Monetary Realism

Understanding The Modern Monetary System…

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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132 Responses

  1. MMTdebtkiller says

    I’d like to add, that to require the Fed to borrow many billions of dollars to redeem certain mature securities at the Fed, which have already been redeemed is absurd. If the only purpose is to allow the Treasuries to be issued again with new maturity dates, a simpler mechanism might be to stamp a new maturity date on them and reissue them at whatever time the Fed desires. The Fed and the Treasury are both arms of the government.

    Also I argue that any Treasury security purchased by the Fed has its debt obligation to whomever purchased the security redeemed. But the buck stops here at the Fed. As government and money creator it redeems whatever security of the Treasury it purchases.

  2. MMTdebtkiller says

    I originally was drawn to Scott Fullwiler’s advocacy of the trillion dollar platinum coin as a way to cancel the national debt at the Fed. Since then I’ve also looked into the basis for the national debt, and I think it doesn’t exist. The Fed is an agency of the government and it buys securities with fiat money it creates (out of thin air), which is a power the Constitution only gives to Congress and any institution Congress delegates it to. So, if the Congress has a deficit in its appropriations, Treasury has to come up with money to cover the deficit. It issues T securities and sells them at a public auction at which about 35 dealers in government securities for various banks participate. Some of the dealers buy the securities. And that at this point constitutes a debt of the United States to whatever bank holds the securities in question. When the Treasury gets its money from the bank in return for the securities, the banks’ reserves drop, perhaps precipitously. The Fed comes along and at some point buys these securities from the banks to restore their reserves. But it buys them with money it creates out of thin air (government power). That clears the original debt of the government to the banks in question, because the banks surrender the securities to the Fed. But does the Treasury owe the Fed for buying and holding the securities? I would argue it does not, because whatever else the Fed may be with respect to certain private banks, all of these operations are covered by Federal law, so this is government acting. Hence the Fed simply redeems the
    debt obligation in the securities to any private entity that could trace itself back to the original purchase of the securities through some chain of private purchases. And the Fed is not private. It is the redeemer for the government. Hence there is no national debt at the Fed.
    Now, that said, suppose we come along and use a $10 trillion coin to get Federal Reserve dollars credited to a Treasury account at the Fed. That’s O.K.. But should we buy the securities in order to clear a supposed debt? If the debt has already been redeemed, then there is no authorization for the second purchase. The securities at the Fed can be retired or reissued with new maturity dates to new private banks, in order to take money out of circulation to control inflation. But the Fed would be the originator here of this, not the Treasury. The debt obligation is just between the United States and any entity not the United States. So, I do not see the use of the platinum bullion coin as legal, since it would involve spending by the Treasury without Congressional authorization. The authorization only covered the security originally issued until it was redeemed.
    However, redeeming the national debt at the Fed, may not be the only use for the coin account at the Fed. The Treasury can draw on it to cover future deficit spending with debt-free money. It can use it to buy up the securities at the Social Security Trust Fund and other agency Trust Funds. These are true government obligations that can be redeemed.
    There is another reason to consider it folly to reimburse the Fed for its purchase of the T securities from the banks that got them from the Treasury. Why would we need to reimburse an entity like the Fed that creates its money out of thin air in any quantity desired? The concept of a debt here to someone who does not draw on a prior existing source of money for its purchases, has lost some of its essential ingredients. It creates the money out of nothing. It did not exist before it purchased the securities. That’s another reason to question whether there is a true debt here at the Fed.

    • JKH says

      At one level, the problem is one of information disclosure – the rational interpretation of the existing government balance sheet as a pure accounting consolidation – in the context of its various insitutional components, including intra-institutional holdings of debt by the Fed and the trust funds. This can be done – but it isn’t being done particularly well these days.

      At another level, the problem is one of contingent institutional design at an operational level (beyond mere accounting consolidation) – i.e. the best design for what is currently a set of separate institutions – and there is potential for change, there but there is also lots of room for debate about that.

      Finally, the most fundamental problem is the rational interpretation of why the government issues bonds. And there I think there the general discussion (e.g. MMT inspired) misses the mark. The fact that a monopoly issuer of reserves might never need to have a related institutional entity issue bonds is a necessary condition for the rational elimination of government bond financing altogether – but it is not a sufficient condition, IMO. And because it is not a sufficient condition, there may be good reasons why the debt on the books of the Fed and the Trust Funds should not be eliminated.

      But that’s a much longer story.

      • Jose Guilherme says

        A related question, perhaps best addressed to a proponent of MMT:

        Should consolidation of the Treasury and central bank accounts be extended to a government owned commercial bank?

        In many countries of Europe and South America the government is a majority shareholder – in some cases the single shareholder – of commercial banks. In Brazil, for instance, the government owns two of the largest commercial banks in the country.

        Say the government sells T-bills or bonds to said banks. If those securities stay in the banks’ books then it seems we’re watching another instance of “the government owing to itself” – just like it does whenever the Fed buys back T-bonds that were originally held by the private sector.

        I haven’t seen this possibility addressed in the MMT literature. Any ideas on this issue over here at MR?

        • JKH says

          “A related question… ”

          I’m planning a post on this sort of thing at some point – as an extension of the contingent institutional approach.

          Given that starting point, IMO it may not be a slam dunk that your question is best addressed to MMT :)

          Although – a reminder that this series of posts examines the “what if” more than the “should”, at least at this stage.

          I agree the internal accounting becomes ever more interesting as one expands the scope of government banking.

        • Michael Sankowski says

          Great question, btw. Are these private sector institutions or are they public sector institutions?

          They are acting as private sector, but the ownership is (can be) public in these circumstances.

          It’s a very blurry line.

        • Jose Guilherme says

          Blurry line, indeed.

          By owning a commercial bank the government could – if it so wished – bypass the private markets in order to sell its debt securities.

          It would simply instruct its bank to buy the bonds at the coupon and price of the government’s choice.

          It would be a perfectly legal way to overcome the prohibition against the central bank buying government securities in the primary market.

          And then the central would buy the bonds to the government owned commercial bank as a normal part of its operations in support of the policy rate.

          Neat, clean and legal.

        • beowulf says

          Widen your gaze Mr. Holmes. Remember, you own a bank.

          “The Fed defines the money stock as MZM, or Money at Zero Maturity. The interest on money is the MZM own rate.
          The first thing to notice is that the quantity of MZM held by the public [as bank deposits and currency] is already roughly equal to the quantity of Federal Debt held by the public, and more often than not, the former exceeds the latter. Therefore the public is already willing to hold the entire U.S. federal debt as zero maturity money, paying an absurdly low interest rate – on average, a negative real rate.”

          That’s the RSJ article I think is Win (JKH disagrees). RSJ comes up with two different ways to answer his own question: “How would one go about seizing seignorage income from banks?” :o)

        • beowulf says

          Well, there used to be a Postal Savings System (which predated the Federal Reserve by a couple years and eventually shut down in the 1960s).

          What was interesting about it was prior to creation of the FDIC in the 30s, the Post Office offered the only sort of deposit account backed by Uncle Sam’s Full Faith and Credit. Some of the Postal Bank’s business practices were so odd that they were surely established by Act of Congress– for example, they fingerprinted every depositor and capped each deposit account to a just a couple thousand dollars. And I just learned this from the wiki article… “the locations of the central depositories… were selected by merit rather than geography, based on those [post offices] with the best efficiency record in the state.”
          OK, that’s insane. Here in Georgia, Atlanta, Macon and Savannah were at that time the only cities with US District Courts (the only place the Post Office can sue or be sued), so naturally the Post Office sited its Georgia depositary in … Brunswick! That is to say, a beach town in the middle of nowhere (especially before interstates) between Savannah and Jacksonville FL. That may be the craziest thing I’ve read all month. But I digress. :o)

          Despite its manifest lack of business acumen, I can’t imagine any sort of public bank that wasn’t run by USPS, seeing as they’re overstaffed anyway with a Post Office in every zip code. Where the plan falls apart is that existing banks– especially the community bankers that even Wall Street-hating congressmen listen to– would understandably protest that its unjust for the federal govt to both regulate them and compete against them. So I don’t think Brunswick will become a banking town again anytime soon.

        • Michael Sankowski says

          FYI- Japan has a postal savings system, and it’s huge.

          Most of Japan’s government debt is held internally and “Japan Post also held about ¥140 trillion (one fifth) of the Japanese national debt in the form of government bonds.”

        • beowulf says

          Ha, that reminds me of Albert Speer (German industrial genius/ Mike Brady doppelganger*) mentioning in his memoirs that the German Post Office, for God knows what reason, had its own atom bomb project.

    • beowulf says

      You’re all over the map with your terminology. Only the party that issues debt can redeem it (which means trading reserves for a bond and then canceling it). Authorization is a term of art for Congress providing legal authority for a govt program; appropriations are then made to fund authorized programs (no real reason for it be a two step process except it gives the House & Senate Appropriation committees a finger in every pie). The Secretary of the Treasury’s bonding power has a statutory debt limit, but if he redeems debt, he can use the freed up space under the debt ceiling to issue new obligations.
      I’m sympathetic to the argument that the Fed is part of the govt and should be counted as part of the Tsy balance sheet. Unfortunately, Congress thinks otherwise. Besides, before canceling out Fed debts on Tsy books, a better start would be canceling out Social Security trust funds since obligations held by Secretary of the Treasury are exempt from debt ceiling and, after all, he is managing trustee of SS trust funds… Congress doesn’t like that argument either.

      Finally, you should check out JKH’s piece “Treasury and the Central Bank – A Contingent Institutional Approach”. As F. Scott Fitzgerald would say, he’s got the whole equation*.

      *”You can take Hollywood for granted like I did, or you can dismiss it with the contempt we reserve for what we don’t understand. It can be understood too, but only dimly and in flashes. Not half a dozen men have ever been able to keep the whole equation of pictures in their heads.” The Last Tycoon

      • Robert Rice says

        ” Only the party that issues debt can redeem it (which means trading reserves for a bond and then canceling it).”

        I don’t think I am making you aware of anything you are not already, but his idea is that the Federal government issued the debt via the Treasury to the primary dealers, and then the Federal government repurchased that debt from the primary dealers via the Fed, which conceptually is a lot like debt redemption, given it is all the same Federal government issuing the debt and then repurchasing, i.e. redeeming it. While his point is well made from a conceptual angle, your point is also well made from the technically correct angle–it’s not the same agency within the Federal government redeeming the debt; the Federal government counts its beans by agency not by viewing them all as a synthesized entity. Both points are good points.

        It is ultimately noteworthy that the Federal government owes itself a fair bit of money. This sounds a lot like phony debt, debt-in-name-only, debt we record on paper as a technicality we could choose to record differently without changing any operation. Our current counting scheme is analogous to removing money from my right pocket with my right hand and handing that money to my left hand to put into my left pocket, and then claiming my left hand owes the right hand! You can count like that I guess, but it’s all a bit silly given it’s ultimately the same entity.

        In any event, his argument against the TDC is unsound for the reason you noted; one of his premises is technically false–the Treasury has to redeem its own debt under current accounting practices, even if that debt is owed to another Federal government agency. It might be stupid accounting, but it is the accounting currently used. The TDC is a solution for the situation as it currently exists in terms of operations and how the government views them.

        It’s unfortunate the populace lacks an awareness of the fact the Federal government owes itself a fair bit of money, as we’d have much less hysteria about a “debt crisis,” which equates to a boogie man ghost story told to the kiddies at summer camp. The only crisis in this “crisis” is a crisis of ignorance and the sub-optimal actions which arise from it.

