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Over the past couple of weeks the debate around platinum coin seigniorage (PCS) has been raging and that is good. In fact, it is great. Like carrot subsidies, PCS is something we should have been talking about years ago. As a rabbit American, I support both but like LetsGetItDone (LGID) who has been writing incredibly knowledgable and quite brillent posts on PCS at both The Daily Kos and the New Economic Perspectives sites, I am hoping it will be possible to leverage the current discussion into a much larger one about crating policy space.

For more hop below the fold.

The Power of Paper

It's like that tired adage, give a rabbit a carrot and he eats for a day, teach a rabbit to order carrots on-line and he eats for a lifetime - or something like that. Sure, we could solve the current debt ceiling problem by minting a $1T coin but we could also chose to do more.  We could resolve the entire US debt and return our economy to full employment by minting a $60T coin.

Oh, put a sock in it each and every one of you who is sputtering something about insanity. First of all, there are some outstanding detailed explanations (this link hops you to the seminal article on PCS by beowulf) as to why this really will work but it all comes down to one simple thing - a fiat currency really IS a figment of our collective imagination. It IS just little pieces of paper or metal upon which we have collectively agreed to confer value and in which value is retained, in the case of the United States, by the policies of the Department of the Treasury, the Internal Revenue Service and the Federal Reserve. Beyond that, money is just paper. (Though, I have to say that in comparison to other paper, when one just happens to nibble on money, humans have a way of turning an extra special shade of white.)

Given that we know that fiat currency works, one of the things that is the most interesting about this entire debate is that no one in Congress

...or the White House

...or the Treasury

...or the Fed

has figured this whole thing out before. Part of this is because, as I have said, almost all of the people currently staffing those positions learned monetary policy at a time when the thinking was all still founded on the gold standard despite the fact that the monetary system no longer has these limits. Nixon took the country out of Bretton Woods in order to allow for growth but only a very few people managed to realize that national policy makers also needed to alter the way they thought about actual money. They needed to smash their old thinking so that the truth of the reality could become clear.

Yeah, like that happens.

I was just reading today about some complete idiot (and by "idiot" I mean conservative Republican) who is claiming that teachers teaching the distributive principle in algebra are pushing a liberal agenda. Back up the truck full of stupid. I get that once humans have their minds set on something it is hard for them to see anything else or in any other way but that won't work for the US economy unless, of course, your objective is aligned with the GOP and your intention is to destroy the economy on "principle." Let's assume that since you are reading this, you are not satisfied with crashing and burning the economy and that you are willing to learn something new. Ok, now take what you think you know about debt and inflation outside and smash it against the rocks of "that's SO '70's." I can wait. (Don't forget your jacket. It's a bit nippy outside.)

If you still think the old "rules" of debt and inflation apply, it's about to get a little nippy in here. Bunny teeth are sharp. I'm just sayin'.

Policy Space

For those of you who are beginning to understand the incredible power of a strong fiat currency we can now move on to what I really wanted to talk about, policy space. In speaking about policy space I am talking not about the legality of PCS and I am not talking about PCS in relationship to the debt ceiling. I am talking about why we, as progressives, should be supporting PCS for all we are worth. Progressives should be loudly supporting PCS with one voice because it would allow us, as a nation, to get past all the truly meaningless battles being fought in Washington, over shadows that live only in the backs of paranoid minds, and on to policy that could genuinely and positively effect the real world.

Let's imagine, for instance, that we are talking about minting $60T worth of PCS coins. It could be any number but $60T is one being actively talked about so I'll go with that for the sake of this example. (And remember, I'm not going to get into why there is no realistic way this would cause inflation or any of the other topics that have been covered by myself and LGIT as noted above.) Now, the funds made available by PCS are not pushed out immediately into the economy, as so many imagine (that really would cause inflation), rather, they are sitting in a Treasury account at the Fed. In other words, for all you MMT folk, they are a $60T entry on a spreadsheet. The first thing that happens, of course, is that all debt that falls due is paid as it is due, in full, instead of being rolled over. No more interest is paid and no new debt is created. Take that, austerians, as Paul Krugman calls those dedicated to austerity. Our debt is being retired. Done. Fin. At the same time, Congress is still in session and is suddenly in a position to authorize spending without having to deal with the canard of not having enough money. (Which, as MMTers know is NEVER the case for the US government but that is not for this blog post.) The issue would be that if we were able to mint the big coin the optics and political will around everything else changes.

