Skip to main content

“People in the political arena were even talking about a potential default,” said Joydeep Mukherji, senior director at S&P. “That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns.”
(The Nation, August 12, 2011)
After Standard & Poor’s lowered its sovereign credit rating for the US from AAA to AA+ it issued an official explanation for the downgrade.  Joydeep Mukherji was a little more direct and to the point.  When elected officials responsible for making fiscal policy speak cavalierly about the possibility of a debt default, expect a downgrade. The ratings agency would take the words of Michele Bachmann, Eric Cantor, Mitch McConnell and others seriously.  There would be consequences for statements such as this one:
“I think some of our members may have thought the default issue was a hostage you might take a chance at shooting.  Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming.”
(Mitch McConnell, Washington Post, August 3, 2011)

What the Republicans are doing with the current statutory debt limit is intolerable.  No American owes a darn thing to Republicans in return for their second approval of funds they already appropriated.  That’s all the debt ceiling is.   Democrats need to stay focused on the Republicans’ unethical misuse of their majority in the House to threaten the nation with economic disruption.

Right now, distractions like the trillion dollar platinum coin aren’t productive.  It’s a sign of the time that such an idea could be taken seriously.  In this diary, you’ll learn why the strategy for the Treasury to mint a platinum coin to be held at the Federal Reserve Bank won’t work so that you can concentrate on fighting against the Republicans more effectively.

To help you understand the platinum coin strategy flaws, you have to understand how the Fed operates in its partnership with the US Treasury today.  Using a legally minted coin wouldn’t function as a stand-in for the Treasury bonds that the Fed buys today when it conducts monetary policy.

Let’s walk through it step by step.  Today the Treasury issues debt in the form of bills, bonds, notes and other securities.  The buyers of these securities expect to receive interest and 100% of the principal upon maturity.  They also expect liquidity: the ability to sell at any time on a secondary market where there is demand.  If the holder keeps the Treasuries until maturity they will also retain their value so that one dollar will always equal one dollar.   US Treasuries are guaranteed by the full faith and credit of the United States, per Article 4 Section 1 of the Constitution.  As an example of a simplified transaction between the Treasury and the Fed, let’s say that the Treasury decides to issue $1,000,000 worth of notes on Jan 15 2013 and the Fed purchases them for its Reserve account.

Note the maturity date is Feb 15 2013, one month after issue.  After the transaction, the Treasury’s ledger and the Fed’s ledger would look something like this:
The notes in the right-hand column explain each participant’s position after the transaction.  The Treasury has $1,000,000 it can use to pay the government’s bills and it has an obligation to repay the $1,000,000 when the notes mature.  The Fed owns the notes and it has a USD debit equal to the cost of the notes.  Fast forward to maturity date on Feb 15 2013.
Now there are two more lines of activity to explain each participant’s side of the redemption upon maturity on Feb 15.  When the transaction is done, the position of each participant looks like this:
Here’s the key to the transaction.  When the Fed purchased the notes on Jan 15, it did not pay the Treasury for them.  It knew that they would be maturing a month later, when the Treasury would be obligated to repay the principal to the Fed.  Rather than send the funds back and forth, there is no exchange of funds and when the notes mature, both participants call it even.  The notes are retired and that portion of the Public Debt ceases to exist.  

What if a newly minted platinum coin, with a symbolic value of $1 trillion was substituted for the US Treasury Notes in the transaction described above?   On Jan 15 2013 the Fed would own the coin and the Treasury would have $1 Trillion to pay government bills.  The holder cannot make the same assumptions about the coin regarding its liquidity, retention of value, and guarantee.  When the Fed decides to sell Treasuries from its account, there is always worldwide demand for them.  Would anyone buy a coin with 2 oz of platinum content for $1 trillion?  Bills, bonds, and notes are issued in smaller amounts and can be sold in smaller quantities to multiple investors.  How could that be done with a coin?