        FYI MMTdebtkiller, there are 21 primary dealers currently:

  3. Robert Rice says

    For those interested, Balkin on the TDC, the debt ceiling, as well as his political and legal recommendations to the President (which the President appears to be following):

    July 28th, 2011


    December 9th, 2012

    For the second link, you may need to scroll down to the title “How to Head Off the Debt Ceiling Crisis in 2013”.

  4. beowulf says

    Well the Continental dollar troubles had more to do with the British Army printing money than anything Congress did.
    “The British counterfeits (colonial currency) of continentals were excellent—so good, in fact, that in April 1777 the king’s counterfeiters ran an ad in a New York newspaper offering to sell their false currency to loyal subjects of the Crown at a rock-bottom price—the cost of the paper it was printed on,” =

    Confederate economic performance sort of hinges on the fact the rebels lost the war. The full faith and credit of a defeated country isn’t worth much. The real wage numbers too a bit suspect since they don’t factor in the unpaid labor slaves provided before Grant and Sherman brought peace to the South versus the wages the freedmen were paid after they were liberated.
    As for WWI and WWII… One of the purposes of the Federal Reserve (created just prior to WWI) was to allow direct financing of the govt in national emergencies without it looking like direct financing. During the Second World War in particular, there was no way Tsy could have pegged interest rate up and down the yield curve (and it certainly did) without the Fed buying up Treasuries in the secondary market without limitation (the 20% to 30% of GDP a year Tsy was borrowing during the war in modern terms would be $3 trillion to $4.5 trillion, year after year).

    • James A. Kostohryz says


      1. As I said, I do not think the Continental or Civil War experience is relevant either way. The facts I cited are merely for reference. War-time shortages and many other factors were at play.

      2. “One of the purposes of the Federal Reserve (created just prior to WWI) was to allow direct financing of the govt in national emergencies without it looking like direct financing. ” Again, what the Fed did here in the world wars and with QE is totally different from TDC. With the World Wars, all the debt was had to be paid back — and it was. There was no pretending there were free lunches to be had as TDC does. In many ways, I think it is fair to say that this development of “indirect” financing with “assistance” or “accomodation” by the Fed was a fundamental fact which contributed to the prestige of the USD and which contributed to its future stability. The US proved, through this experience, that fiat could be handled responsibly. Why anybody would want to squander this hard-won credibility by engaging in TDC shenanigans is puzzling. I will answer my own question: I don’t think TDC advocates want to squander anything; I submit that they have simply not though through all of the implications. I don’t think they have thought hard enough about the sorts of institutional arrangements and policies that have enabled the USD to be a relatively stale fiat currency and how TDC could ruin that.


      PS I actually think TDC is a darned creative idea! And it must have come from a very smart mind. For that, I salute you! I just ultimately think that implementing this very interesting idea would be a collossal mistake.

  5. Robert Rice says

    I think big picture we all need to consider the Federal government self-funding its own commitments seriously. We are in precarious times with many difficulties facing us, all largely stemming from an insufficient money to prices ratio; the majority of the populace doesn’t have enough money and a demand drought is the result. A lot of real people are suffering. We can fix these problems, or we can ignore them and continue with the same’ole, same’ole; kick the can, rub enough elbow grease on the machine to keep it barely functional, you name it. The Continental Congress, in creating this country, funded much of the Revolutionary war effort with money it printed. The Civil war was largely funded with United States notes which were created for the specific purpose of funding the Federal government’s needs. Pivotal points in this nation’s history, both funded by a government’s authority to create its own currency. Now, we still have that authority today. Why aren’t we using it? In both examples I’ve referred to, the outcome of government self-funding was to our benefit. Those are empirical facts. And good economic theory supports government self-funding. People can call the TDC some kind of loophole, but it is simply using authority consistent with our supreme legal document. That is no loophole, that is doing what we ought to be doing, what we have a duty to do for ourselves and for future generations.

    • James A. Kostohryz says

      1. I think many will find it bizzarre that anybody would cite emergency measures during existential national emergencies such as the Revolutionary War and the Civil War as models for dealing with the type of economic malaise that currently affects the US.

      2. Just for the record, the history of the “direct financing” during these conflicts is not exactly flattering to the TDC case this policy was associated with massive inflation in each instance — including a massive decline in real wages. The “direct financing” that the Continental Congress engaged in during and after the Revolutionary War produced all sorts of chaos that left scars for generations. Inflation in the Civil War Union, partially fueled by Greenback finance, provoked a doubling of general price levels during the war, and inflation reached many thousands of percent in the Confederacy which engaged in similar monetary self-funding. This inflation hit the working poor particularly hard. For example, between 1860 and 1865, the real wage index in the Union fell from 100 to 82, and in the South from 100 to 11. Just for the record, I do not believe that Revolutionary War or Civil War finance are in any way relevant to debates over contemporary monetary policy. But if these exampls are going to be discussed, folks should at least know some basic facts.

      3. Since the civil war, the US has over a period of over a century painstakingly evolved a complex set of monetary institutions that effectively precludes the Treasury from engaging in direct finance. An enormous edifice of laws, regulations and judicial precedents support these institutions that severely limit the power and functions of the Treasury. The notion that the executive should be allowed to run roughshod over this evolved and long-established institutional edifice by resorting to a loophole (and a presposterous one at that) is simply ridiculous.

      The process of building up institutions and the rule of law in a liberal and democratic society is very painstaking and takes many generations. It is also a fact that these liberal democratic institutions do not always work with the efficiency we would like. But those institutions that are the bedrock of social stability and liberty can be destroyed very quickly by the sort of shenanigans involved with TDC. People should not allow themselves to be seduced by these sorts of facile solutions.

      • Michael Sankowski says


        We had 28% real growth during some periods of WWII. Real wage declines were swamped by massive increases in the standard of living with a decade of growth happening every year.

      • Greg says

        I think its bizarre that you characterize this simply as a “malaise”. How is real unemployment (not just measured unemployment) of close to 20%, youth unemployment significantly higher, people in debt up to their eyeballs and the political climate of the country being completely unamenable to reasonable discussion NOT an emergency. There are a lot of people hurting, most completely NOT of their own doing and the system they depend on is not just broken but actually working against them in many ways. We shouldnt have to wait for wars to act in public interest.

        And BTW, the process which derived the institutions you so cherish most definitely was NOT democratic. It was designed by a handful of plutocrats.


        Why do you use entitlements to describe paid benefits? In addition, an increase in those payments most definitely would be stimulative.

        • Oilfield Trash says


          “Why do you use entitlements to describe paid benefits?”

          An entitlement is a guarantee of access to benefits based on legislation. The key wording in this definition is access as defined by legislation.

          “In addition, an increase in those payments most definitely would be stimulative.”

          Well I agree it may stimulate something but if the current monetary institutional arrangements are what determines the ‘measure of value’ in the medium of exchange for the unit of account. Simply adding more unit of account does not translate into a stable or growing ‘measure of value.

        • Greg says

          Actually I think we need to add more “unit of exchange”, dollars.

        • James A. Kostohryz says


          Our established institutions can handle this. Using a loophole to give us an escape route from having to do the hard work of making those institutions work would be a collosal mistake.

        • Michael Sankowski says

          The colossal mistake was politicizing the debt ceiling debate. I want to be 100% clear about this – the mistake has already been made

          We cannot put the debt ceiling genie back into the bottle. It’s already out. The debt ceiling is now in play, right now, in 2012, and it will be in play until some new precedent is set on how to deal with the debt ceiling.

          This is the problem – the mistake has already been made. We can’t go back to deal with this problem in the old way, because the #$@up already happened. The old ways do not work for this problem. If the old ways worked, the debt ceiling would not be a problem. Yet, it’s a real and large problem. I read about this problem and see it every day, on every level of the news – from good morning america to the most sophisticated analysis by people like Goldman’s Jan Hatzius.

          Now, in someways, I hate the Trillion Dollar coin. I wish we did not have to use it, or even consider using it. It is horrible that we’re forced to use such a clownish tactic. You can ask beowulf – I was 100% against the Trillion Dollar coin at the beginning when he first suggested it. I thought it was a farce and diminished the idea of state issued money. Unfortunately, it happened that we actually need the freakin’ coin in order to abide by the constitution. I almost fell out of my chair when this debt ceiling crisis came along – who would have thought people could be so short sighted as to think questioning the debt of your home country would be a winning political ploy? I’m disgusted the debt ceiling came under political fire. This to me is very close to treason.

          But in other ways, I love the coin. It’s bringing the debate about money issuance into the minds of economists and central bankers. Governments have the right and ability to create money. Of course they do. We’ve just completely abdicated that power and responsibility to the private sector, through modern banking. Should all money be privately issued, and then have the government get the scraps? No, probably not in my MR-informed book. And can we trust the government. Yes, yes, we can. See this onion article for reasons why I think we can trust the same guy with his finger on the button with our money supply.


          “Did you know that if you sort of put enough weight on the button with your fingertip, you can feel a little slack there before it actually clicks?” Obama added. “Thank you, and God bless America.”

          “After just one year in office, Jimmy Carter wrote in his diary, “You don’t leave a man alone in a room with a button like that,” and two years later the pages were simply covered with the word “button” over and over again. In 1974, Richard Nixon rapidly pressed the button 12 times just prior to his resignation, but Pentagon officials had already disconnected its triggering mechanism.”

          If we trust the government to not unleash nuclear war, we should trust them with at least some ability to issue money.

          Please don’t bring up Weimar. I’ll bring up Brazil. We can trust the government, at least some.

        • James A. Kostohryz says


          This quote of yours sums up the whole motivation of behind the TDC proposal:

          “The old ways do not work for this problem. If the old ways worked, the debt ceiling would not be a problem.”

          Proponents of TDC thing the system is dysfunctional, because they are not getting their way. Therefore, they are willing to destroy fundamental institutions in order to get their way on this.

          I can understand your frustration, Michael. But if people want stable and strong liberal institutions, they are going to have to put up with the “inconveniences” of such a system.

          If you want quick and easy policymaking run by technicians then American-style representative democracy — with all of its inconveniences such as separation of powers, bicameral legislature, executive veto, judicial review and etc. — is not your cup of tea.

        • Michael Sankowski says

          wow. Just wow.

          I have no idea where you are getting such crazy ideas. It’s bizarre, James, really bizarre. I propose ideas, I don’t try to enforce them with a gun, with bullying rhetorical techniques, with back-door persuasion on people in power, or even with passive-agressive comments.

          My blog and writings are public. People can adopt them or use them as they see fit. I fully expect people to debate these ideas. It’s the reason I have a public blog, where I state my ideas as well as I can!

          Change requires actual change. We don’t have the same system we had in the 1870’s, or the 1970’s and we are better off for it. The system changed because some people dared to make suggestions about how the way things could be done.

          Unfortunately, someone already made a massive change the way things are done. It may require some huge change in the way things are done to undo the damage and change which has already been done to our existing institutions. The usage of the debt ceiling to extract political compromise is a huge, huge change in our institutions. It’s a terrible mistake.

          You don’t like the coin – great! But please don’t hide behind “We haven’t done it that way in the recent past, so anyone who suggests different is trampling our institutions.” The economic status quo of 2005 was trampled on in 2008 by a huge crisis. The political status quo of 2010 was trampled by some people who did not realize the long term impacts of their change.

          What we did in the past is no longer working very well. That’s fine, but don’t expect me to support the status quo when it was already busted.

