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Did the MSM's new wave of commentaries on platinum coin seigniorage (PCS) miss the really big story about it? Of course, I think it did, and I'll continue my review of the MSM commentaries with the efforts of Chris Hayes at MSNBC, substituting as host on the Rachel Maddow show (12/05 at 9:20 PM); and John Carney at CNBC (12/06 at 11:54 AM). This is my second review post on this subject.

Chris Hayes

Chris Hayes's coverage of PCS was an MSNBC "breakthrough" cable segment on the subject, since it was the first, not a blog post per se. But I'm covering it here, because it, arguably, fueled the new wave of PCS blogs. Chris gave a creditable brief summary of the idea behind PCS, with a reference to US code Section 5112k, then he went on to focus on the Trillion Dollar Coin (TDC) proposal as an example, and transitioned to bringing up the debt ceiling problem. During that discussion he emphasizes the damage that could be caused by another debt ceiling crisis, including the damage to the US credit rating, while also making the point very clearly that Congress has already approved the spending that is creating the crisis and that refusing to raise the debt ceiling is equivalent to not paying your credit card bill.

Up to this point I found Chris's presentation very clear and was happy to see the coverage of PCS. But, a couple of comments are worth noting. Due to the debt ceiling context which he assumes is the problem, Chris focuses on the TDC solution and talks about that PCS solution, only. No other PCS possibilities see the light of day in his coverage. Is it possible he hasn't thought about them?

Also when he talks about damage to our credit rating as a serious consequence of our debt ceiling crisis, he fails to mention that previous ratings agency actions against nations like the US that have non-convertible fiat currencies with floating exchange rates and no debts in currencies not their own haven't resulted in increasing rates on their debt; but in decreasing interest rates, indicating that the credit agencies and their ratings aren't in a position to cause any economic damage to the United States.

Chris then continues:

. . . The odds are pretty close to zero that we mint a $1 trillion coin in order to pay off some of the debt. but there's striking movement in the direction of changing the rules so we don't ever have to fight over this completely unnecessary issue ever again. Remember, this is important. The debt ceiling isn't about incurring future debt. It's about the money congress has already duly authorized and appropriated and voted to spend. It's not a fight about whether or not to spend money; it's a fight about whether or not to pay your credit card bill. Today. The President basically said, no more. I'm done having this dumb fight. I am not going to do it again.

And then, after playing a video clip of the  President saying he's done, Chris continues with:

. . . okay. so the McConnell rule isn't exactly the super awesome trillion- dollar coin idea that I kind of love, but it's not half bad. The president has the power to raise the debt ceiling in order to pay for the things that congress has already agreed to pay for, and if congress wants to stop it, they need a two-thirds majority to do it. I am generally pretty wary of increases in Executive authority and decreases in Congressional oversight, but in the case of the debt ceiling, there's just no argument for it. The money has already been spent. Congress has already spent it. It's just a matter of whether or not you pay the bills. And if all else fails, President Bbama and Tim Geithner should start deciding whose face that is they want to put on the new $1 trillion coin. I vote for John Boehner!
Nice touch, that!

So, how does Chris know that the odds are pretty close to zero that the President won't use some variation of the PCS option? Whether he does or not is his decision. Is it even proper to talk about “odds” in the case of an individual decision? Shouldn't he be talking about “likelihood” and doesn't likelihood depend on the circumstances surrounding the decision and the President's psychological makeup?

Also, was the main point of Chris's piece to let John Boehner and the Republicans, and maybe the President, know that there is an alternative to compromising with the Republicans for the President, other than shutting down the Government: the TDC? If so, then isn't Chris, usually one of the “progressive” voices in the mainstream, just adopting a conservative solution, supported by a conservative meme; which only seems, on the surface to be progressive, because PCS is a new idea?

After all, what does the TDC solution do? It kicks the can down the road by about a year, and maybe a little more depending on events. But it doesn't solve the debt ceiling problem; or the even larger problem that the Treasury must incur debt when it wants to deficit spend.

Not that the size of the debt in any way deceases the fiscal sustainability of Government deficit spending, as the austerians claim; but the politics of the debt issue is usually toxic for progressives and their solutions. So, for us, the best PCS solution to the debt ceiling crisis would be one that provides for paying down the debt out of seigniorage profits until it's gone; since that would take the debt issue off the table, and be a game-changer, when we are debating full employment, Medicare for All, increased Social Security benefits, and other things we need done.

John Carney

Carney starts out his post with references to Pethokoukis's post and Krueger's report, and with the quote from Krueger on the PCS option we've seen already. He then says:

As Joe Weisenthal points out, this idea originated last July with a commenter called "Beowulf" at Cullen Roche's Pragmatic Capitalism blog. Beowulf pointed out that although there are statutory limits that prevent the Treasury from printing paper currency to fund its operations, there's a quirk in the law that allows the Treasury to print platinum coins of any denomination.

So, Carney takes Wiesenthal's distortion even further, saying that the PCS idea originated   on July 7, 2011 (the date of Cullen Roche's post), and, as we've seen, beowulf originated the idea, but this date is off by at least 8 months. Carney probably picked this up from Wiesenthal, because he neither bothered to check it by searching the web, nor even re-read Cullen Roche's post; where the updates indicate prior posts on PCS to that one.