The trillion dollar coin would fund government operations for about 100 days.  Assume that the Fed agrees to hold the coin for that duration.  At 100 days the coin is swapped back and forth between the participants in a rollover to allow another $1 trillion in spending.  Examine carefully, the positions of the two participants when Treasury notes would redeem at maturity and that portion of the Public Debt would be retired.   How could the same effect be achieved with the platinum coin?  In the transaction ledger between the two participants, one side always offsets the other to zero, no credit or debit.  Each participant’s internal ledger also balances to zero.  The debt is issued, it reaches maturity and it is retired.   The money that a debt holder lends to the Treasury is repaid in full upon maturity.   The vertical and horizontal balance confirms that money creation was not a net result of the transaction.  Any imbalance on the ledger is an indication of a problem without any other offset to counteract it.  

To push farther in support of the platinum coin, assume that it could be melted and its destruction would debit the ledger so that there’s offset.  There’s still something intrinsically different between issuing securitized debt and minting a coin.   Treasuries are issued and redeemed continuously.  Because of varying maturities, some short, some long, the cumulative amount of securities issued and redeemed in a fiscal year is more than the entire public debt. Securitized debt plays an important role in the circulation of money through the economy. A multitude of investors, individual and institutional, buy, sell, and redeem Treasuries at auction and in the secondary market.  A single trillion dollar platinum coin would have no such liquidity.  In fact, it would have a negative effect on the Federal Reserve's collateral that backs the buck.  

Take a bill from your wallet and examine it.  Notice the Federal Reserve Note and legal tender markings which indicate that collateral held at the Federal Reserve backs Federal Reserve Notes.  The collateral assets are mostly Treasuries and US government agency securities.  It’s unknown how the Federal Reserve would valuate a platinum coin that is supposedly worth $1 trillion with no liquidity.  In other words, the coin would only be worth the price a buyer is willing to pay for it.  With shaky collateral backing the buck, the buck itself would become shaky.

There are peripheral risks in substituting a platinum coin versus the traditional issuance of debt. Would S&P and other ratings agencies downgrade US sovereign credit again?  Would the bond markets sell off in anticipation of a full interest and principal default?  What effect would that have on interest rates?   Is it possible to have two currencies, one backed by traditional collateral and a second backed by platinum coin holdings?  

In the end, the platinum coin solution is a drastic and risky proposal that avoids meeting the real problems head on.

1)  There is no spending problem and there is no deficit problem in the US today.  There’s a political problem that needs to be addressed.  If the US is going to resort to drastic solutions, it would be more appropriate to expel the Republican caucus from Congress or for the President to adjourn it.  

2)  The cost of servicing the debt is lower today that it was in 1998 even though the debt has tripled.  Interest rates are expected to remain low through 2015.  There are ways to manage the long-term risk associated with debt service so that it remains affordable.  

3)  The US monetary system is integrated with the economy and financial institutions.  Like Social Security, it can perpetuate itself forever, with no chance of bankruptcy, unless interests with an agenda interfere with it to make it deliberately fail.  The Republicans engineering a default of US debt would be unnecessary and unforgivable because it wouldn’t resolve what they pretend is objectionable to them.  Instead, it would introduce a whole new menu of problems to add to present concerns.

Fight for a check and balance against the dangerous power that Congress has today if it refuses to approve a rise in the debt ceiling.  Attack the real problem.  The Republicans are using the power they have to force their agenda on the American people contrary to the 2012 election results.  The majority Republicans have in the House doesn’t entitle them to crash the entire US economy because they can’t have it all their way.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  Tip Jar (8+ / 0-)

    "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

    by leftreborn on Fri Jan 04, 2013 at 10:27:00 AM PST

  •  I don't know why (7+ / 0-)

    You take this at face value:

    US Treasuries are guaranteed by the full faith and credit of the United States, per Article 4 Section 1 of the Constitution.
    But not the fact that coinage of the United States is backed by the full faith and credit of the United States.

    If Treasury says this coin is worth one trillion dollars, that's what it's worth.  Full stop.  The Fed cannot question its value.  It goes in the vault.  The US has a trillion dollars to spend.  The end.

    You know, it appears you don't even believe that the treasury notes are backed by the full faith and credit of the United States, as re-reading your diary, you talk about a currency backed by collateral.  

    There is no collateral behind the dollar bills in our pocket.  It's a dollar because the government says it is a dollar.  That's what full faith and credit, and fiat currency, means.

    •  Thank you for your interest and question. (1+ / 0-)
      Recommended by:
      Gary Norton

      The guarantee of US Treasuries by "the full faith and credit" is a legal fact.  Holders have legal recourse in the unlikely event that they would ever need it.  It's a principal that hasn't ever been tested with Treasuries but it has been with US government agency securities.