          If you want to know my agenda, here it is: high levels of economic growth for the middle class. That’s my agenda. Nearly all of my writing and thinking at MR is informed by this agenda. Please feel free to let people know I want high levels of economic growth for the middle class.

        • Greg says

          “If you want to know my agenda, here it is: high levels of economic growth for the middle class. That’s my agenda. Nearly all of my writing and thinking at MR is informed by this agenda. Please feel free to let people know I want high levels of economic growth for the middle class.”

          I knew it !! You have finally been exposed! You think we are a better place to live when 300 million of our citizens can be consumers and help businesses grow than when we only have 35 million!

          Socialist lite!

          Socialist lite!

        • Michael Sankowski says

          lol! Man, I got wound up by James. Turns out getting accused of being anti-democratic makes me angry. I did not know this about myself.

        • beowulf says

          If the Department of Treasury, our second oldest cabinet department, isn’t an established institution, nothing is. There is a fedreal law on the books that will allows the Secretary to deal with a crisis situation lawfully and effectively.

          If the debt ceiling is raised in the meantime, that would be great news. If the debt ceiling isn’t lifted, the Secretary of the Treasury will have a choice between violating his statutory duty to issue appropriation warrants, the debt limit or using a legal tool at his disposal to avoid both violations of the law.

        • James A. Kostohryz says


          You know better than than that. Of course the Department of the Treasury is an established institution. But the term “institution” does not refer to the mere entity. It refers to a whole web of laws, regulations, practices, policies and culture that enables this entity things to get done. The bottom line here is not that the law you cite exists; we all agree it exists. The bottom line is that the law has been on the books and has NEVER been utilized nor interpreted in this way. Furthermore, it was never intented to be used in this way. In fact, it is abundantly clear that virtually all of the norms governing the Treasury were intended to prevent the Treasury from doing folks are proposing it do via the TDC. Thus, it is a clear violation of the Treasury’s own institutional norms — not to mention a whole slew of other norms.

        • Jose Guilherme says

          I think I can see your point now and would sum it up in the following, non technical form:

          The Treasury was born a virgin and should never – never – be allowed to mess around with the Fed :)

        • Michael Sankowski says

          This is the crux of the matter. The debt limit questions the debt of the united states, the 14th precludes questioning this debt, the coin gives a legal path to avoid violating the 14th.

  6. Robert Rice says

    The issue is the consistent need he feels to share irrelevant value judgments about this and that rather than simply making an argument. “You don’t understand,” “travesty,” etc., etc., etc. Just make an argument. We all have value judgments too which I’m sure we’d be happy to share with him (and some have) as they refer to him, but at the end of the day, who cares? What matters in these conversations is true and false propositions and the soundness of arguments. The rest is just an obnoxious distraction.

    The authority to coin comes from the Constitution Cullen, I can think of no better way to fix this that for the Federal government to start creating money consistent with it’s Constitutional authority to fund its commitments. Sure, a trillion dollar coin is certainly a unique (and efficient!) way of creating the money the FG needs, but hey, it’s entirely consistent with the authority of our sovereign government to do what it has done from the very beginning, nay even before the beginning. The FG is a currency issuer. To even have to write this to you feels a lot like preaching to the choir.

    Embrace beowulf’s idea, it’s perfect. It’s what we need and have needed for a long, long time. We need more currency issuance to fund government spending. Our needs as a country are far too important–infrastructure retooling, a lot more R&D, and so on–all of which will improve our lives dramatically. These measures will put people back to work with labor that actually has utilitarian value. This opportunity is far too important to pass up.

    • Oilfield Trash says


      While I do not agree with all of James’s arguement, I think he makes a good point that in the current monetary and fiscal structure the institutional arrangements are what determines the ‘measure of value’ in the medium of exchange for the unit of account.

      When QE was announced with IOR I remember everyone screaming banana republic, and the gold bugs started pounding the war drums; JKH, Cullen and others did a good job explaining this was nonsense. However, these changes originated and are managed by those very same institutions.

      The TDC would be a changed not only in long standing traditional arrangements between those institutions, but also a change in control. I think it is resonable to argue these institutions would see this as a negative and it would have a corresponding impact on the ‘measure of value’.

      To me the issues is not can the goverment mint a TDC as a matter of law, but within the current monetary and fiscal structure will it enhance the ‘measure of value’ for the unit of account.

      You list some very strong uses for fiscal spending “Our needs as a country are far too important–infrastructure retooling, a lot more R&D, and so on–all of which will improve our lives dramatically”, but TDC or not how do you ensure the goverment will spend more on these things and not simplly increase spending on entitlements.

      • Robert Rice says

        With your vote! We must all act as responsible citizens and elect officials concerned with the good of the country. If we don’t, the one thing we can count on is degenerate politicians doing what degenerate politicians do.

  7. James A. Kostohryz says

    To all here:

    If I did not respect this site and MR, I would not have posted here. So I am not calling anybody “heathen traitors” as Mr. Rice claims above. If I used strong terms, and it offended anybody, I regret that. The question is whether I have backed up those strong claims. I did, and there has been no real rebuttal in this thread of my points.

    • Cullen Roche says


      You haven’t offended anyone. Your posts have been healthy pushback and well thought out. We wouldn’t have formed MR in the first place if we weren’t able to consider all angles and consider that we might be wrong about things. So thanks for taking the time to make thoughtful and intelligent comments.

      And hey, I ultimately agree with you. The coin is not the best solution to fix this. But I think it’s sparked an important discussion about the efficacy of the debt ceiling.


      • beowulf says

        “You haven’t offended anyone.”

        Except for the part where he called us Nazis.

        • Michael Sankowski says

          Did he call us Nazis? That’s close to banning.

          We don’t ban many people here, but they do get banned.

          Consider this your warning, James.

        • beowulf says

          Upthread, his section title shows a commendable amount of self-awareness.

          “4. Godwin’s Law. I avoid mentioning Hitler/Nazi Germany in my writings. In over 400 published articles, I believe it is the first time I have ever mentioned this regime. However, it happens to be a fact that this is the paradigmatic case cited by legal scholars regarding the issue of legalism and its incompatibility with the rule of law.”

        • Michael Sankowski says

          Yeah, saw that. Doesn’t matter. He compared us to Nazis. Us – you and me and Cullen and JKH. Nazis. And he did it on our blog.

          He’s been adding a lot to the debate, and I’ve enjoyed reading him. Doesn’t matter. It was out of line. We almost banned a few people around here for being mean to others, and we banned people for being completely annoying. We don’t ban for disagreeing, or even edit or block comments. We ban for being a jerk.

          I gave him a warning, and he seems like the kind of guy who will behave once he knows the rules.

          I do wish he would drop the Mr. Sankowski. Jim, drop the Mr. Sankowski, please. 😉

        • James A. Kostohryz says


          I didn’t call you or anybody else Nazis nor did I compare anybody to Nazis. If you think I maligned anybody’s character or motives with the Nazi label go right ahead and ban me because I have no interest in participating in discussion on a site where the administrators would choose to interpret my remarks in that way. So I pass that “warning” right back to you.

        • Cullen Roche says

          No one’s getting banned. Let’s not let this spiral into childish banter. But maybe just don’t use the word “Nazi” in the future. I’m a potato eating Irishman who doesn’t care about much more than the proper pour of his Guinness and the size of my steak. But you never know who’s reading your content on the internet. The word Nazi on the internet is like screaming fire in a crowded theater. Best just to not do it….

        • James A. Kostohryz says


          I fully agree that it is best to avoid that word.

          I wonder if anybody here agrees that it is also best to not jump on people that mention that word when it is clear from the context that no harm or insult was intended?

          Cheers to all!

        • Michael Sankowski says


          I used to think I would be elwood. But my recent girth is more Jake like.

  8. Robert Rice says

    I’m still in the process of writing a rebuttal James, but I’m just so excited and eager to respond given all this bombastic, inflammatory rhetoric you keep flailing about–“embarrassment,” “travesty,” “law mockers,” “underminers of the country”–what ever shall I say, this kind of writing gets me all giddy. It’s like the good lord hath set before me twenty models and a kilo of cocaine for a night of unforgetable entertainment; the temptation doth welleth up inside of me.

    You wrote:

    “The Trillion Dollar Coin is the name given to a proposal that would enable the US Treasury to avoid the restrictions legally put in place by the congressionally mandated debt ceiling.”

    Pray tell kind sir, if you have two legal paths to some end goal, why choosing one path makes a mockery of the other? How does choosing to issue currency, which said authority Congress possesses from the Constitution, makes a mockery of the debt ceiling? Your characterization is equivalent to, “He decided to take the train to work today so that he wouldn’t get busted for speeding.” Well genius, it’s legal to travel on Amtrak.

    The TDC is not some gimmick envisioned to avoid restrictions legally put in place by the Congressionally mandated debt ceiling–you’ve got this all cattywampus. To circumvent the debt ceiling rule as you are characterizing it (perhaps not entirely your fault given some of the proponents of the TDC haven’t been precise in their vision of this policy), the TDC would have to allow the Treasury to borrow money and somehow avoid it being counted on its balance sheet, a short of off-the-books borrowing. Now that would be circumventing and otherwise undermining the debt ceiling.

    Your argument assumes borrowing is the only relevant means to government funding, when in fact money creation has as much Constitutional authority (article 1, section 8) behind it. The Federal government is not required to borrow to fund its commitments. It is a currency issuer, and it can use that non-convertible fiat to purchase whatever suits its fancy. That isn’t a loophole, a get-around. It’s about choosing one of the two relevant legal paths (money creation versus borrowing) to the same funding goal.

    Now if we might tone’r down a bit, I think you’ll find the boys here just altogether lovely to converse and debate with, even inviting of your thoughts and critique, not a bunch of heathen traitors disregarding the United States as some afterthought unworthy of their respect.

    • James A. Kostohryz says

      Mr. Rice:

      “Pray tell kind sir, if you have two legal paths to some end goal, why choosing one path makes a mockery of the other? How does choosing to issue currency, which said authority Congress possesses from the Constitution, makes a mockery of the debt ceiling? Your characterization is equivalent to, “He decided to take the train to work today so that he wouldn’t get busted for speeding.” Well genius, it’s legal to travel on Amtrak.”

      No offense, but this comment betrays a pronounce lack of understanding regarding how institutions work and how the rule of law operates. As I have pointed out, all legal systems have conflicts, ambiguities and gaps. This fact does not at all imply that all interpretations/applications of the law in such instances are equally valid. There is virtually no law or institution that could not be brought down by legalistic recourse to those conflicts, ambiguities and gaps. I could provide thousands of examples, but I proveded you with several in the essay.

      • Robert Rice says

        Yeah, you continue to appeal to proper jurisprudence, which I find particularly fun given the Treasury’s coining authority was delegated to it from the Congress based on Congress’ Constitutional authority. Now you know the Constitution has primacy of law in terms of legal intent as well as written code. So if you are concerned with following the “spirit of the law,” as I mentioned in my previous post, why are you ignoring the Constitutional authority our Federal government possesses to create money for the purpose of funding its commitments? That was the purpose of Article 1 Section 8, that isn’t some legalism as you suggest. You’ll note the Constitutional authority to borrow money which you seem to be hung up on and of course do not regard as a legalism, is all of two sentences away from the Constitutional authority to coin. You’re mistaken whether we consider this in terms of “the spirit of the law” or in terms of the strict wording therein.

