later reduced and capped at $300 million in 1875

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