      Agency securities were "backed by the US Government," not "guaranteed by the full faith and credit."  What the  difference in language meant was a matter of speculation until 2008, though it was popularly assumed that holders were protected similarly with both.  In 2008, US Government Agency backed securities issued by Fannie Mae and Freddie Mac went into default.  The holders were paid 100% as expected.  US Treasuries would be treated the same way.  This is fundamental to our system.  

      When phrases like "guaranteed by" and "backed by" are used in conjunction with US debt, understand that its the US taxpayer who is on the hook.  The backing is derived from the fact that the US has a $16 trillion economy and its workers earn a similar amount each year in income, which is taxed.  Entities that aren't natural persons, such as corporations, are also on the hook, to the extent that they pay taxes.  Our labor is the foundation.

      Why a coin doesn't have the same guarantee isn't something I can address with equal confidence but I'll do my best.  Remember, this is uncharted territory.  It's one of a kind.

      The Federal Reserve is an independent institution in the government.  It was deliberately created that way by the Federal Reserve Act.  It's independent by law.  The Fed's independence means a) the executive and legislative branches cannot instruct it, direct it, interfere in it, or control it.  No other government agency can exert authority over it.  b) It is accountable to the citizens of the US through our representatives in Congress.  It must report what it does.  

      Given that arrangement, think about how the Fed acquired US Treasuries today.  The Fed decides when it wants to buy Treasuries, the quantities and description.  It purchases on the open market.  That's how it retains the integrity of its independence.  The Fed enters the market and it competes with other bidders for securities that have the same terms, no matter who buys them.  There's no such market for a single platinum coin.  The Treasury may wish to offer it at $1 Trillion but it can't order the Fed to buy it.  It's unlikely the Fed would buy it.   Why?

      The Treasury doesn't set the price of anything.  Markets do.  Let's say the Fed did decide to purchase the coin and it needed to liquidate it at some future date for an unexpected reason.  With Treasuries it's very clear how that could be done.  With the coin, it is not clear for the reasons I stated in the diary.  It's one (very expensive) piece that can't be broken up, the existence of collectors' coins that are identical in every aspect aren't worth $1 trillion, the discrepancy with the commodity value.  The only analogy I can offer is a property.  It's only worth what someone will pay.

      Treasuries are a completely different matter and they are indeed guaranteed.  Bondholders have rights.  A Treasury security isn't just a piece of paper.  This is society of laws and it hasn't completely broken down yet.  Not by a long shot.  The same with the dollar.  I know it's fashionable to throw around terms like "fiat money" and I prefer to speak without jargon so everyone will understand.  There's no commodity like gold to back our currency but that doesn't mean it's backed by nothing.  

      I hope I answered your questions and I'll be glad to answer any more you have.  

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Fri Jan 04, 2013 at 11:40:53 AM PST

      [ Parent ]

  •  does the coin's value matter? (3+ / 0-)
    Recommended by:
    Davidsfr, bleeding blue, MPociask

    What if the single trillion dollar coin was replaced by one million million-dollar coins?

    Presumably those would have reasonable liquidity.  Or would they?

    In short, can the liquidity issue be finessed, and what happens to your analysis if liquidity wasn't an issue?

    This is mainly, but not entirely, a technical question.  I agree fully that we need to get the Republicans to own up to their responsibilities, but also think that if we could credibly negate the value of their hostage they'd be less inclined to keep it hostage.

    •  As a joke I was hoping someone would suggest (1+ / 0-)
      Recommended by:
      Gary Norton

      the minting of 315 million of these coins so that we could each have one of our own.

      I wrote a long response to MPokiask upthread and explained the liquidity piece a bit more thoroghly in connection with the role of the Fed.  When the Fed buys Treasuries, it does so on the open market, bidding at the price (or more accurately, interest rate) that it wants.  The market determines the price, not the US Treasury.  There's no such market in coins, and the Fed is independent.  Without a market, the Fed can tell the Treasury it won't pay more than $3000 for $3000 worth of platinum.  If there was a market with demand for platinum coins with bids up to $1 million for $3000 worth of platinum there would be some basis for the Fed to purchase.  Rule of thumb:  no purchase in that amount should ever be made without an exit strategy.  Are there buyers?   The real estate market in the US offers a hint.  It's really no different.