        • James A. Kostohryz says


          The stability and effectiveness of institutions depends largely upon shared deference for traditional understandings and/or interepretations of what a body of law, taken as whole means. You are entitled to your own particular interpretation of the Constitution and the laws. However, that interpretation is contrary to very long-standing traditional understandings that underly US monetary institutions. I understand you do not like US monetary institutions. That is fine. However, in a constitutional democracy, or in any stable society, you do not radically change institutions by legalistic resort to loopholes. To do this is to invite instability, arbitrariness and injustice — and that is no hyperbole.

          Using your line of argumentation, many misguided people believe that income taxation is illegal because they have noted serious legal problems that they believe invalidate the 16th ammendment as well as inconsistencies within the IRS code and other legislation. Using your line of argumentation, Austrian School advocates believe that the Fed is unconstitutional, that paper money is illegal and that the only money that the US is constitutionally authorized to issue is silver coins.

          All of these arguments are absurd and wrong for the same reasons that the arguments for TDC are absurd and wrong.

        • Robert Rice says

          Repeating your argument I’ve already refuted isn’t a rebuttal James… Where are your supporting premises defending your assertion my understanding of the relevant passage in the Constitution is mistaken? I suggest you make a little more effort to offer up some evidence instead of merely repeating your unsupported conclusion.

          Let’s keep it simple; why was the 1st Congress given the authority to coin money? What was the spirit of the relevant clause in Article 1, Section 8?

        • James A. Kostohryz says


          You have not even begun to address a single one of my arguments, much less refuted any of them.

          But, just to review: I have already established that the existence of conflicts, gaps and ambiguities in a system of laws does not make competing (linguistically valid) interpretations of the law of equal legal or moral force. No knowledgable person would dispute this statement. Furthermore, no reasonable person would dispute that your particular interpretation of the law per TDC is simply inconsistent with centuries of constitutional jurisprudence, legal precedent and institutional practice that are constitutive of the monetary institutions of the US. So, to be clear: Your TDC stance has scant legal or ethical legitimacy, not because your legalistic interpretation is not linguistically viable, but because it is in direct contradiction with the established understandings enshrined in constitutional, legal and institutional precedent and practice.

          But you need not feel so alone, Robert. You have many kindred spirits such as the folks proclaiming that Americans need not pay the income tax and that the Fed and paper money must be abolished — for the legalistic method of argumentation of these folks is exactly of the sort you have employed here.

        • Robert Rice says

          You forgot to answer the question James:

          “Let’s keep it simple; why was the 1st Congress given the authority to coin money? What was the spirit of the relevant clause in Article 1, Section 8?”

          I sit waiting with baited breath for your answer. It was conspicuously absent amongst your rambling nonsense about how I haven’t even addressed your arguments or refuted any of them, blah, blah, blah. You haven’t established that my position is legalism. You continue to mischaracterize it as such, conveniently of course. But then that just begs the question, doesn’t it? And do you know which question it begs? See above.

  9. James A. Kostohryz says


    Thanks for your reply.

    1. I think I understand perfectly what the TDC is about. I described it in my article: It is a policy which takes advantage of a loophole that would enable the Treasury to evade a law and run roughshod over established institutions. I fully agree with you that the debt ceiling is a “silly” law, and I also agree with you that it is terrible thing that this law is being used the way it is by politicians. However, you speak of answering silliness with silliness, as if there an equivalence. No, there is no moral, legal or insitutional equivalence between the use and abuse of the debt ceiling legislation and the TDC shenanigans.

    2. Regarding my supposed hyperbole. I certainly do not think it is hyperbole to state that implementation of TDC would be incredibly destructive of the monetary institutions and integrity of the US. Sure, opponents of QE made similar arguments about that policy. But it does not logically follow that because the same things were said before in one context (QE) that similar statements will be proven wrong in a totally different context (TDC). Of course, you could be correct that QE and TDC would produce the same results, but that is precisely the point that needs to be proven. I have stated clear reasons why I believe the TDC would be destructive; it is simply not a rebuttal to reply that other folks once said QE would be destructive. These policies are two different things that can be expected to have different results, or so I claim. And nobody has made a persuasive argument that they are the same or that they would have the same results. One might plausibly argue that inflation would not result in the short term. Let us assume for the sake of argument that this were indeed the case. It remains, I believe, an undenaible fact — virtually by definition — that TDC would utterly destroy the integrity of monetary institutions. And for reasons I have argued here and elsewhere, monetary institutions actually matter. For this reason and others I have cited I believe that it is a grotesque mistake to compare QE to TDC in terms of potential damage it would do. Please note that I was a vocal supporter of QE, so I was not one of those did not understand that it would not cause inflation. But, again, I claim TDC is a fundamentally different matter and I have explained why. To this point, nobody has actually addressed the reasos I have cited as to why these two policies are different. and would likely have very different outcomes.

    3. I understand MR well as I have read everything you have written about it. I happen not to agree with some of it, which is quite different from my not understanding it. In the case of the two issues you mentioned: A) You say the government will spend the same amount of money in both cases. This is far from being a persuasive proof that both policies will cause the same amount of inflation. Other causal factors for inflation are at play, and I have described several. B) I believe that your argument that primary dealers are REQUIRED to bid is not nearly as important as you make it out to be. Furthermore you erect a bit of a strawman here because I never argued anywhere that the US would not be able to sell its debt. The US will always be able to sell debt. So what? Weimar was able to sell its debt; so too Argentina. The observation that a state will always be able to sell its debt is not nearly as significant as it might appear at first glance. More relevant questions might be: At what interest rate? At what maturity? What percentage of debt sales will ultimately have to be monetized via central bank (and/or Treasury in a MDC ) purchases? In sum, the fact that I reach different conclusions than those that are offered by MR does not mean I do not understand MR; I would humbly submit that my understanding of MR allows me to observe that certain aspects of MR do not properly account for economic reality. And the two arguments analyzed here are I think can serve as illustrations of areas where I think MR has demonstrated some short-comings.

    In conclusion, I very much like what you and others are doing with MR. However, I respectfully submit that the TDC issue is serving to illustrate certain weaknesses in certain aspects of this doctrine. Having said that, I think it also highlights some of the strengths of the approach. And certainly, one of the strengths of the approach is that by approaching things from a different angle, it challenges people to think more deeply about varous issues.



    • beowulf says

      The US will always be able to sell debt. So what? Weimar was able to sell its debt; so too Argentina.

      Err, the United States only issues bonds payable in US Dollars. Neither Weimar Gemany nor Argentina had debts payable in their own fiat currency. That’s sort of an enormous difference.

      • James A. Kostohryz says


        Just for the record, you are incorrect about one thing. Argentina in the 1970 and 1980s sold mounds of debt denominated in their own currency. Wiemar also issued local currency denominated debt, though this was less of a factor.

        But you are missing the point: Both Argentina and Weimar had the ability to issue local denominated debt and they both were currency issuers with full monetary autonomy. But one of their problems was that demand for this local currency denominated debt was not great enough to meet their borrowing needs. The rate of interest they would have to pay was too high and/or demand was too low. That is the point. Just having the ability to issue debt and having primary dealers is not all that important — particularly if there is no confidence in the local currency.

        • beowulf says

          “Argentina in the 1970 and 1980s sold mounds of debt denominated in their own currency. Wiemar also issued local currency denominated debt, though this was less of a factor.”

          Just for the record that’s not what I said, I specifically said “fiat currency”. Argentina pegged the peso on a 1 to 1 basis with the US Dollar, and Germany was on the gold standard (with the exchange rate fixed by the Treaty of Versailles).

        • Cullen Roche says

          No, Weimar had foreign denominated debts. Can’t print someone else’s currency unless you’re the CIA. :-)

    • Cullen Roche says


      All of your comments regarding the Primary Dealers have been covered in GREAT detail in my other writings. No offense, but if you were as familiar with MR as you claim, you wouldn’t have offered those reasons as a defense, since they’re things I’ve described in great detail.

      Further, your comment below is 100% off base. JKH wrote a 40,000 page paper called “The Contingent Institutional Approach”. It is probably the seminal piece on MR and our most important piece of literature. In other words, it is the cornerstone of our entire framework. In it, he describes, in excruciating detail how important it is to understand the relationships between the institutions in our monetary system and why specific descriptions and rules matter to these institutions. I agree that MMT sometimes claims these relationships don’t matter or that the rules don’t matter, but that is one of our major gripes with MMT. They do ridiculous things like consolidating the Fed an Treasury in their accounting when they’re very clearly different institutions (for specific purposes). I think you’ve bunched us in with MMT mistakenly when this is one of our primary criticisms of MMT.

      It’s very hard to have a debate with someone if they’re not familiar with our material. And I mean absolutely not offense, but you’re not familiar with the material.



      • beowulf says

        “JKH wrote a 40,000 page paper called “The Contingent Institutional Approach”.”
        Come on, it wasn’t THAT long. :o)

        • Michael Sankowski says

          lol – I looked back at it. It’s probably only 7k words or so. I though it was much longer.

      • James A. Kostohryz says


        First, I would simply like to say that I believe that what is being done by MR and its proponents is very interesting and worthwhile. Otherwise I would not bother to engage with it.

        Second, I read the paper you cited a while back, and I just read it again. It is very good. However, that is really besides the point. I make a series of claims in my essay. It is not required that I or anybody else read all of MR’s literature in order to engage discuss the points I raise. MR folks can engage my particular claims and employ specific MR concepts.

        Third, you are the one that said that the fact that primary dealers are required to bid somehow addressed my article. As I point out, this argument is really not very relevant. Certainly you understand the issues I pointed out. So why you even introduced the subject puzzles me.

        Finally, on my comment regarding institutions. Here I would like to make two points:

        1. I think that if MR folks took the JKH paper more seriously, they would not make many of the arguments they have made in favor of TDC. Specifically, they would not be making the argument that creating money via QE and via TDC are essentially the same thing. I quote from the paper:

        “The USA has separate Treasury and Federal Reserve institutions. They are separate in the sense of both policy responsibility and operational execution. The most obvious evidence for policy separation is that the Fed sets policy for the fed funds rate and Treasury sets policy for issuing debt. Some make the mistake of thinking that because the Fed and Treasury co-ordinate and exchange information on certain operational details, this suggests that the Fed is not independent. But this is not material to the appropriate measure of Fed independence. The notion of independence applies to policy responsibility, not operational co-ordination that is mutually beneficial for the Fed and Treasury in the execution of their respective mandates. For example, the Fed is in regular contact regarding the Treasury’s planned movement of funds between its Fed deposit account and the Treasury tax and loan accounts (TTL) sited at the commercial banks. But that has no bearing on the Fed’s independence in setting monetary policy, including the target Fed funds rate. It is an information flow that helps with effective implementation of policy. Moreover, the Fed looks to the major commercial banks for comparable information regarding important cash flow items that may affect their reserve account positions.
        Also, some think the fact that the Fed is accountable to Congress means the Fed is not independent. But the relevant context is the responsibility for monetary policy relative to fiscal policy. This obviously allows for fiscal information input when formulating appropriate monetary policy. As far as reports to Congress are concerned, the Fed Chairman is accountable for an explanation of how the Fed executes policy and operational responsibilities. But it isn’t Treasury that the Chairman is accountable to.”

        It is clear from this exposition that JKH undertands that there is real institutional significance of the separation of functions and powers between the Fed and Treasury. This is a point that is not sufficiently grasped amongst MMT writers nor even many commeners on this site. TDC advocates have attempted to downplay the significance of the Treasury usurping functions currently carried out by the Fed. It should be clear on the basis of JKH’s exposition that TDC would destroy US monetary institutions as we know them. You and others say that my use of the word “destroy” is hyperbolic. I think a reading of JKH’s paper strongly reinforces my point.