Carney goes on to point out that he's changed his mind about the inflationary impact of the trillion dollar coin saying:

This concern now seems to me to be seriously misplaced. There would really not be any additional inflationary pressures caused by a trillion coin

The key point here is that the government would not be throwing an extra trillion dollars into the economy. It would, rather, be spending exactly how much it planned to spend anyway. It would not be issuing bonds to cover some of that spending but bond issuance by the Treasury does not do very much (probably nothing at all) to combat inflation anyway. The amount of government issued financial assets remains the same, even though the composition of dollars and Treasury bonds changes.

This is exactly the position of Modern Money Theory (MMT), as articulated by Scott Fullwiler. And Carney adds:
There could a long-term inflationary problem, I suppose, if the government fell in love with the idea and used platinum coins to finance ever larger deficits. But that seems unlikely. And, in any case, the Fed could step in and use its monetary policy tools to counteract the spendthrift coiners.
That's not quite the MMT position, which is that deficits wouldn't cause inflation unless the government continued deficit spending past the point of full employment. In any event, Carney provides no reason for thinking that there might be a long-term inflationary problem absent Fed intervention.

Carney's post is an improvement on the first two. It identifies beowulf by name (or handle, anyway). And it indicates that there would be no inflation if the option were used because it doesn't involve any more spending than before. On the other hand, his provenance of the idea is false, and he's not clear about why long-term inflation may be a prospect.

Neither Chris Hayes's post, nor Carney's considers PCS solutions other than TDC ones. They both see PCS as essentially a band-aid we can put on the debt ceiling problem. They don't see it as something that could introduce a profound change in the background of fiscal policy. My next post will cover the efforts of Matthew Yglesias and Kevin Drum.

(Cross-posted from New Economic Perspectives.)

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Comment Preferences

  •  Why stop at a Trillion? Why not two, and (5+ / 0-)

    spend the extra on paying down the debt? And well, as long as you're paying of the debt, why not pay it all off?

    After all, a trillion here, a trillion there and pretty soon you're talking real money. Mint a 20T coin and use the chump change to gold plate public infrastructure or buy Japan, or China, or all of Europe.

    Downside? The US$ will fall through the floor. Imports inflate. Upside? Magic for exports, domestic jobs and sales of Nicki Minaj CDs (maybe a downside?).

    Can you imagine the tourists flocking to the US pumping foreign cash into your economy?

    'If you want to be a hero, well just follow me.' - J. Lennon

    by Clive all hat no horse Rodeo on Wed Dec 12, 2012 at 09:14:01 PM PST

  •  unh, no. nn (1+ / 0-)
    Recommended by:
    Translator

    clime parches on. terms: ocean rise, weather re-patterning, storm pathology, drout-famine, acceptance of nature.

    by renzo capetti on Wed Dec 12, 2012 at 09:35:25 PM PST

  •  This topic is picking up steam (3+ / 0-)
    Recommended by:
    Translator, elwior, Ian S

    and, for or against, I think this diary explains it well. And I don't see that the diarist is actually endorsing the idea, just giving us info.

    Thank your stars you're not that way/Turn your back and walk away/Don't even pause and ask them why/Turn around and say 'goodbye'/Just wish them well.....

    by Purple Priestess on Wed Dec 12, 2012 at 10:04:23 PM PST

  •  This is not a plausible idea, (0+ / 0-)

    although legal.  It is legal for me to do lots of things that do not make sense, but not plausible.

    Let us do a thought experiment.

    If such a coin were minted, it would be just be a fiat token in the first place.  If, by some bizarre circumstance, that would peg the price of platinum (assuming that the coin were one ounce troy) to the value of the coin, then our cars would cost millions of dollars because of the content of the metal in the catalytic converters.

    Whilst it might be legal, it is just not practical.  As a matter of fact, it is no different than issuing electronic (aka "paper") currency, in that the value of any currency is tied to the output of an economy.  Now let us get to the nitty gritty.

    Commodities ARE tied to their value, and they (in the long term, but are volatile) are pretty much in tune with what an economy does.  For example, the ratio of gold to silver is 51.71 (I am using the TOCOM figures for 20131013 as reported on bloomberg.com as I write), which is not sensible historically.  Back when we used the bimetallic standard, the ratio was closer to 15 (gold always being the more valuable metal).   When it got out a whack at only 15.5, silver disappeared from circulation as coinage in the US because of speculation.

    Now, I can only compare the spot prices (it is late and I baked 20 dozen Lizzies tonight) of gold and platinum, but that ratio is 1.0484.  That would imply that my one ounce gold eagle would be worth 1.0484 trillions of dollars if the scam were put into place.

    This is patently absurd!

    It is a nice fantasy, but not at all realistic.  But here is what could be just, if not more, realistic.

    The Treasury could just declare the national debt to be null and void.  In that case, just as in the case of the one trillion dollar platinum coin, would be immediate and worldwide economic collapse.