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Fri Jan 04, 2013 at 11:55:59 AM PST

      [ Parent ]

  •  I have a headache. (nt) (3+ / 0-)
    Recommended by:
    ROGNM, notrouble, leftreborn
  •  I could just see this scene (3+ / 0-)
    Recommended by:
    MPociask, Aquarius40, leftreborn

    Biden:  Want a coke
    Obama:  Sure
    (Biden deposits two coins from his wallet into machine, retrieves coke)
    Obama:  Uhhhh, what coin did you use to buy this?
    Biden:  Oops!

    Seriously, I have two responses:

    1) I don't give a fuck what S&P rates our credit.  IN fact, maybe a downgrade for the Republican's shenanigan would be a good consequence.  I know you finance types will say " oh no, that would be horrible" but - really - would it be?  For 90% of us, I'd say no.

    2) It needs to stop.  I'd be in favor of Obama letting them shut the govt down.  

    The object of persecution is persecution. The object of torture is torture. The object of power is power. --George Orwell

    by jgkojak on Fri Jan 04, 2013 at 11:03:55 AM PST

    •  think again (1+ / 0-)
      Recommended by:
      leftreborn

      A recession that cost you your job would affect you.

      And a downgrade could lead to that.

      •  But what effect did the S&P downgrade have? (0+ / 0-)

        None. Did interest rate go up? No - treasury yield is negative. Did the bond market reject treasuries? No, they are over subscribed and sell like hotcakes. Let's see, they downgraded Japan some time ago. How is that going? Japan's debt to GDP ratio is 200%, their bond also trades with a zero yield and plenty of takers, they have a strong export market, yet the 80-90 Yen buy a dollar today when just a few years ago it took 120-130.

        How could that be? Sovereign currency issuers who allow their exchange rate to float control their own interest rates as a matter of policy. Bond vigilantes are just like any other creditors, they can exert power over currency users who are constrained by access to money. Currency issuers can simply issue the necessary currency, duh, and it is done.

        It's a phoney scare dreamed up by Pete Peterson and the "Fix the Debt" crowd of self-serving billionaires posing as good citizens. Don't buy it!

        •  oops: meant to say default, not downgrade (1+ / 0-)
          Recommended by:
          leftreborn

          An actual default would send shockwaves, with extremely unpredictable results.  Things could recover without mishap, or there could be a complete meltdown.  That's not a wise gamble to take for no reason at all.

          It was the mere suggestion that a default was possible that led to the downgrade.  Fortunately for us, S&P over-reacted, and the woes in Europe made T-Bills still look good by comparison, but it would be foolish to keep pushing our luck.

          •  Agree, default wouldn't just be bad, (0+ / 0-)

            it would be an act of economic treason. Because he has several available avenues to legally avoid default, Obama would be in breach of his constitutional oath in the event of an actual default. He could, for example, comply with all laws while having the treasury issue a platinum coin of sufficient value to eliminate the debt and deficits from discussions about public policy. Letsgetitdone has written about this extensively on DK. Here is his discussion about a very high value coin, the approach I would personally favor.

    •  There are all sorts of opportunities for jokes (0+ / 0-)

      with the coin.  I was thinking of dropping it into the quarter slots in Vegas  . . .  and winning a jackpot of $100,000.  Let's see - I'd only be down  $999,999,900,000.00 if my math is correct.

      Sorry you feel like that about the rating.  It didn't have much effect last time.  At some point, there's no denying that we're all in this glorious mess together.  Or not.

      I'm serious about the Rs.  They're getting away with far too much.

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Fri Jan 04, 2013 at 12:02:30 PM PST

      [ Parent ]

  •  It might... (2+ / 0-)
    Recommended by:
    leftreborn, billmosby

    ...if it's the size of a manhole cover, and you drop it on Boehner's head.

    Float like a manhole cover, sting like a sash weight! Clean Coal Is A Clinker!

    by JeffW on Fri Jan 04, 2013 at 11:06:10 AM PST

  •  On your balance sheet where's (1+ / 0-)
    Recommended by:
    MPociask

    the 5/8% interest paid on the bond?