        2. I have said that MMT/MR has not paid much attention to the issue of institutions because it is clear that the MMT/MR literature have not engaged the academic theoretical and empirical literature on the subject. The JKH paper is great. But it does not engage this literature at all. Furthermore, the JKH paper is great in making key theoretical distinctions. However, the paper does not really address the practical consequences of many of these distinctions. That is OK, a paper does not need to address everthing. But I have not seen elsewhere in the MMT/MR literature that this very practical question is addressed. Thus, MMT and MR writings frequently slip into making statements like: “The effects of TDC and MR are the same.” However, that claim is superficial. Furthermore, it is an empirical claim and they offer no empirical support for it. Such arguments are not considering the long term effects of eliminating the separation of powers and functions between the Fed and Treasury. Such arguments assume that this separation is merely formal and is of little consequence in practical terms — an argument that is demonstrably false. Such arguments do not address the historical data regarding the effects of independent central banking on inflation. In sum, my point is that MMT/MR discussions are usually carried out at such a level of abstraction that they fail to address the real workings of a monetary system. I know MMT and MR claim to address the real workings of a monetary system. However, I contend that often (not always) MMT/MR address these issues at a level of abstraction that they obfuscate more than they elucidate. I take TDC as exhibit A: I think that the the whole TDC proposal made by MMT/MR is trying to elucidate a few issues of theoretical interest while obfuscating fundamental issues regarding the real workings of the monetary system and monetary institutions.

        • Cullen Roche says

          Okay, I agree with much of that. I don’t understand why you keep lumping us in with MMT as if we’re the same thing though. They’re pretty different views of the world. MR just explains what is and how the institutional structures are currently designed. We don’t say they can’t be changed or that they won’t be changed. MMT specifically states that they should be changed and in my opinion, misconstrues the actual way the system is designed in order to give the appearance that the govt is structured to do things that it isn’t. We don’t do that and while we discuss policy at times, there is no such thing as specific “MR policies”. It doesn’t exist. Many of us disagree on how best to implement policy using the MR understandings. The coin is an option about how best to implement policy using these understandings. We don’t all agree on whether or not this is actually a good idea or not. Personally, I tend to lean more towards your side, but I’m not sweating bullets over it because I really think there’s a 0% chance this ever gets implemented.

          Now, clearly, the TDC would venture into new territory regarding this institutional design. You obviously have a big problem with that. I do too to a certain degree. I fully agree with you that it’s a sub-optimal policy that is probably abuses a loophole that was not intended for this purpose. And I think there’s merit to your concern over the changes in institutional structuring here. So we’re probably not as far apart as you think.

          Personally, I was more using the TDC to emphasize how stupid the debt ceiling is. I don’t think the TDC has a chance in hell of actually being implemented. But it’s an interesting thought experiment and a useful one since it highlights some important points. Some of my colleagues are more enthusiastic about potentially implementing the TDC. That’s great. MR isn’t an ideology. Hell, we don’t even all agree on how best to actually benefit from MR’s understandings. But that’s the power of MR. At its core, MR is just a description. How you want to use those undertstandings it totally up to you.

        • James A. Kostohryz says


          I appreciate that MR and MMT are different. I only mentioned both in the same context because both MMT and MR advocates seem to be promoting the policy and for many of the same reasons. But I understand that there are many differences. I will try to be careful not to lump together the two when not appropriate.

          I also appreciate that MR is able to accomodate various views on various issues.

          As I hinted in the original article, when push comes to shove, I do not think most MR folks would probably “vote” for TDC in the real world — even in a dire debt ceiling scenario (especially since I think there will be other options available at that time). I think many MR enthusiasts are using this issue as a sort of “teaching moment” to point out some things that they think are important. That is great. I am doing the same thing in my critique of TDC. We are just focusing on different aspects of what TDC would really mean. I think the dialouge is healthy which is why I have tried to engage you and the MR community.


      • Michael Sankowski says

        Yes, James, that paper is a must read for you. If you want to begin to understand our some of our differences with MMT, this is the place to start.

        After reading through your comments, I think you are a prime candidate to become an advocate of MR. We are a big tent.

        One of our major concerns with the current system is the over-reliance on privately created money. Our current system has farmed out all of the money creation to the banks. Yes, we then borrow money from these banks in government deficits to create private surpluses. But as I’ve written, this is an unstable process due to the shifting value of collateral used in the money creation process.

        SOME public money creation (through vehicles like the coin) would probably make our economy more robust, not less. This is yet another area where we part ways with MMT.

        Here is JKH’s paper:

        I think 100 years from today, it will be considered to be the beginning of “modern central banking”.

        • James A. Kostohryz says


          I read that paper a while back. But on your suggestion, I just went back and read it again.

          It is a very, very good paper that helps clear up a great deal of confusion in contemporary discussion by clearly defining and categorizing various concepts.


        • Michael Sankowski says

          Thanks. JKH was the brains behind that paper, and we are lucky to have him aboard.

          We’re not trying to destroy the world over here, or cause a revolution which consumes society so our socialist paradise can rise from the ashes.

          You raise a point in your critique about the worries of people from the coin. That’s a valid and serious concern. The coin is a totally unfamiliar way to operate in our modern world, and so therefore will add uncertainty (not risk) to our world. It’s part of the reason we’ve written several posts about the impact of the coin – we had offline discussions about how the coin would work in the real world, not just as some bloggers fantasy.

    • James A. Kostohryz says

      By the way, although I have alluded to certain short-comings and weaknesses in my various postings here, I don’t think it would be correct to leave my statements in this regard entirely open-ended. So I will offer at least one major specific shortcoming I detect in the MMT/MR literature.

      As far as I can tell, neither MMT nor MR have shown any real interest in or insight regarding the nature and importance of monetary INSTITUTIONS. This can be very clearly seen in the frequent suggstion by MMT or MR advocates that it really does not make a major difference whether monetary policy is carried out by a central bank or by the Treasury. The TDC idea is just the recent and one of the more extreme manifestations of this belief. Nobody that has studied the empirical or theoretical literature on this subject would make this sort of claim seriously. It’s an embarrassment, really. Institutions matter a great deal.

      • Oilfield Trash says


        Would you consider it fair to frame your argument that history proves the only prudent and or acceptable way a sovereign government can allow an increase to the money supply is by some sort of debt arrangement by monetary institutions at some cost to the borrower?

        • James A. Kostohryz says

          Oilfield Trash:

          I wouldn’t phrase it in that way. But I would say this, which is the point I think you are mainly trying to get at. A sovereign should not be allowed to purchase something for nothing. That precludes self-financing by the Treasury. QE is OK because the goods and services obtained in the present with the newly created money will, at some point, have to be paid with real production of goods and services and/or accumulated wealth (i.e. taxes on future income and/or property) in the future. We trade current gain for future sacrifice. When the bonds held by the central banks mature, they have to be paid, and ultimately they are paid with taxation of goods and services. It can be concieved of as avoiding taxation now (for purchase of goods and services purchased in the present) in exchange for a promise to tax (to pay for the acquisitio of those goods and services) in the future. That is OK. What is not OK is avoiding purchasing stuff now, and NEVER paying for it with real production, present or future.

          To my mind this is a FUNDAMENTAL difference between QE and TDC and I do not think this point is understood well enough.

        • Adam1 says

          “We trade current gain for future sacrifice. When the bonds held by the central banks mature, they have to be paid, and ultimately they are paid with taxation of goods and services.”

          We don’t trade gains today for future sacrifice. The current gains create demand that incents expansion of production so that there is future production and income to pay for those extra liabilities which were created.

          ” What is not OK is avoiding purchasing stuff now, and NEVER paying for it with real production, present or future.”

          It’s called inflation when and if it happens.

        • James A. Kostohryz says


          You actually do a great job of making my points for me.

          “The current gains create demand that incents expansion of production so that there is future production and income to pay for those extra liabilities which were created.”

          What you say there is completely consistent with my account. In fact, it only makes sense to take out a loan today if you think that by doing so you wil be better off in the future — and better able to pay in the future. When I say “sacrifice” I am merely refering to payment being made. But yes, we make a loan now in the hope that the pie from which we will make the payment in the future will be bigger.

          Your other point:

          ” What is not OK is avoiding purchasing stuff now, and NEVER paying for it with real production, present or future.”

          It’s called inflation when and if it happens.

          Yes, that is only one reason why it is not OK.

          There is no free lunch. Going around and pretending there are free lunches — via schemes like TDC — won’t make it so. But it may very well make lunches more expensive.

        • Adam1 says

          “There is no free lunch. Going around and pretending there are free lunches — via schemes like TDC — won’t make it so. But it may very well make lunches more expensive.”

          Who’s pretending there are free lunches? 23 Million people looking for full-time work is waste. The resources are available. So what is the difference between creating TDC liabilities than Trillion (or so) dollar bond liabilities to put those AVAILABLE resources to work earning income and output?

  10. James A. Kostohryz says

    Hi Folks:

    Here is Mr. Sankowski’s presentation to demonstrate the equivalence of QE and TDC:

    “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”.”

    Now, what is different here? Mr. Sankowski claims that “these are effectively the same.” No they are not. What is different is that in the QE scenario the treasury assumes debt (liability) to pay for a deficit. That debt is held by the Fed as an asset. The fact that this debt is incurred by the Treasury and is held by the Fed is not a trivial fact. It means at least two things:

    1. Treasury must pay this money back with interest. It is true that this interest will get recycled back to the Treasury — but only if the Fed chooses to hold the debt to maturity. If the Fed sells, (and the Fed plans to do so), then the Treasury will be paying interest that will not get recycled back to it via Fed profits. Furthermore, the Treasury must come up with the money to pay principal back to the Fed at maturity. This is not trivial because the Fed has no obligation to roll over nor to accomodate the Treasury with QE at the moment of maturity. Remember, that it is the default position of the Fed that IT WILL EXIT; i.e. it will either sell the Treasuries or let them mature. Indeed, it is likely that the Fed will have to do this to prevent inflation if and when the economy ever starts to grow at a nomral pace.

    2. Central bank can sell Treasuries at any time which would drain liquidity from system. Or the Fed can simply allow the Treasuries to mature — in which case liquidity is drained from the system. In either case there is a structural fact of liquidity that will be drained from the system. This is an imprtant fact. It can be argued that the Fed could choose to roll over. But this is no argument at all: You can argue that the Fed can do lots of things, including nothing at all, or even its opposite.

    On the other hand, under the TDC scenario, no debt is created. Thus, it is pure money creation without any counterpart. It enables the purchase of an asset without the creation of a corresponding liability. It means that the Treasury is able to get something for nothing at all. They spend more than they collect they can just create money and incur no obligation. Double entry accounting is violated in a fundamental sense. Money used to purchase real goods and services is derived out of nothing (and entails no corresponding obligation). By contrast under QE the money used to purchase real goods and services has as its counterpart a debt that must be paid back with real money (obtained from taxing production of goods an services) in the future implying a future burden. This difference is fundamental. It is an intrinsic difference that has substantive and psychological implications.

    Finally, there is a fundamental procedural issue here that really matters. It involves separation of powers. Separation of powers matters. Under TDC, there no constraint on the Treasury’s ability to create money. With a central bank, the CB may choose whether to buy the Treasuries issued by the Treasury or not. This makes a HUGE difference. Central banks do not always do what Treasuries want. History is repleat with examples.

