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The Trillion Dollar Coin (TDC) is, first, an oversimplified meme, because there's not one TDC solution, but lots of Platinum Coin Seigniorage (PCS) variations on that idea with differing implications for politics. Some just kick the can down the road, until the next debt ceiling crisis, or set up another trade between the Administration of something relatively valuable for something less valuable. Others would really change the political game.

Progressives should want that game changed and the conservative, FIRE sector, neoliberal bias of American politics shifted to a progressive problem solving bias. Conservatives, even if they favor using a TDC to avoid a debt ceiling crisis, will want to retain the political game they are now playing and use it only for getting around the debt ceiling. Otherwise they will want to retain the present system of funding deficits through debt issuance, so they can continue to talk about the US “not being able to afford x, y, or z, because we're running out of money.” Or being subject to the “bond vigilantes, if our national debt grows too much.” Or having to worry about leaving huge debts to our grandchildren.

Let's now look at some variations on the PCS meme, other than the $1 T coin, and their political implications.

First, mint a $1.6 Trillion coin and have Treasury use the profits from it to buy all the outstanding debt instruments held by the Fed. This would retire a substantial part of the national debt and immediately create $1.6 T in “headroom” relative to the debt ceiling. This alternative involves the least amount of change in current procedures. The coin, once deposited at the Fed, would remain in a Fed vault, and would not go into circulation.

The Government would then go right back to issuing debt in order to meet its debt obligations and spend previous Congressional appropriations. Of course, this proposal is a solution to the debt ceiling problem alone. It would prevent a default crisis caused by anti-government tea party Republicans. But, it wouldn't do very much to defeat the austerity/deficit hawk mind set in fiscal policy.

A second proposal is to mint a $6.7 T coin to pay back all debt held by the Fed, and  all Intra-governmental debt, including that owed to Social Security, Medicare, and a host of other other agencies. That would create $6.7 T in headroom relative to the debt ceiling, that's more than enough to carry us through the 2016 elections without breaching the ceiling. Again, this wouldn't result in any “money” immediately going into circulation, but over time SS and Medicare payments to individuals and organizations would be adding to bank reserves without any reserves being withdrawn from the private sector due to debt issuance.

This alternative would render the debt ceiling problem a dead letter for some time to come, and it also might take some of the austerity pressure off. But it probably wouldn't end the austerity drive, because the deficit hawks would still point to long-term problems in entitlements that would be projected as running up the public debt in future years.

A third proposal for applying coin seigniorage is to mint a coin with face value large enough to cover the $6.7 T intra-governmental and Fed debt repayment, plus all debt to the non-government sector coming to maturity during the next four years, and all Congressional Appropriations expected to require deficit spending through the 2016 elections. I'll estimate, roughly, that a $20 T coin is enough for that, including about $6.2 T to more than close the expected gap between tax revenues and Government spending  through the 2016 elections, and the rest for paying down the national debt. Issuing a coin that large, using the profits from seigniorage, and assuming that Congressional appropriations continue the pattern of the past 2 years or so, that would result in a remaining public debt outstanding of roughly a few trillion dollars in long term debt, which would please the bond markets except for the fact that the US wasn't issuing any more debt instruments, which would probably make the bond vigilantes scream for those safe harbor debt instruments again.

A more important aspect of a coin this large is that it takes the deficit/debt issue very much off the table, since there would be no new debt issuance needed until after 2016, and because most of the seigniorage would be used to pay down debt the US would then have only about 15% of its current debt subject to the limit. In other words, it would take the austerity meme off the table completely over the next four years and even after that there would be a lot of room between the outstanding level of debt and the debt ceiling.

Much of the pressure now being applied to entitlement programs would also be gone. So, progressives could be much more expansive in supporting full employment programs, education, infrastructure, higher entitlement benefits, Medicare for All and other things the country needs.