    Also the Fed wouldn't "own" the $1T coin. It would be on deposit to it.

    The best thing about the coin would be that the notion we don't need the Fed to create currency would be in the public mind.

    The Fed "decrees" currency, then lends it, cheaply, to their Prime Banks (that is, their business partners), who then buy Bonds from us which we pay for later, plus interest. Which puts us in debt, and inexorably must lead to debt-crisis. It was over $350B in debt-service we paid last year. And this amount will grow exponentially as long as we keep issuing Bonds at interest.

    Skipping the "borrow from banks" stupidity is a matter of National Security, when you think it through.

    We should issue the Coin, not just for this case, but for the entire budget, always. Stop borrowing, act like a Sovereign Nation.


    The Internet is just the tail of the Corporate Media dog.

    by Jim P on Fri Jan 04, 2013 at 11:10:56 AM PST

    •  You know... (1+ / 0-)
      Recommended by:
      Jim P

      It used to be the Democratic Party position to be against having a National Bank.  Now, I'm not so sure.  The Federal Reserve system is even more sinister than what Andy Jackson ran against.

      Personally, I think that gigantic banks have shown that they are a threat to our economy, and they're all too big to fail.  That's why I think we should replace them.

      Make a national bank.  Get rid of the fed.  Put a branch office in every county seat in America.  The bank takes deposits and makes loans (why not?  just don't have loan officers - have the loan decisions made by a publicly created formula set in DC).  You can have a checking account or debit card, too, if you want.  The whole point is, if we have a national banking system, it should be open to every citizen, not just to the wealthy players in our economy.  Put any operating profit into the national account.  

      Have the national bank pay all our bills.  Finance our national bank by printing money and putting tax receipts into it.  (Collecting taxes is still a good thing, independent of funding reasons).  

      •  Local bankers are good though. (1+ / 0-)
        Recommended by:
        MPociask

        Remember when TARP was pushed on us with the rationale it would help the TBTFs to lend? They never did, in fact practically shut down lending entirely. But local banks have kept at it. Maybe just force banks to stay local, and definitely separate proper banking from debt-instruments and that kind of gambling.

        iirc, a National Bank as you describe was a Populist demand. Low-interest, non-compounding loans for qualified borrowers. The low-interest to cover those cases where people default through bad luck, bad business, or death and disability. The non-compounding to avoid the "miracle' of crushing debt. Sounds good to me.


        The Internet is just the tail of the Corporate Media dog.

        by Jim P on Fri Jan 04, 2013 at 11:35:06 AM PST

        [ Parent ]

    •  The 5/8% interest is for the advanced crowd (2+ / 0-)
      Recommended by:
      Gary Norton, Jim P

      since I was just giving a simplified example.  If the one month note paid 5/8%  the Fed would earn  $5,208,333,333.33 on its investment.  At the end of the year, the Fed turns over any profits it has to the Treasury.  Some or all of that interest or a larger amount depending on profits would go back to the Fed.  It doesn't exist to make profits, contrary to the beliefs of some people.

      I know that the strategy in narrated with the coin going into an account that the Treasury has at the Fed.  There's an open question about this for the list of open questions.
      The Fed isn't a depository bank.  I don't assume that the Treasury would have an account.  The story makes it seem so but I doubt that the Fed acts as a bank for the Treasury and the Fed can only do what the Federal Reserve Act assigned to it.  I'm willing to be wrong about this because I'm open-minded.  

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Fri Jan 04, 2013 at 12:18:08 PM PST

      [ Parent ]

      •  Thanks for taking the time to reply. (0+ / 0-)

        Not necessarily relevant to the Coin issue, but I think this "the Fed turns over its profits to the Treasury" bit is misleading.

        Going back to the Fed decides to tell the Treasury to issue currency, then the Fed takes that currency and lends it to other banks, usually owners of the Fed. (Oddly, the Fed website says "nobody owns" the Federal Reserve but that's malarky).

        So they'll lend to, say, Chase, at, say 1% interest. Chase then buys bonds at say, 2%. When you add it all up, sure the Treasury gets the 1% (+ modest printing fee) but FedFriends pull 2% out of the Treasury, so the US is actually guaranteed a net loss on the deal. Which goes toward our debt-service.