As Paul Krugman cites in his 2012 book, End This Depression Now!,

And early this year, with the debate having shifted perceptibly toward a renewed focus on jobs, Republicans were on the defensive. As a result, the Obama administration was able to get a significant fraction of what it wanted...without making any major concessions.
So the first thing Congress now has is a free hand, policy space, to deal with unemployment. In point of fact, the take-over of the national zeitgeist by drummed-up concerns over debt and deficit (see a brief discussion on why FAUX News and company are so dedicated to this mantra near the end of this post) has been allowed to relegate unemployment to the backseat. Putting unemployment in the backseat in order to talk about imaginary problems denies the absolute fact that unemployment is still driving the car. So, if you are wondering why the US economy is still swerving all over the damn road, that's the reason right there. Platinum coin seigniorage would put unemployment right back in the front seat and, in a matter of a very short time, could put everyone who wants a full-time job back to work. (The resting rate for unemployment is said to be around 3.5% so don't ever think we are looking for Gadot/zero.)

That should be reason enough for progressives to be the biggest cheerleaders of PCS - but wait, there's more.

Strict and seriously enforced environmental regulation could be enacted and, instead of using indirect rewards, like tax breaks which tie up liquidity for tiny and giant corporations alike, the government could provide upgrade grants. Jobs are created and, I love this part, everyone benefits except the bankers. Also, this would move corporations from opposing such regulation to supporting it. Imagine, all you environmentalists out there, being on the same side of an argument as American Electric Power. We still would have problems with them ("Clean Coal" anyone?), I know that, but we could move with them further down a road which would benefit all of us collectively. For small corporations, it would make it possible for them to come in to compliance with regulations which they are commonly exempt from because, if included, they would not have been able to comply.

It would allow this nation to address long-standing infrastructure crisis' including the electrical grid, water treatment and transportation. Even major improvements to existing systems, like rail, would benefit the economy and each one of us enormously.

We could not only invest in disaster preparedness, we would have the ability to set aside funds to deal with the coming, rapidly increasing, rate of disasters including things like the fires in the West, draught in the Midwest and that's before I even get to superstorms and hurricanes. Of course, I am already assuming that should funds be perceived as being available, the needs of the states and victims hit by Sandy would be addressed.

And on and on and on - in a manner metered by Congress and the Fed up to the point where industrial utilization is near peak levels and unemployment is down near 3.5%.

Perceived Funds

The reality is that the coin is not a necessity. All that it does is give physicality to an accounting transaction. Large PCS would make it plain to all that the US government will not and cannot run out of money. There are constraints on our economy (inflation and the exchange rate) but "having enough money" is not one of them. The ability to spend whatever we need to bring the economy into balance has been available to the government since 1971, since the day the US dollar became a fiat currency, we just haven't realized it and haven't used it.

What progressives need to know is that the things we want, the things we have been calling out for from the wilderness, become possible with Large PCS. Also, if by some minute chance we were able to get this President to order large PCS then we could all wipe trickle-down economics off the bottoms of our kicks on the nearest patch of grass. For that and no other reason, we should all be getting behind this right now.

So, Why Do We Think Debt is a Big Deal?

Debt, given the current state of our economy, means nothing, so why do we, the progressives, the reality-based group, the group that actually thinks math is a real thing, believe it when we hear it? Well, folks, you have been duped and, no surprise here, you have been duped by FAUX News and company. I know, you don't listen to FOX but you do listen to people who listen to them and all those people drank the Kool-aid. Rabbits are big on water. We oppose Kool-aid on principle. (This would probably not be the case if the orange flavor was carrot instead of orange.) Rabbits, like all prey animals, are adamantly focused on the real world so we were not taken in.

Still, one has to ask, why this meme is so important to conservatives?