    MMT wants to pretend that these things make no difference. I’m sorry, but this claim is very wrong. Common sense, theory and historical experience very clearly indicate that the difference is HUGE. I think this is one more place where MMR should part ways with MMT. The MMT claim that a central bank is superfluous is just plain wrong.

  11. Fed Up says
  12. James A. Kostohryz says

    Platinum Coin Easing is not the same as QE. This is simply incorrect. The former is more akin to the “unsterilized” money creation often alluded to by MMT. These policies are not the same in technical terms; in fact they are fundamentally different.

    Furthermore, TDC advocates fail to see that procedure matters and they fail to see that perception matters. A fiat system is built on confidence. Prodedures and perceptions are fundamentally important to confidence. Therefore, to show that there is no difference between TDC and QE would require proof that the effect of both policies on confidence would be identical. TDC advocates will not be able to do this. Therefore, as a practical matter both policies are NOT the same.

    • beowulf says

      “These policies are not the same in technical terms; in fact they are fundamentally different”
      That was true before the Fed began paying interest on reserves in 2008 (cost is charged back, ultimately, to Tsy).. Using a TDC would be virtually impossible without IOR sterilizing excess reserves. Today, its its not so different from issuing (and then rolling over) T-bills… except 3 month T-bills are 0.10% and IOR is 0.25%. A counterintuitive point, perhaps, but its actually cheaper for Tsy to borrow than to mint money out of thin air. The only substantive difference, really, is that one transaction is subject to the debt limit and the other is not.

      • James A. Kostohryz says

        1. We agree it would not have the same short term effect if not sterilized.

        2. I do not agree that is the same if sterilized. If you sterilize you make debt disappear (unless the Treasury does not retire it, which would not make much sense). Furthermore, aside from this essential difference, as noted before, prodecure matters. Separation of powers matters.

    • Robert Rice says

      How exactly do TDCers fail to recognize procedure matters? The TDC’s proponents (of which I would generally consider myself one) have made their argument from law. I have yet to see a corresponding legal rebuttal.

      • James A. Kostohryz says

        I recommend you read this:

        The TDC argument is a legal travesty.

        • beowulf says

          The world is full of legal travesties, its the illegal travesties you should worry about. :o)
          Seriously though, its not even a close question if the President is forced between one of three options: Ignoring appropriation laws (including the one to pay debt service) ; Ignoring the debt ceiling law; or Use the Coinage Act so he can comply with both. Nothing and non one is going to stop him.

          A judge once told me that, at the end of the day, he wants to be able to go home to his wife and tell her he did a good thing today. His point was, a judge decides in his gut who’s right and then finds the law to back it up. If the President of the United States determines that he must use the Coinage Act to prevent a national calamity (a nice affidavit from each cabinet secretary with their own parade of horribles if the President fails to act would do nicely) and there’s no US citizen is at risk for suffering a concrete and particularized injury (like, you know, being thrown into Gitmo); Not only can I not imagine any federal judge stopping the President (“I did a good thing today, honey, I just kicked off a global banking meltdown. What’s for dinner?), I can’t imagine any federal judge not automatically throwing any legal challenge out for lack of standing. If its appealed up to the Supreme Court, the phrase that pays is “unitary executive”, if you tell Roberts and Scalia that this is their big chance to throw out Humphrey’s Executor, then they are in it to win it.

          Also, I just read your article. Very well argued, to be sure. I’ve never seen a blogger make a preemptive Godwin’s law strike before. Well-played.
          “Anybody that is familiar with the study of jurisprudence knows that history is replete with examples of regimes, which arbitrarily ran roughshod over the rule of law while adhering strictly to the doctrine of legalism – Nazi Germany being a prime example studied by virtually every student of the philosophy of law’.

        • James A. Kostohryz says


          1. No, I believe that history demonstrates that this sort of “legal” travesty that is much more pernicious.

          2. Fortunately, the President does not face a national calamity here. In the event the debt ceiling event were to occur, debt payments should be given priority — as per the constitution and other major laws. Much of the rest of the government can be shut down for a time while the politicians are forced to an agreement by public outrage over the damage being done to the economy.

          3. History has shown that it is far better to allow democratic institutions to produce bad results than to over-ride such bad results with the sort of shenanigans prooposed in TDC. Study the history of autocratic and dictatorial rule in Latin America — to name just one set of examples. This TDC situation is an absolute perfect analogy to the sort of situations that triggered autocracy and or dictatorship in these countries. And yes, I am a very knowledgable on this subject.

          4. Godwin’s Law. I avoid mentioning Hitler/Nazi Germany in my writings. In over 400 published articles, I believe it is the first time I have ever mentioned this regime. However, it happens to be a fact that this is the paradigmatic case cited by legal scholars regarding the issue of legalism and its incompatibility with the rule of law. People tend to think of tyrannical, arbitrary and/or autocratic regimes as “lawless.” History shows that this is rarely the case. It is the norm, rather than the exception, that these types of regimes tend to go out of their way to provide exhaustive legal support for their fundamental lawlessness.


        • beowulf says

          You realize that no American (or foreign citizen for that matter) would have their human rights violated by this action? I’d say there’s that’s a bright line distinction to what we’re proposing here (as a “reserve chute” on the off chance Congress really is bent on crashing the government) and the horrible acts perpetuated by the Nazi regime. You do yourself nor your arguments no credit by comparing people you disagree with to mass murders.

        • James A. Kostohryz says

          I am sure you underand this, but I am not comparing you or anybody else to mass murderers. This is a Red Herring. Nor am I comparing the act of issuing a platinum coins to mass murder. In fact, I never even mentioned mass murder, nor did I even have it in mind. You did. What I did was to say that is that the mentioned regime used the expedient of legalism to overcome various institutional constraints in order to “get things done.” I also alude to the fact that this legalist expedient was used to overcome parlaimentary gridlock and percieved democratic dysfunction. I paticularly have in mind all sorts of stuff the National Socialists did well before they got to the stage of mass murder. As I think the text suggests, I am really referring to the immediate post-Weimar period during the early to mid 30s.

        • Robert Rice says

          I think you are being abundantly gracious to regard his comments as “well argued”… About like telling a child he’s done a good job after kicking the ball into his own goal. It’s all very sweet.

          I think his arguments, if you can even call much of what he’s written an argument (more like appeals to personal authority, “because I said so” assertions without supporting evidence), hold about as much water as a bottomless bucket. I’ll report back with a rebuttal soon enough.

          There’s no rain on this parade, at least not today.

    • Cullen Roche says


      I don’t think anyone is saying that QE is the same as using the coin. The coin is just a loophole to get around the debt ceiling.

      Also, fiat money is not built on confidence. This is a myth that has been propagated by hard money types. Economies are built on real things like goods and services. If your assertion about confidence were true then the USD would be in the tank right now. After all, we’ve seen massive declines in consumer confidence and huge rises in inflation expectations in recent years and none of that has materialized into anything but lower bond yields and a dollar basket that is stagnant at best. I don’t intend to imply that perceptions don’t matter, but what we’ve seen in recent years is a huge skew between the way things have been perceived and the way they’ve actually played out. All those hyperinflation predictions following QE1 & QE2 were great examples.

      Confidence is ultimately a function of the quality of real goods and services. THAT is what a fiat money is built on. Get the orders of importance wrong there and you’ll find yourself on the wrong side of a lot of bad trades…..

      • James A. Kostohryz says

        Hi Cullen:

        I actually have seen some commenters on this site and elsewhere claim that they are essentially the same. For example: this is what the author of this article said:

        “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.”

        This was essentially the thesis of this article.

        Now, on confidence: What you are saying and what I am saying are not mutually exclusive at all. I am not saying that a fiat system is based on some sort of ” lie.” The sort of “confidence” I am talking about is based on substantive things. And those things include — by the way — the quality of the institutional arrangements, culture and norms of a monetary system.

        Please don’t misunderstand. I do not believe that money has to be backed by hard assets. In fact, I think that is unwise. But people go too far when they say things that imply that the institutions and procedures that constitute a monetary system don’t matter and that the only thing that matters is “the quality of real goods and services.”

        In fact, your assertion in this regard is demonstrably incorrect. For example, you can have a good or a service of identical quality in Country A and Country B. Yet the rate at which the cost of those goods and services are rising in terms of local currency can be totally different. Interest rates can be totally different. Goods and services identical; inflation and/or interest rates different. The difference in inflation/interest rates is a significant fact and it probably has a great deal to do with the monetary system (though certainly not everything). This simple example disproves the notion that all that matters is the quality of the goods and services.

        Monetary policies and institutions matter and they matter a great deal. I have argued forcefully elsewhere that monetary policy might not matter as much as many people think. By the same token, it would be a mistake to go far in the other direction.

        I would make one final point. When we talk about confidence we need to find a way to speak of this objectively. We all throw around this term much too easily. For example, noting that lots of Austrians predict hyperinflation is NOT an observation about confidence. Surveys of inflationary expectations are also highly suspect. In the end, the test of confidence is seen REALIZED FACTS. Let’s take an example: People can talk until they are blue in the face about how they have lost confidence in the USA, the USD or whatever. But when their bank accounts are stuffed full of cash, that is far more telling than what they are saying verbally. People can speculate and rant all they want. But the real proof of the pudding in this case is that people want to hold cash (a fact that totally contradicts the thesis of deteriorated confidence). This is a real inidcator of confidence in a currency and it is consistent with the fact that inflation has been low. And I will repeat, the fact that cash balances have risen and that the demand for cash is high simply has nothing to do with “the quality of goods and services.” The quality of goods and services remained the same and liquidity preference (based on confidence) changed. What mattered for the currency in this case was that liquidity prefrence changed, not that the quality of goods and services changed.


        • Cullen Roche says

          James, lots to cover in that comment. But I should probably cut to the chase. I think you have misunderstood the purpose of this policy. It is essentially a loophole (a legal one by the way) to allow Congress to divert the phony constraint of the debt ceiling. It does not allow Congress to spend any more money than it would without a debt ceiling (money that was ALREADY voted to be spent). And if you were familiar with MR (which I don’t think you are gauging from your comments – no offense intended) then you would know that the govt never has trouble procuring funds from the private sector because the Primary Dealers are REQUIRED to bid at auction and can very easily on-sell Treasury holdings in the market. Therefore, it is incorrect to claim that this policy would be any more inflationary than deficit spending as already voted on. So your assertion that it “destroys the currency” is hyperbolic and incorrect in my opinion.

          We saw all these kinds of commentaries when QE2 was implemented and the S&P downgrade was issued, etc. Everyone said yields would rise due to declining confidence or that the USD would decline or that the rule of law had been infringed so dramatically that citizens would show up with pitch forks at the Fed. That was all wrong then and it will all be wrong here.

          But hey, the one thing you and I DEFINITELY agree on is that this policy would never get implemented because a sitting President who does so is at risk of being laughed out of office….