        Great for the Bankers. Disastrous for the US. I say just cut out the middleman, bon voyage Fed, hello end of debt-interest.

        Just didn't want that process to go unremarked, not to annoy you or anything.

        **

        Here's a link to how the Federal Reserve Bank requires coin deposits to be packaged, the top level of the link being about their other services. So, yes they can accept deposits.


        The Internet is just the tail of the Corporate Media dog.

        by Jim P on Fri Jan 04, 2013 at 04:33:39 PM PST

        [ Parent ]

  •  The trillion dollar bill (1+ / 0-)
    Recommended by:
    leftreborn

    Was a Simpsons episode.  Once again life imitates comedy.

  •  Nope (1+ / 0-)
    Recommended by:
    polecat

    The Fed doesn't receive the coin and try to sell it to people and financial institutions. They receive the coin deposit and issues checks to the Treasury which then is allowed to spend it to, say, a defense contractor or a doctor. That simple fact overcomes your quite verbose objections to it.

    •  The Treasury doesn't get to dictate those terms to (0+ / 0-)

      the Fed.  Before the Fed issues checks to the Treasury it decides for itself whether the quality of the collateral on deposit is sufficient to pay out $1 trillion.  It should be obvious that it would never pay that amount for a coin with nothing to support the value of $1 trillion.  

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Fri Jan 04, 2013 at 01:27:45 PM PST

      [ Parent ]

      •  Really? Why the sudden moralism? (0+ / 0-)

        When the Fed prints up $3.5 trillion in QE to exchange for treasury bonds, or when they print up $7 trillion to give to overnight loans to the financial sector, or when they print up tens of billions every day in the discount window to hand over to banks?

        The Fed has the explicit authority to create money "with nothing to support the value" and has no problem handing it off to the financial sector; why would they suddenly balk at doing something to save the world economy from collapse? Completely illogical imo.

        •  There's no moralism and there's no printing. (0+ / 0-)

          Here's my verbose diary distilled to one sentence:
          A treasury bond isn't a newly minted coin.

          The tale you tell about printing is only half a story. You leave out the other half.  In the last three months $16 trillion worth of Treasuries were "unprinted."  Every Treasury is issued with a maturity date when the money borrowed by the government is repaid to the lender.  
          When the whole story is told, it's not about printing. It's about circulating money from the Fed, to the Treasury, into the general economy where money is spent and back to the Treasury through income taxes.  

          You make it sound like the Fed prints and floods the economy with worthless dollars.  The truth is that very little money is being created --- just enough to keep pace with growth in the economy.  

          The coin has no maturity date.  It's not a debt obligation that needs repayment.  Unlike a bond, it never matures.  It doesn't get retired.  The end of the bond's life cycle, which you ignore, makes all the difference. From issue to maturity the net result is zero change in principal and a little bit of interest.  Not much new money created.   With the coin, the whole trillion is created and it remains forever.

          That's inflationary and it debases the currency.

          Question:  are you a three percenter?

          "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

          by leftreborn on Sat Jan 05, 2013 at 06:00:33 PM PST

          [ Parent ]

          •  A treasury bond is indeed not a coin (0+ / 0-)

            Of course treasury bonds have maturity dates, and they are rolled over, like you said, at a very rapid rate. But what does that have to do with either statement? When the federal reserve puts a treasury bond on its balance sheet and replaces it with cash reserves, that is "money printed out of thin air". At the discount window at the Fed, or those overnight emergency loans during late 2008, early 2009 given to the financial sector (including companies like GE who they made exceptions for in our shadow banking system) are "printed from thin air" and are lent out to banks for less than nothing (adjusted for inflation) at current rates. I'm just wondering why you don't find an outrage on that but you do on money spent on things that can actually be useful like infrastructure, health care or defense (bloat or not). Sure, the difference with putting bonds on the Fed's balance sheet is that you can sell it back, but I highly doubt that'll happen any time soon in; maybe 2035?

            'Debases the currency'; you do realize if the dollar were to drop 10%, that would increase in the short term net jobs by 2 million and GDP by 1.5%? (according to Bergsten and Gagnon). You also realize that we have a trade deficit of around 3.5% of GDP, representing a 3.5% loss of demand each and every year that has to be papered over by fiscal deficits or the private sector going further into debt? (even more than it already is). Fact of the matter is that our economic stagnation will stay with us for the next 15-20 years until and unless the private sector fully deleverages itself of all of its bad debts accumulated over the last 70 years, and particularly the last 30 years.