Simple. Greed. Surprised? Of course not. In the dictionary under "conservative" the definition says "greedy bastards." We all know that. So, how does their greed tie in here, you ask? Well, to start with, Pete Peterson knows. If we cut social security for reasons of austerity, where do those people go? They go right to Wall Street. If we cut Medicare, where do those people turn? They turn to the insurance industry. If anyone other than the government is funding projects where is that money coming from? Why, it is coming from the banking industry, of course. So, here is the equation:

Wall Street + Insurance Companies + Banks = Non-stop Debt Crisis Meme

That's it. That simple. This other equation,

Platinum Coin Seigniorage = Policy Space

has been here through this entire crisis and has had nary a whisper until #MintTheCoin took off just a couple of short weeks ago and we, as progressives, absolutely must get on board. If you ever, in your entire life, wanted to be a part of making a real change that could change everything for the better, this is it. Platinum coin seigniorage isn't the golden ticket but it's pretty damn close. Thump!

Arliss' Bio: I am a 13 year old lop rabbit who graduated from the University at All-Bunny (SBUNY) with a degree in Disapproval and I  started out blogging at arlissbunny.wordpress.com. I had already garnered fame with my selection for the Disapproving Rabbits website but I began blogging and tweeting (arlissbunny) when I was relegated, by my staff, to live in Just to the Right of Nowhere (southeastern Indiana, or IN-06 to all of you) for an entire year. While said staff was rudely frolicking in Ireland without me I became significantly more media savvy. I decided that holding my tongue about the insanity of human politics was a thing of the past. I have generously opted to allow my secretarial staff to post comments as herself but all blogs will be from me. I'm the brains of the operation. My suggestion to all those of you who lack a sense of humor about blogging rabbits would be to remove the carrot from your posterior. Thump!

10:41 PM PT: BINKY!!!!! (Bunnies know what that means, for the rest of you it's when bunnies spring up into the air and kick their feet out in exuberance just for the fun of it.) Community Spotlight!!!! It's a very big day here in Just to the Right of Nowhere. Thank you to all of you for your kindness, your thought provoking comments and your community. The Arliss is verklempt.

Originally posted to Arliss Bunny on Mon Jan 14, 2013 at 12:00 PM PST.

Also republished by Money and Public Purpose and Community Spotlight.

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Comment Preferences

  •  Your reason for why debt is such a big deal (8+ / 0-)

    is overly simplistic.  Not that the reality is that much more complex.  I believe right wing propaganda (in whatever form it takes - fake news programs or bloviating drug addicted pedophiles on the airwaves) enhances the bias that already exists - they offer validity to the lack of understanding.

    I think the main reason that this meme works is because the general population knows that debt matters to our personal lives.  What this general population dos not take into consideration is that we (the individual) do not create money and therefore our personal debts are a big deal.  We, the people, in the form of government does make the money and therefore cannot run out of it.  

    "You have attributed conditions to villainy that simply result from stupidity"

    by newfie on Mon Jan 14, 2013 at 12:23:55 PM PST

    •  I agree but I think that our own experience of (8+ / 0-)

      debt has been inextricably bound into lock-step with Federal debt, which I think we can agree is kittens to helicopters, by the conservative (greedy bastard) right and their handmaiden media. I'm not sure (and I do mean I'm not sure) that without their non-stop chanting I, myself, would have thought that my own little credit card is anything like the Federal debt.

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Mon Jan 14, 2013 at 12:32:25 PM PST

      [ Parent ]

      •  Which came first (2+ / 0-)
        Recommended by:
        jellyyork, RenMin

        the chicken or egg?  I hope my first post didn't come off as negative - it was not intended as such.  And I agree the non-stop chanting aids the misinformation.  

        Sort of like Jon Stewart's inane doubling down on his joke about the trillion dollar coin tonight.  Really, Jon?  You couldn't take a look at your joke and realize that you are talking out your ass?  Couldn't you have put a second of time to look and say.. you know, I made a joke because it sounds absurd but if you look at it from an economic standpoint - it is a serious consideration.

        "You have attributed conditions to villainy that simply result from stupidity"

        by newfie on Mon Jan 14, 2013 at 08:45:13 PM PST

        [ Parent ]

    •  Hundreds of years of history (7+ / 0-)

      Thinking about money in one way -- having inherent value because backed by gold or some other commodity -- is hard to overcome because:

      (i) it is simply hard for people to recognize that their way of thinking about things is no longer true;

      (ii) it seems counterintuitive -- too good to be true -- that money, which has so much importance to our individual daily lives, is in infinite supply for the Government;

      (iii) along the same lines, it raises the fear of "something for nothing"; and

      (iv) there is a grain of truth; an unlimited money supply put into circulation promiscuously could lead to inflation and devaluing of the currency at a more rapid than optimal rate.  (I know, we're nowhere near that now.)