        • beowulf says

          “People can talk until they are blue in the face about how they have lost confidence in the USA, the USD or whatever. But when their bank accounts are stuffed full of cash, that is far more telling than what they are saying verbally. People can speculate and rant all they want. But the real proof of the pudding in this case is that people want to hold cash (a fact that totally contradicts the thesis of deteriorated confidence). This is a real indicator of confidence in a currency…”

          OK, excepting the Forex traders among us (eyes front Sankowski), nobody uses the term “confidence” to mean “confidence in the currency”, in fact they pretty much mean the opposite.
          “According to [Paul] Davidson, the first essential characteristic of money is that it has negligible elasticity of production; in other words, when the demand for money rises, this does not cause entrepreneurs to hire labor to produce money. This is why money can become a “sink-hole” of purchasing power: if expectations about the future become pessimistic, liquidity preference rises, raising the demand for money and lowering the demand for the products of labor.” (pdf, p. 3)

          In an economy with weak aggregate demand– a country mile from full employment– “bank accounts are stuffed full of cash” is a bug, not a feature.

        • James A. Kostohryz says


          I was talking about confidence in the currency, not confidence in general. I believe this was clear from the context of what I wrote. So we are not disagreeing — including your conclusion that too much demand for cash is a problem.

        • beowulf says

          I should add, Paul Krugman has made the point the Fed would do well to increase inflation expectations (i.e. reducing confidence in our currency, he even calls for a “weaker dollar”).
          But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed.
          Now, it’s true that investors might start to expect higher inflation some years down the road. They might also push down the value of the dollar. Both of these things, however, would actually help rather than hurt the U.S. economy right now: expected inflation would discourage corporations and families from sitting on cash, while a weaker dollar would make our exports more competitive.”

        • James A. Kostohryz says

          There is nothing axiomatically wrong with what Krugman is saying here. Good policy is often a matter of figuring out the right shade of grey. The question is at what point does QE do more harm than good? I think QE is nearing that limit, but reasonable people could differ.

          When talking about TDC, I think we are talking about something fundamentally different from QE, which is what I believe Krugman is talking about. I believe TDC would be fundamentally destructive for reasons I outline here:

        • Michael Sankowski says

          In some ways the coin is fundamentally different than QE – particularly in the ways you point out.

          However, the operational impact on reserves will be extremely similar to QE. This is what I am pointing out in this article.

          Most monetarists believe reserves are what drives the total supply of money available to the public. Here at MR, we do not think the amount of reserves is very important overall. But some people do think reserves are important, and if you are one of those people, then using the platinum coin will have very similar effects to “traditional” QE. I put the word “traditional” in quotes because QE is anything but traditional.

        • James A. Kostohryz says


          I agree with you that the impact on the quantity of money will be identical (at least in the first instance).

          However, I have written forcefullly elsewhere that I do not ascribe to the Quantity Theory of Money, monetarism being just one variant of that theory. This will help explain to you why I do not believe that just because the impact on the quantity of money is the same, that it will have the same effect on inflation, growth, interest rates and many other variables.

          My contention is that TDC is dangerous, in part, because it will have an impact on those other variables that is different from QE.

        • Michael Sankowski says

          Well, another reason MR exists is to focus on the accounting in the economy. We are strong believers in starting from an accounting perspective to perform macro-economic analysis.

          This quote from Jan Hazius contains the idea:

          “…every dollar of government deficits has to be offset with private sector surpluses purely from an accounting standpoint, because one sector’s income is another sector’s spending, so it all has to add up to zero. That’s the starting point. It’s a truism, basically. Where it goes from being a truism and an accounting identity to an economic relationship is once you recognize that cyclical impulses to the economy depend on desired changes in these sector’s financial balances.”

          An extension of this idea is performing the accounting walk through of how the coin will hit the economy. From an accounting perspective, QE and the coin have very similar end results, and the path to those end results is very similar too.

          So any impact the coin will have different than QE must come from some other source. The fact the coin is “direct” spending by the treasury isn’t enough to distinguish it from QE – at least in terms of the final and flow accounting.

        • James A. Kostohryz says


          I agree with most of what you say here. However:

          1. From an accounting standpoint, QE and TDC are NOT identical for reasons that I posted in the JKH article today. They have the same short term impact on the money supply, but they are NOT identical in terms of accounting.

          2. The accounting identity issue only scratches the surface of a policy analysis. Just because two policies are the same in terms of balance sheet analysyis does not mean that they will have the same effects. Quite appart from the accounting identity issue, I think I provide ample reasons that demonstrate that the effects of TDC and QE would not be the same.

      • wh10 says

        That was a nice overview.

  13. Robert Rice says

    There are a number of necessary conditions which as a group compose a sufficient condition for demand-pull inflation to occur via Federal government action. The amount of money the Treasury borrows at auction or creates via coining is a necessary condition for inflation, but it isn’t sufficient. You basically need:

    1. A congressional commitment to spend.
    2. Funding so spending can be executed.
    3. Enough demand creation from funded spending to encourage businesses in aggregate to raise prices.

    QE isn’t any of these three nor a synthesis of them. It’s related to 2 (QE replenishes reserves allowing continued Treasury auctions), but that’s really it. Currency creation in the form of TDCs is only step 2, and hence is insufficient to cause rising prices.

    As we’ve written about many times before, some believe rising prices can be caused by money creation alone, as if it is not necessary for the created money to drive up prices through excess demand creation. Such a belief is mistaken. Money creation is not a magic inflation wand.

  14. Jose Guilherme says

    Same result as in traditional QE

    The result no doubt yes, but not the process that leads to the result, because “true” QE has at its origin a Treasury bond sale to commercial banks or private dealers whereas Platinum Coin Easing starts with a direct “sale” from the Treasury to the Fed.

    That is, it fits perfectly the description of the so-called “monetization” that scares the hell out of all neoclassical types.

    That’s the reason I believe it unlikely that it will ever happen.

    • JKH says

      This isn’t classic monetization – because the metal value of the coin is unrelated to the central bank book value

      It’s still fiat

      So neoclassicals shouldn’t be any more afraid of this than they already are of conventional QE

      • Jose Guilherme says

        “So neoclassicals shouldn’t be any more afraid of this…”

        I beg to differ on this analysis. The Platinum Coin is equivalent to the Treasury placing its bonds directly at the Fed thus bypassing the normal securities sales to the private markets that serve as a means of controlling the potentially “spendthrift” government .

        For neoclassicals this would constitute t a mortal sin. A subversion of civilized values, almost a coup d’État. To use your (JKH’s) terminology said move would likely transform the Treasury into a strategic issuer of the currency.

        They (the neoclassicals, who hold the reins of power in the U.S.) ain’t gonna allow it – I think…

        • beowulf says

          Jose, that’s what makes this debt limit game of chicken so interesting. The neoclassicals are (like the country song says) darned if they do, danged if they don’t. If they do nothing, the House Republicans will happily shut down the government and throw away the full faith and credit of the United States to make a point; if they do act, using the TDC (which they perceive as monetization) will enable the USG to keep functioning and pay its creditors on time, as it has for centuries up till now. I ask, you which side of that is subversion, almost a coup d’etat, and which one is the side of sound money and conservative values?

        • Jose Guilherme says


          I see your point. Obama & Co. may be forced in the end to adopt the TDC because it’s the only possible, available way to prevent a catastrophic suspension of U.S. government services.

          If it comes to this they will surely regret it later. Because perceptive observers – and there are many, including inside mainstream circles – will notice that the taboo was broken, the government didn’t rely on “markets” to get funding and then nothing wrong happened. No inflation, nada.

          So what would be the reason to come back to the old ways after such a success? The road would be wide open for the U. S. Treasury to become the strategic issuer of the dollar (JKH’s words). The collapse of the cherished myths regarding “monetization” might well become a fatal blow to neoclassical ideology. It would surely be fun to watch.

        • beowulf says

          “will notice that the taboo was broken… then nothing wrong happened.”

          In most fields of human endeavor, this is considered a sign of progress. :o)

          You know, if Boehner doesn’t settle this early (which is doubtful with Eric Cantor and Tom Price breathing down his neck), House Republicans will come under strong pressure from their Tea Party constituents to never approve a debt limit hike under any circumstances. It could be become a red line (like voting to raise taxes) that will induce an automatic primary challenge. If that happens, then the Administration will have to make a virtue of necessity and continue using the TDC to fund govt operations at least through the 2014 midterms.

        • Jose Guilherme says

          Well if the story plays out the way you’re anticipating then a truly revolutionary moment is approaching – one that may redefine “U.S. monetary sovereignty”.

        • Ramanan says

          Btw, here’s the platinum coin “price theory”:

          The coins’ face values are much less than the actual price.

          As far as I can see, the platinum coin is to be sold directly and not to FRB.

        • beowulf says

          “As far as I can see, the platinum coin is to be sold directly and not to FRB.”

          If Tsy wished to deposit one (doesn’t matter if Bernanke is agreeable or not, though I’m pretty sure he would prefer accepting a deposit of lender tender instead letting T-bonds default), can you cite a law that would forbid it, or any party that would have legal standing to challenge the transaction in court?

        • Ramanan says

          The U.S. Code is not the easiest to read. The one at GPO doesn’t seem to be updated. One example is that the start of 5112 itself was updated to frame it correctly but hasn’t appeared in the GPO publication. At some places in Section 31, it does say however that the Treasury Secretary has to mail the coins directly or sell directly. It is for this reason the Mint Annual report says so.

          Also the platinum coin is a bullion coin. Bullion coins have a value because they are made of precious metals. For example the coin with $100 face value has a price of $1,892. 00. Bullion coins cannot have a face value greater than the bullion value (at the time of coining).

        • beowulf says

          “it does say however that the Treasury Secretary has to mail the coins directly or sell directly. It is for this reason the Mint Annual report says so. ”
          You can’t trust everything you read on the internet. :o)

          Cornell has best US Code site. Let me know if you find the law the Mint was referring to (or that limits the Secretary’s discretion to set face value of bullion coins or proof coins)

        • Ramanan says

          The report is directly from the Mint.

          I understand it doesn’t say as a matter of law but is a good pointer.


          5132 (a) (2) (A) is the one but it seems to refer back to 5112 which seems a bit wrongly phrased. There is an update but neither Cornell nor GPO updates it.

          More important is the fact that to mint a platinum coin of $1T, the Treasury needs platinum worth $1T. The $100 coin has platinum worth around $1,600 and hence is priced at around $1,800-1900.

        • beowulf says

          It seems wrongly phrased because it contradicts your point. Let’s go to the tape…
          “The Secretary shall annually sell to the public, directly and by mail, sets of uncirculated and proof coins minted under paragraphs (1) through (6) of section 5112 (a) of this title,”

          Clearly this doesn’t apply to 5112(k). It means the Secretary has a duty to market to collectors sets of “uncirculated and proof” coin varieties of the circulating coins defined in paragraphs (1) through (6) of 31 USC 5112(a).
          (1) a dollar coin that is 1.043 inches in diameter.
          (2) a half dollar coin that is 1.205 inches in diameter and weighs 11.34 grams.
          (3) a quarter dollar coin that is 0.955 inch in diameter and weighs 5.67 grams.
          (4) a dime coin that is 0.705 inch in diameter and weighs 2.268 grams.
          (5) a 5-cent coin that is 0.835 inch in diameter and weighs 5 grams.
          (6) except as provided under subsection (c) of this section, a one-cent coin that is 0.75 inch in diameter and weighs 3.11 grams. what the Mint Report calls numismatic circulating hybrid products.

        • Ramanan says

          “It seems wrongly phrased because it contradicts your point. ”

          “(2) Section 5112 of title 31, United States Code, is amended–

          (A) in that portion of subsection (a) that precedes paragraph (1) of such subsection by striking `The Secretary of the Treasury may mint and issue only the following coins:’ and inserting `Except as provided by any other Federal law, only the following coins may be minted and issued as United States coins:’;”

          Shows how the language was changed. I was pointing to that. Except that the new language can be interpreted in different ways is what I see.