            And worrying about our dollar dropping a little bit to increase some growth by reducing our trade deficit, or worrying about the fact that investors will have to find another trillion to park their savings while the treasury averts a global economic meltdown is extremely counter-productive.

            I don't even know what a 3%er is.

            •  The whole truth and nothing but the truth versus (0+ / 0-)

              snapshots chosen selectively and presented out of context.
              I'm verbose because I'm trying to fill all that happens before, after, and in between your snapshots.

              A trillion dollar platinum coin isn't fungible.  US Treasuries are.  

              Being mad at banks for charging interest to borrow and paying interest for deposits is like barking at the moon.

              This conversation passed the point of no return when you decided my position on a range of topics I never even mentioned.  

              Adios.  

              "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

              by leftreborn on Sun Jan 06, 2013 at 01:26:16 AM PST

              [ Parent ]

  •  Based on this timeframe . . . . (1+ / 0-)
    Recommended by:
    leftreborn
    On Jan 15 2013 the Fed would own the coin . . .
    the coin must have already undergone substantial development.

    e.g., the design takes weeks (or months!) then engraving the dies takes a few more months.  

    so logistically, if all this legwork hasn't been done already, there's no trillion dollar coin coming out on January 15 of this year.   If no legwork of this type at all has been done, probably not even this year!

    •  You are funny Roadbed Guy. Maybe pulling my (1+ / 0-)
      Recommended by:
      Roadbed Guy

      chain.  It's just an illustration.  A hypothetical.  For demonstration only.  In other words, if it was done, this is an excruciatingly detailed step by step description of how it would go, according to the Fed's own operations.  But it will never happen so you can forget it now.  

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Fri Jan 04, 2013 at 01:32:19 PM PST

      [ Parent ]

      •  Oh my, there's not going to be one? (0+ / 0-)

        Ever??

        Well, that's a real shame.

        What with all the diaries about the trillion dollar coin of late, I really, really had my heart set on getting me one of them (or maybe even two, if I could afford it).  

        Just another disappointment in a llife full of disappointments it would seem.

  •  The real problem is really not that huge. (1+ / 0-)
    Recommended by:
    leftreborn

    From what I read lately, the government spends about 22.8 percent of GDP, while taxes bring in, what, about 15 or is it 18 percent of GDP after the latest little tax increase? Get taxes up 5 percentage points and you're done. Doesn't have to be done today, because economic growth will eventually fix the problem even if we tax at only 19 or 20 percent now.

    Patience and a small amount of unselfishness will fix the problem. Those two things are really what's in short supply, not money.

    Pity you can't mint a coin with a trillion dollars worth of patience and unselfishness in it.

    Moderation in most things.

    by billmosby on Fri Jan 04, 2013 at 02:14:46 PM PST

  •  Your "solutions" pre-suppose that PBO has (0+ / 0-)

    rational Republican House to negotiate with. It should be obvious by now that is not the case. They are fully prepared to take the U.S & world economy to the edge (& probably over) of default. They are undeterred by the fact that it is unconstitutional (See 14th Amendment Art. 4).
    Both the Fed & Treasury are fully incentivized to co-operate with PBO in order to avoid default.
    PCS is clearly Constitutional Hardball with potential risks, but the likely alternative, default, is much worse.  The coin could in fact become the basis for simpleDebt Limit Solution--PCS political compromise.

    Warren is neither a Clintonesque triangulator nor an Obamaesque conciliator. She is a throwback to a more combative progressive tradition, and her candidacy is a test of whether that approach can still appeal to voters.-J. Toobin "New Yorker"

    by chuck utzman on Fri Jan 04, 2013 at 04:23:03 PM PST

    •  How am I suggesting negotiation when I said expel? (0+ / 0-)

      What negotiation would I want when I said there is no spending problem and there is no deficit problem.  There's nothing to negotiate.  Whether PCS  goes anywhere remains to be seen.  Careful vetting of the idea, always wise when a trillion dollars is involved, is misunderstood at Kos.

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Sat Jan 05, 2013 at 01:41:21 AM PST

      [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site