      It is going to be very hard for government actors, most of whom are economically illiterate (particularly regarding the theory of money) to break out of their paradigms.  But I agree, this is the single most important thing we as progressives need to fight for.  Everything else follows, including global warming, social safety net, etc.  
       

      "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

      by RenMin on Tue Jan 15, 2013 at 08:36:55 AM PST

      [ Parent ]

      •  You can make that statement (1+ / 0-)
        Recommended by:
        RenMin

        about most things.  Change is difficult and uncomfortable for a large number of people.  It will take a lot of steady forward movement until we reach critical mass.

        "You have attributed conditions to villainy that simply result from stupidity"

        by newfie on Tue Jan 15, 2013 at 09:41:13 AM PST

        [ Parent ]

      •  You hit the gopher on the head. The post I am (1+ / 0-)
        Recommended by:
        RenMin

        working on now is about exactly what you are talking about. Changing a long held, originally correct paradigm is very, very hard even when it is no longer correct.

        I would quibble with you on inflation but that is really well covered by beowulf and letsgetitdone.

        Onward and upward!

        "When in doubt, do the brave thing." - Jan Smuts

        by bunnygirl60 on Tue Jan 15, 2013 at 10:22:34 AM PST

        [ Parent ]

        •  I don't think we quibble on inflation (0+ / 0-)

          I think we both agree that under current conditions inflation is a non-existent bugaboo.

          I don't think you would dispute that at some point, an uncontrolled, arbitrarily large influx of currency into the economy does have the ability to cause inflation.  That doesn't mean that having the cash in the government account does so, only if "too much" money goes into circulation.

          Right?  Or am I missing something?  

          "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

          by RenMin on Tue Jan 15, 2013 at 10:40:18 AM PST

          [ Parent ]

          •  That argument is a theoretical (3+ / 0-)
            Recommended by:
            jellyyork, Calgacus, katiec

            construct.

            In the 80 years since the US went off the gold standard, there has been NO and I repeat NO inflation due to too much money being in the system. So under what circumstances do you envisage too much money being in the system?

            There are many automatic stabilizers that prevent this from happening. In fact I would argue that they worked too well in the 1998 to 2000 time frame, leading to inadvertent (and I repeat inadvertent - not a result of a policy choice to promote a surplus) surpluses, which very likely were causal of the 2000-2002 crash.

            •  Theoretical but for those of us who are sadly (0+ / 0-)

              not economists, we haven't had these discussions before so we need the space to think about these things out loud and sus them out for ourselves. Your clarification helps and is MUCH appreciated. This rabbit is always happy to learn and refine.

              "When in doubt, do the brave thing." - Jan Smuts

              by bunnygirl60 on Tue Jan 15, 2013 at 11:57:39 AM PST

              [ Parent ]

          •  No, no - you are just right. The Fed has all (0+ / 0-)

            kinds of controls to fight inflation but certainly, one thing to think about is that there are times when inflation (MINOR and well controlled inflation) can be helpful in putting the breaks on to bring things back into balance. Remember, the three points of balance for the economy are unemployment, inflation and exchange rates. Accounting entries do not matter. This is especially true from the perspective of progressives because we don't care about ink on paper, we care about lives and the real world. For this reason, if no other, progressives should be HUGE supporters of modern monetary theory (MMT) as a whole because it places inherent value on the things that actually matter to human lives.

            "When in doubt, do the brave thing." - Jan Smuts

            by bunnygirl60 on Tue Jan 15, 2013 at 11:55:20 AM PST

            [ Parent ]

          •  Right, (1+ / 0-)
            Recommended by:
            bunnygirl60

            but no one's advocating that. The $60 T coin proposal doesn't envision ". . . an uncontrolled, arbitrarily large influx of currency into the economy." It envisions paying off the debt when it comes due, and only using the rest of the proceeds for deficit spending, which if good policy is followed, would only continue until full employment is reached; after which deficit spending would stop. In the $60 T plan it is estimated that the money remaining from the $60 T coin proceeds would enter the economy over a period of 15 - 25 years in accordance with Congressional Appropriations only!