    All of that is fun about which to think but for practical reasons can never happen.

    Thank you for an interesting piece!  I love hypotheticals, but this one is not going to happen.

    Warmest regards,

    Doc

    I would rather die from the acute effects of a broken heart than from the chronic effects of an empty heart. Copyright, Dr. David W. Smith, 2011

    by Translator on Wed Dec 12, 2012 at 11:55:58 PM PST

    •  Need not be parity b/t face value and market price (4+ / 0-)
      Recommended by:
      Ian S, catfood, semiot, Calamity Jean

      It currently costs 2.41¢ to mint a penny, making the coin's face value less than its actual value. This is because the zinc and copper in the penny is valued more highly than the face value of the coin.

      In the case of the platinum coin, the ratio would be flipped and be much larger. The coin's face value need not be in parity with the market price of the material in the coin.

    •  How much of gold's "commodity" value (2+ / 0-)
      Recommended by:
      Calgacus, Sandino

      is tied to the folks who think we should be on the gold standard, or to those who believe that gold will enable them to get by in the aftermath of some cataclysm, or those who believe other similar strange things? Gold's "commodity" is mostly imaginary, and like silver was back in the days of the Hunt brothers, subject to manipulation.

      Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

      by hestal on Thu Dec 13, 2012 at 05:53:00 AM PST

      [ Parent ]

    •  If? (1+ / 0-)
      Recommended by:
      Calgacus
      If such a coin were minted, it would be just be a fiat token in the first place.  If, by some bizarre circumstance, that would peg the price of platinum (assuming that the coin were one ounce troy) to the value of the coin, then our cars would cost millions of dollars because of the content of the metal in the catalytic converters.
      What "bizarre circumstance" could that be? I can't stamp my own Sacagawea dollars from copper and brass. The price of copper and brass didn't jump to $1 per 8.1g (I looked it up) simply because that's the composition of an arbitrarily valued coin.
      •  Btw, (3+ / 0-)
        Recommended by:
        Calgacus, Sandino, catfood

        The Treasury already has all the platinum it needs for a $60 T 1 oz. coin. In fact, it has enough for 15,000 such coins. So, this is just a false issue, there would be no change in platinum prices.

        There will also be no inflation unless Congress overspends. The spending would be to repay debt. The remaining $44 T would be there for deficit spending so that the Treasury would not have issue debt for 15 - 25 years. Deficit spending can cause inflation, but not unless we deficit send past full employment.

  •  Why should private banks collect all the interest? (0+ / 0-)

    Nationalize the Fed.

    •  I'm (1+ / 0-)
      Recommended by:
      Sandino

      all for that. But now you're talking about moving Congress to do something. All I'm doing is trying to get the President to get out from under the austerity nonsense about the debt and the deficits we hear everyday. That will clear the way for progressive legislation.

  •  another excellent MMT diary. Thanks. nt (1+ / 0-)
    Recommended by:
    elwior

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Thu Dec 13, 2012 at 01:01:31 AM PST

  •  Canada minted a $200 million dollar coin to cover (0+ / 0-)

    spending in 2005, I believe.

    Hope has a hole in it when Republicans come, bringing shackles and sorrow; branding their greed on the backs of the poor. - Wendy Connors

    by Wendys Wink on Thu Dec 13, 2012 at 05:10:52 AM PST

  •  I'm encouraged by the discussion in the MSM... (1+ / 0-)
    Recommended by:
    catfood

    even if said discussion is a bit lacking in detail accuracy and doesn't extend much beyond the debt ceiling context. The problem is that it's tough for new ideas to break into the mainstream especially when the old ideas - in this case regarding how money works - are so ingrained. The fact that PCS is gaining traction makes me hopeful that the other implications of MMT will start to challenge mainstream thought.

    Just another faggity fag socialist fuckstick homosinner!

    by Ian S on Thu Dec 13, 2012 at 07:08:02 AM PST

  •  What? (0+ / 0-)
    After all, what does the TDC solution do? It kicks the can down the road by about a year, and maybe a little more depending on events. But it doesn't solve the debt ceiling problem; or the even larger problem that the Treasury must incur debt when it wants to deficit spend.
    Why the hell not? If we can mint one $1T coin, we can mint dozens of 'em. Say one every year or two.
    •  The first $1 T (3+ / 0-)
      Recommended by:
      Ian S, Sandino, catfood

      coin will bring forth a tidal wave of opposition. Right now, the Rs can't do anything about the legislation authorizing this. But if they win both Houses in 2014, they'll be able to repeal that part of the bill. So, the safest thing is to figure it will be a one-shot deal and take it while it's available. Fill the public purse with the $60 T coin!

      •  Not quite. (0+ / 0-)

        The only way to repeal a law is to pass a superseding law--which requires the signature of the President or a 2/3 override vote in both houses. Neither one seems likely.

        But I agree: Why not just mint a $60T coin right now? Pay off the "debt" and quit worrying about fake "deficits." Maybe: don't pay all the debt: keep a reserve and balance it against T-notes to give investors the baseline low-risk return that they've always had?

  •  Next installment coming up (0+ / 0-)

    in a few minutes.

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