If, also, Congress does the right kind of spending to bring full employment inside a year, then tax revenues will come back as they did during the Clinton Administration, and then there will be no need for all the profits from the platinum coin to be used completely for deficit spending  between now and 2016. In fact, if the right jobs creating program is immediately enacted, as much as $3 T could be left, by the end of 2016. So, this is a much more progressive alternative than the first two. But in itself, it doesn't provide a continuing ability for the Treasury to create reserves directly to support deficit spending. The nation could still slip back into the regressive money creation practices after 4 or 5 years, and the conservative, neoliberal bias of fiscal politics could be restored.

So far, I've discussed three alternative coin seigniorage proposals ranging in scale from a minimal proposal to handle the current crisis to one that would provide enough funds to both pay down debt, and support a gap between spending and taxes that might be sufficient to enable full employment. Now here's a fourth, enough to handle even generous Congressional appropriations and deficit spending for at least 15 - 20 years, until 2032 and beyond.

Why not mint a $60 T coin?

I favor this fourth alternative above all, because it institutionalizes the idea that there is a distinction between appropriations, the Congressional mandate to spend particular amounts on particular goods and services, and the capability to spend the mandated accounts by having the funds (electronic credits) in the public purse (the TGA). In a fiat currency system, the capability always exists if the legislature provides for it under the Constitution, as it has under current platinum coin seigniorage legislation.

But the value of the $60 T coin, and the profits derived from it, is that it is a concrete reminder of the Government's continuing ability to buy whatever it needs to meet public purposes, and its continuing ability to harness the authority of the Central Bank to create reserves to support the needs of fiscal policy. It demonstrates very clearly that the Government cannot run out of money, and that the claim that it can is not a valid reason for rejecting spending that is in accordance with public purpose.

So, please keep in mind the distinction between the capability to spend more than government collects in taxes, and the appropriations that mandate such spending. The capability is what's in the public purse, and it is unlimited as long as the Government doesn't constrain itself from creating credits in its own accounts. With coin seigniorage its capability could be and should be publicly demonstrated by minting the $60 T coin, and getting the profits from depositing it at the Fed transferred to the Treasury General Account (TGA).

On the other hand, Congressional appropriations, not the size or contents of the purse, but whether the purse strings are open or not, determines what will be spent, and what will simply sit in the purse for use at a later time. So there is a very important distinction between the purse and the purse strings. The President can legally use coin seigniorage to fill the purse, but only Congress can open the purse strings through its appropriations.

This fourth alternative is the one that best solves both the debt ceiling problem and the problem of taking austerity, justified by “we're running out of money,” off the table. The debt ceiling would no longer be an issue if the Treasury immediately paid off $6.7 T in Fed and intra-governmental debt, and was poised, with the money in its account, to pay off the rest of the debt subject to the limit as it falls due. Nor would there be any justification for austerity policies if the Treasury had a public purse with $44 T of unearmarked funds in it to cover future deficit spending. So, this is the progressive alternative, the one that changes the political context of fiscal policy debates for the foreseeable future. It also gives progressive enough time to fight a major political battle that ought to and must occur. The battle to free the Fed from control by Wall Street and banking interests and to make it accountable to the people by placing it under the authority of the Treasury Department, and our nationally elected executive, the President.

In my next post, I'll blog about the likely expected relationship between the different PCS options and inflation using the framework laid out by Scott Fullwiler!

(Cross-posted from New Economic Perspectives.)

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Comment Preferences

  •  the problem (2+ / 0-)

    The only problem I see is that the solutions are coming in odd amounts.  1.6 trillion, 6 trillion, 60 trillion.  Low-information voters like easy numbers.  Make it 100 trillion and it'll sell better than 60.

    And the coin itself ought to be the size of a small car.  Just for symbolism's sake.

  •  There was a Simpsons episode (1+ / 0-)
    Recommended by:

    where Burns steals a $1 billion dollar bill from the Treasury and with Homer's help flees to Cuba, upon Fidel pockets the bill.  One of my favorite episodes.