            •  I agree (1+ / 0-)
              Recommended by:
              jellyyork

              I feel like you guys think I was opposing the proposal.  I'm not.  I'm fully on board.  See my other posts.

              However, perhaps you can enlighten me.  I admittedly am a newcomer to this and perhaps I don't understand the theory.  I thought that MMT acknowledges that too much money in circulation (not in the Gov't's account) can cause inflation.  Isn't that right?

              Another question:  If "excess" currency hasn't caused inflation, what caused the inflation of the 70s?  Was it the monopoly price of oil?  Would that be enough to initiate the out of control inflationary spiral we lived through?

              Again, I'm sincerely not being argumentative.  I want to know your answers.  Maybe I'm still thinking about these things in the wrong way.

              "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

              by RenMin on Tue Jan 15, 2013 at 03:07:49 PM PST

              [ Parent ]

              •  Oil Prices (1+ / 0-)
                Recommended by:
                jellyyork

                were one factor - the second paradoxically was  the high interest rates set by the Fed. High interest rates may increase the desire to save, but they also make the cost of borrowing high - which will result in higher prices for goods and services - it will also lead to shortages of goods, as businesses will reduce inventories in order to reduce borrowing.

                You should also remember that energy costs and interest costs are built into the pricing structure -- they are both essential components of a healthy economy. There was a very interesting observation by Margrit Kennedy that interest costs alone account for a substantial part of the cost of goods and services in the economy.

                Similarly energy costs also account for a substantial portion of the costs. At each level of sale, there is a multiplier effect on the cost of the interest and energy. Thus these two costs alone could account for much of the inflation seen in the 70's.

                Remember that the OPEC embargo was a direct result of Peak Oil in the Lower 48, coupled with Nixon's decision to close the gold window (which was essential in order to keep energy prices low on a world wide scale)

                •  I'm not disagreeing on any of the economics (0+ / 0-)

                  but there was a great deal more to the politics between the Arab states, between the members of the (new) OPEC and between the US and Saudi. I'm not even going to get into Israel or the Cold War - which are both over and above all of that.

                  The 1970's were, IMHO, completely unprecedented in terms of the vast number of world-wide impact issues colliding at once. It is a miracle that inflation was the only thing that went wrong.

                  "When in doubt, do the brave thing." - Jan Smuts

                  by bunnygirl60 on Tue Jan 15, 2013 at 07:05:27 PM PST

                  [ Parent ]

                •  How did closing the gold window keep oil prices (0+ / 0-)

                  low?

                  •  That is a critical (2+ / 0-)
                    Recommended by:
                    katiec, dorkenergy

                    piece that many economists miss.

                    M. King Hubbert first published his paper on Peak Oil in 1956. Later, after retirement from Shell, he was the Senior Geologist at the US Geological Survey. His prediction of the Peak was proved correct in 1970.

                    So what was the implication of Peak Oil in the US, and its relation to the Gold window? It very likely became obvious to the Nixon Administration, the the US would become an oil importer. In other words, it will have to pay for the oil in dollars going out of the country. If gold convertibility remained, and oil exporting countries decided to ask for gold for the dollars, the US Gold reserves would deplete rapidly. Thus convertibility for gold had to go. So very likely, the administration approached France to trigger a convertibility crisis, giving Nixon the trigger needed to close the gold window. The gold window had to be closed before the US became a large net importer of oil.

  •  Here's the thing. (9+ / 0-)

    Every dollar of the debt is a dollar that some entity, somewhere, has on its books as money that it expects to get back on a date certain, based on certain assumptions about what that dollar will be worth in the wider world.  The interest rate for that borrowed/lent dollar was based on a collective best guess (via the market) about the value of money in the future.  That guess was in term based on the assumption that government would pay its debts that come due out of some combination of revenue and new debts.  If the government instead pays its debts via seignorage, you will be injecting large amounts of additional money into the economy.  This is sometimes a good idea, either because you're in a recession/depression and it staves off deflation or you've made the policy decision that growth is more than modest inflation.  That's QE and QE3 and Keynesianism more broadly.  