          The fact that the Mint actually markets the $100 platinum coin directly or through dealers (which does not include the Fed) adds credibility to my point.

        • Robert Rice says


          The USC, Title 31 › Subtitle IV › Chapter 51 › Subchapter II › § 5111 states:

          (a)The Secretary of the Treasury—
          (1)shall mint and issue coins described in section 5112 of this title in amounts the Secretary decides are necessary to meet the needs of the United States;

          The paragraph of 5112 we are concerned with states:

          (k)The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time. (emphasis mine)

          There are two types of platinum coins the Treasury Secretary can coin–bullion and proof. Why are you fixating on platinum bullion coins only? Platinum proof coins are an alternative even should your argument about bullion prove true in all cases. Proof coins are defined as follows:

          ” ‘Proof’ coins, i.e., coins prepared from blanks specially polished and struck…”

          What is your argument against a trillion dollar proof coin used to fund Congressional spending? From the same link above it goes on to read:

          “Proof” coins, i.e., coins prepared from blanks specially polished and struck, are made as authorized by the Director of the Mint and are sold at a price sufficient to cover their face value plus the additional expense of their manufacture and sale. Their manufacture and issuance are contingent upon the demands of regular operations.

          It seems to be proof coins are to be valued at face value, and should they be sold, the costs of production are to be added to the sale price.

          Many continue to regard the platinum coin law in section 5112 as some kind of loophole, but the Continental Congress in writing and ratifying the Constitution gave the 1st Congress of the United States authority to coin money, not principally for the purpose of creating cute trinkets or as a store of value, but so the Federal government could fund its spending. That is the mandate with which the Treasury Secretary can act to use the platinum coin code to “…meet the needs of the United States.”

          As I see it so far, the TDC is on solid legal ground.

        • beowulf says

          Thanks for your comments Robert here. And thanks to Ramanan as well. He’s not an American so I’m always astonished how well read he is in US law. So while we disagree on some things here or there, I find I agree with him on most things at least twice the standard deviation. :o)

        • Robert Rice says

          Thanks beo for chiming in on your experience with reading the code and the meaning of “…the United States.”

          I think the arguments in favor of the TDC make it perfectly evident that it is a great idea, and the Secretary’s defense for taking such action is entirely justified morally and legally. It’s even consistent with the spirit of the law. Coin it, deposit it, and let’s get to some intelligent government spending.

          I’ve got to run for now. Good chat.

        • Ramanan says

          “He can overcome any legal challenge to alleged abuse of this discretion by showing his action was rationally related to a legitimate government purpose (“Uncle Sam’s gotta pay his bills!”)”

          I know but the debt limit itself is stupid.

        • beowulf says

          Ramanan, browse through the US Code. You’ll see that except in reference to citizenship and perhaps territorial boundaries, “the United States” always means Uncle Sam, the Federales, The Man.
          “Meets the needs of the United States” does not, in any title, chapter or section of the Code mean ” –meet the needs of the private sector as is used in the sectoral balances terminology”.

          The critical part of that clause is “in amounts the Secretary decides are necessary”. Again, this is the Secretary being handed very broad discretion.
          He can overcome any legal challenge to alleged abuse of this discretion by showing his action was rationally related to a legitimate government purpose (“Uncle Sam’s gotta pay his bills!”) with substantive evidence to support his decision such as, affidavits showing the debt limit had been reached and there was no other way for the Secretary to carry out his duty to fulfill congressionally mandated appropriations (including those for paying debt service on time and for critically needed military supplies for our soldiers in the field).

        • Ramanan says

          Look, RR, the secretary may mint coin of any denomination. This statement is to be interpreted within other constraints. The platinum coins made by the Treasury have good quality platinum – just as is given in (k).

          There is no maximum listed but the Treasury needs platinum worth a trillion and a willing customer outside the public sector to buy it.

          Plus, you can’t just put one nanogram of platinum and claim that it will satisfy (k). It is clear about what kind of coin and the existing coins are evidence of this.

          Look at the evidence – the $100 face value platinum coin (with have fine platinum with market price of around $1,600) doesn’t enter the books of the Fed, unlike normal coins. The Mint annual report is clear on that.

        • Robert Rice says

          “Yes dubious. I can’t change your mind.”

          You don’t have to change my mind, I’ll change it for myself upon you providing me with a persuasive argument, which is apparently still forthcoming. Where is your supporting evidence that indicates my interpretation is dubious? I already asked you once. The fact that I’m having to repeat my request I suspect speaks volumes about your ability to provide said evidence.

          “If your interpretation is right, there shouldn’t by any doubt whatsoever that there can be a different interpretation.”

          lol, boy doesn’t that axe swing both directions? 😉 Appealing to an argument which undermines your own argument isn’t much of an argument.

          “Circulating coins are sold to the Fed and others are directly sold.”

          Okay??? The issue is: What does the Constitution say in article 1, section 8 regarding coining, and why was that authority given to Congress, and why did Congress apparently delegate that authority to the Treasury?

          “It wasn’t an ‘admission’. It was pointing to the fact that the Secretary has sufficient discretion.”

          Distinction without substance. Acknowledging the Secretary has sufficient discretion is an admission platinum coins aren’t not valued solely at the $1,900 value you alluded to.:

          “It cannot be interpreted to having any discretion whatsoever.”

          I understand you would like me to accept your appeal to personal authority–because Ramanan said so it therefore is so–but you’re going to have to do better than that. Support your claim. Why can’t it be interpreted to have any discretion whatsoever? is there a maximum value listed?

          “If the Mint/Treasury wants to mint $1T of coin, fair enough. The Treasury can do that. Provided it has $1T worth of platinum.”

          We already covered this. Bullion is not the only option. Section 5112 paragraph (k) says nothing about the platinum coins needing to be set at market value of the metal plus the cost of production. I showed you in the law “proof coins” are valued at face value, not at material value.

        • Ramanan says

          Yes dubious. I can’t change your mind.

          If your interpretation is right, there shouldn’t by any doubt whatsoever that there can be a different interpretation. Circulating coins are sold to the Fed and others are directly sold.

          “By your own admission that is not the only value the Secretary of the Treasury could give a platinum proof coin. ”

          It wasn’t an “admission”. It was pointing to the fact that the Secretary has sufficient discretion. It cannot be interpreted to having any discretion whatsoever. If the Mint/Treasury wants to mint $1T of coin, fair enough . The Treasury can do that. Provided it has $1T worth of platinum.

        • Robert Rice says


          “The link I provided above is for a Platinum Proof coin and its price is not $100 but around $1,900.”

          Do you have a page reference? I don’t have the time to read through the entire document. Secondly, what difference does it make that a particular platinum proof coin has a given value. By your own admission that is not the only value the Secretary of the Treasury could give a platinum proof coin. You have to establish a maximum value under law and/or via contextually relevant data, or provide some other data that would suggest the Secretary’s discretion is limited.

          “I have seen the (k) since a long time. It just means the Treasury Secretary has sufficient discretion such as assigning a face value of $103.37 or $100 or $50.”

          It means what it says, which is the Treasury has discretion. Is there a maximum value listed? No, there isn’t.

          “…meet the needs of the United States.”

          “That is a dubious way of interpreting it. Meet the needs as in meet the needs of the “public” (word with many meanings) – not the government.”

          Dubious because Ramanan said so, or dubious because “meet the needs of the United States” is defined somewhere else by the Federal government to mean what you claim it means? Support your conclusion. It doesn’t say United States public, citizenry, or whatever, it says the United States. Last I checked, that includes the needs of the Federal government.

          There certainly seems to be a proliferation of claims without supporting premises floating around this thread…

          And I don’t know why the platinum coin law is being viewed in a vacuum, as if the Constitutional context is not relevant here. Again, Congress has Constitutional authority to coin money; it is the law with primacy. This authority was certainly granted in part so the Federal government could fund its spending. Taxes were nil in those times and were almost always met with grief from the public. The problem in the early days of the country was often resources, i.e. coming up with sufficient metal to coin in sufficient quantities to fund government spending. That isn’t an issue at this time. Let’s use the authority that has been with us since the beginning to benefit us all. This will be good for all of us and the country.

        • Ramanan says

          Don’t get me wrong. I am not aguing that it shouldn’t be used and things like that. Plus I am still undecided at this moment whether it works cleanly or not, so just thinking/discussing. One example, the relevant chapter you quote has laws about the Fed having to help the Mint/Treasury on meeting the needs of customers and the Fed directly buying these “circulating” coins – which can have various meanings. The thing which I found curious was that some coins are sold directly by the Mint and the Fed doesn’t enter into the picture as practice.

        • Ramanan says

          To be doubly sure – meet the needs of the private sector as is used in the sectoral balances terminology.

        • Ramanan says

          “It seems to be proof coins are to be valued at face value, ”

          The link I provided above is for a Platinum Proof coin and its price is not $100 but around $1,900.

          I have seen the (k) since a long time. It just means the Treasury Secretary has sufficient discretion such as assigning a face value of $103.37 or $100 or $50.

          “…meet the needs of the United States.”

          That is a dubious way of interpreting it. Meet the needs as in meet the needs of the “public” (word with many meanings) – not the government.

        • Jose Guilherme says

          “the platinum coin is to be sold directly and not to FRB”.

          Well, if this were indeed the case then I guess the Treasury would have some difficulty in finding private sector buyers ready to pay one trillion dollars for a piece of platinum worth exactly $1,892.00 :)

        • JKH says

          Nailed me on that!

          Actually, I agree – my point above was more to the classic metal backing idea and what I presume is the neoclassical understanding of that. But on the general proposition of a central bank that is independent and chooses its own timing for such measures as QE, I agree on your interpretation from a general policy perspective. Our analysis here is mostly about monetary operations – although under stressed conditions, including political subterfuge around the debt ceiling issue under stressed politics, as well as ongoing QE policy under stressed finance, of which platinum easing might be considered a subset and as unconventional policy in light of the debt ceiling complication and dysfunction.

    • Michael Sankowski says

      The coin would be a huge scare for most people, and it does seem like we are “printing money” in the scariest form people can imagine.

      We probably cannot fight the perception people have very well, but we can educate a few people at least. The coin is getting some traction as a way to get around the debt ceiling. It is probably a good idea to address the most likely pushback on the coin from some wings of economics profession.

  15. JKH says

    Good post, Mike. That unpacks the issues nicely

    – QE
    – QE and inflation
    – platinum coin easing, as a special case of QE

    To the degree that inflation is an issue, it’s an issue for QE in general

    And platinum easing has no special implication for inflation, beyond that which applies to QE in general

    • Michael Sankowski says

      Thanks- anytime we have changes, going through how it would impact the real world is always useful. You were the first one to point out the Coin would be QE in a slightly different form.

      I suspect there would be a ton of fear out there if the coin needs to be used, so why not address those fears? Heck, people were terrified of QE when it first started – and it’s turned out to be something of non-event in terms of inflation and more. The Coin is exotic enough to make people very afraid.

  16. Clonal Antibody says

    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.

    • Robert Rice says

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

      • Clonal Antibody says

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

    • Michael Sankowski says

      Hi Clonal,

      Great point. Wading through the legal framework is part of the work of getting action done. We can’t just “print” money, we need to coin it in order to avoid the debt ceiling.

      I also think Balkin’s point about crushing the debt ceiling with the 14th amendment is a good path.

      But in any case, if people are worried about the economic impact of the coin, they should read this post.