    One does not simply walk into Mordor! One invites a gas driller in, and one’s land becomes Mordor. Chris From Balloon Juice

    by Mr Stagger Lee on Mon Dec 10, 2012 at 07:55:05 AM PST

  •  How big would this 'coin' be? Manhole cover? (0+ / 0-)

    Can we make them out of chocolate?

    Happy little moron, Lucky little man.
    I wish I was a moron, MY GOD, Perhaps I am!
    —Spike Milligan

    by polecat on Mon Dec 10, 2012 at 08:04:18 AM PST

  •  State of the art monetary theory (4+ / 0-)

  •  I think the real question would be (2+ / 0-)
    Recommended by:
    Wee Mama, catfood

    around how much these coins are relative to all the other US currency in circulation.

    This might be viewed as a currency devaluation move by world markets, and as such would probably lead to changes in exchange rates, and perhaps eventually demands in future debt to be done in some other currency.  If the exchange rates got ugly enough, there could be some risk of inflation on imported products (although a weak dollar might make exports easier)

    The 1.6 Trillion coin is unlikely to cause that kind of response.   A 60 trillion coin?  Could be a bigger risk.  I'm really too ignorant of the relevant economics to even make a wild assed guess about unintended consequences.

    •  Yes, but the Platinum Coin isn't unique that way. (1+ / 0-)
      Recommended by:

      The effective limitation on this is basically what you're saying: when do people start going "What the hell is a US dollar worth anyway?"

      But the same thing is true of fiscal easing by the Fed.

      The same thing is true of running federal budget deficits.

      Really however you look at it, there's no way around the money supply needing to be decently stable in comparison to the size and productivity of the US economy.

      If it makes everyone feel better to have a multi-trillion-dollar coin, great! The point is that money is arbitrary and it always has been, so whatever we use as a benchmark is fine as long as it's reasonably predictable and bears a steady relationship to what there is to buy and sell in this country.

      •  I'm not saying it's unique (0+ / 0-)

        But it is essentially issuing a big wad of currency all at once to meet debt obligations.

        History doesn't have many good examples of that working out all that well, however I also can't think of any of the bad examples really being very close to the situation of the USA in 2012.  (still the largest single economy, the "safe haven" for a lot of currency and debt in the world and no clear alternative for the capital to fly to even if the debt or currency gets downgraded)

        The value of our currency is tied to what the world believes about the "full faith" of our nation and its ability to exist in future.  It is not always easy to predict reactions.

        You would think that killing off the debt ceiling issue forever would be more helpful than adding a trillion dollar coin would be harmful.  If markets were rational, it seems a pretty safe tradeoff.

        Markets aren't always rational.  So...hard to say exactly what will happen.   I don't see us going down this road unless all potential alternatives look worse, even with the assumption of markets reacting badly.

  •  Lets go whole hog (1+ / 0-)
    Recommended by:

    and mint a coin that's worth so much we can buy everything in the world !!!  

    "Drop the name-calling." Meteor Blades 2/4/11

    by indycam on Mon Dec 10, 2012 at 10:15:00 AM PST

    •  The thing with coins like this is that they (0+ / 0-)

      can't be circulated. So you can't use it to buy anything government doesn't already own. It's just an accounting trick to get rid of debt ceiling.

      •  Wouldn't change anything if they were circulated (2+ / 0-)
        Recommended by:
        FG, psyched

        They could be circulated, by the government spending them. The government would have to mint smaller denominations, in order for them to be used for payments to its biggest recipients of funds - states and military contractors I guess.   Wouldn't change anything. For the federal government is bound to accept them back as payments to itself, which would happen as fast as possible, as the holders would not be earning interest.

        •  That's true. But it's just not practical to (1+ / 0-)
          Recommended by:

          circulate trillions of dollars in coins. Right now US M0 is only about a trillion.

          •  The coin (1+ / 0-)
            Recommended by:

            gets deposited at the Fed. The Mint gets its account credited with the face value of the coin because the coin is legal tender. Then the Treasury sweeps the Mint's account for the difference between the face value of the coin and the costs incurred by the Mint to produce it and get it to the Fed. That difference is the seigniorage or profits from the coin. The result is reserves in the Treasury General Account (TGA).

            Let's say the coin is $60 T in face value. Then the seignorage is virtually $60 T. The Treasury gets to spend that. It uses $60 T to pay down all the debt as it falls due, so the debt is taken off the table as a problem. The remaining $44 T or so is spent to close the gap between tax revenues and government spending in the normal course of business. I expect the $44 T to last at least 15 years, perhaps 20, perhaps even 25. I assume by then we will all have realized that there's no purpose in having an independent Fed, so the Fed will at some time during the 15 - 25 years be placed in the Treasury and its currency power will be turned over to the Secretary, and there will be no need for any more platinum coins.

            On the issue of too much money in the economy. The amount of money per se doesn't count. The quantity theory of money is wrong. What counts is the amount of net financial assets in the economy. Payoff of the debt doesn't ass anything to the supply of net financial assets. It just replaces bonds with reserves. Deficit spending does add net financial assets; but as long as growth in production and productive capacity keeps up with the growth of net financial assets then there will be no demand-pull inflation (the kind caused by Federal Government spending).

    •  Can't buy everything (0+ / 0-)

      You can only use it to pay back debt and spend deficit Congressional appropriations. So, unless Congress wants to buy everything in the world the Executive doesn't have the authority to try to buy it.

  •  To paraphrase Clarke, (3+ / 0-)
    Recommended by:
    catfood, 2020adam, Calgacus

    Any sufficiently advanced monetary theory is indistinguishable from magic.

    "O mulier, magna est fides tua. Fiat tibi sicut vis."

    by rujoking on Mon Dec 10, 2012 at 01:41:01 PM PST

  •  I'd like a more permanent solution, like a... (1+ / 0-)
    Recommended by:

    nationalized central bank governed by a significantly more representative body.

    That said, this seems like a great fix for the near-term.

    "The Democratic Party is not our friend: it is the only party we can negotiate with."

    by 2020adam on Mon Dec 10, 2012 at 08:20:33 PM PST

    •  I would too (1+ / 0-)
      Recommended by:

      But doing the big coin could be the start of a move towards that, and it doesn't require legislation, which is hard to get until progressives win the day.

      •  Either way, the obstacle is an outmoded... (0+ / 0-)

        concept of how our fiscal system operates. The President is just as beholden to that conceptual framework as the Congress we'd need for a nationalized Fed.

        Ellen Brown, President of the Public Banking Institute made a great argument on the Progressive Radio Show for getting the ball rolling by pushing for State and City Banks that use their profits for public purposes. Showing specific positive outcomes from public banks could go a long way to changing the national mindset on this entire subject.

        "The Democratic Party is not our friend: it is the only party we can negotiate with."

        by 2020adam on Wed Dec 12, 2012 at 05:07:09 PM PST

        [ Parent ]

  •  General reply (0+ / 0-)

    to comments worried about printing and inflation. First, the $60 T coin would not go into the economy. It's function is to make the Fed issue $60 T of reserves to the Treasury General Account. Then, Treasury redeems all the intra-governmental debt and all the Fed-held debt. That's about $6.7 T right now. Of course, that money doesn't immediately go into the economy. It goes to the Fed, who can freely create money anyway, and it goes into Trust accounts of various government agencies.

    Otherwise, the debt is liquidated gradually. $9 T of it over 10 years; the remainder, less than $1 T over 30 years. The replacement of bonds with reserves on payoff, should be deflationary, because reserves can be used for collateral as well as bonds; and also because there no interest payments from bonds into the economy.

    What about the $43.6 T not spent on debt repayment? That would be used to cover deficit spending. As long as that doesn't exceed what's necessary for full employment; their shouldn't be any inflation. If there is; then back off the spending.

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