    But just as taking 100 aspirins doesn't cure your headache faster, and eating 100 bran muffins doesn't make you that much more regular, paying off the debt via the magic beans of seignorage doesn't make you happily debt-free without consequences.  All of that $60T would be out there in the economy, and while a small part of it would serve as good QE, most of it would be vaporized by price inflation.  That in itself would be OK, at least it might be, but money is money and that "bad money" would debase the value of everyone's "good money" achieved through labor, savings, and investments.  How would that be progressive?

    You know, I sometimes think if I could see, I'd be kicking a lot of ass. -Stevie Wonder at the Glastonbury Festival, 2010

    by Rich in PA on Mon Jan 14, 2013 at 12:59:25 PM PST

    •  Not really. Debt is only paid as it is due and (10+ / 0-)

      mush of the debt owed is very long term, meaning that it would filter out into the economy over the next 25 years during which time all sorts of other corrective measures could be taken as necessary. So, the money IS filtering in slowly and it can be gated, meanwhile, it is driving employment and utilization back up and digging the economy out.

      We have all been lead down the primrose path of "when big things go wrong they take a long time to fix." This is the theme song of many VSP (Very Serious People) but that is more of a morality play then it is a fact. PCS (and other similar instruments) would solve the problem quickly and LITERALLY save the lives of thousands upon thousands of people around the world.

      Remember, of the $60 T (and I am not necessarily married to that specific number) the debt is only paid when it is due and anything else is only spent when it is allocated by Congress. It is just as controlled a flow as anything else. One last thing to mention, one of the options the Fed would always have at its fingertips would be to roll over debt even if the Treasury had the money in the bank. The Fed would not HAVE to pay off a debt if it seemed the economy was getting too hot (too close to full employment and utilization.)

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Mon Jan 14, 2013 at 01:25:44 PM PST

      [ Parent ]

      •  Take a step back and consider how similar this is (6+ / 0-)

        ...to other so-called solutions (in other areas) that treat all existing understandings as bogus or co-opted.  While it's true that sometimes those solutions are promising (we don't, for instance, need a big defense budget), mostly they're nonsense.  There should be a very strong presumption against the idea that a single executive decision can (literally) painlessly retire our national debt and stimulate the economy in a way never before seen or even contemplated.  Once in a long while magical-looking things turn out to be real, like penicillin; usually, though, they turn out to be magic and magic doesn't exist in the real world.  

        You know, I sometimes think if I could see, I'd be kicking a lot of ass. -Stevie Wonder at the Glastonbury Festival, 2010

        by Rich in PA on Mon Jan 14, 2013 at 02:23:48 PM PST

        [ Parent ]

        •  You say: (6+ / 0-)
          There should be a very strong presumption against the idea that a single executive decision can (literally) painlessly retire our national debt and stimulate the economy in a way never before seen or even contemplated.
          i say, why?

          "When in doubt, do the brave thing." - Jan Smuts

          by bunnygirl60 on Mon Jan 14, 2013 at 02:28:04 PM PST

          [ Parent ]

        •  The fact of the matter (14+ / 0-)

          is that the government has the potential, with or without the "Coin," to eliminate unemployment and develop all underutilized resources.  The government chooses to ignore its capabilities and pretends it is out of money--which it can never be.  All the "coin" does is bring this argument into a little clearer perspective by chipping away at the self-imposed blinders of austerity that keep gold standard rules over fiat money reality.

          •  hell, we all know (1+ / 0-)
            Recommended by:
            jellyyork

            that this entire scenario could have been avoided without stepping outside the box of ordinary thinking about money.
            We just watched the Democrats, in 2010, both extend the Bush tax cuts and not pass a clean debt ceiling bill, because Obama said Boehner would never ever threaten the full faith and credit of the United States. Then, two years later, the Democrats, with Obama's blessing, made 84% of the Bush tax cuts permanent, and didn't raise the debt ceiling.  So we're in this crisis because both parties want us to be there.  They invented this situation, together.

            The coin just brings into sharper relief the fact that austerity is a fiction being force-fed to us by a bunch of jerks.

            if necessary for years; if necessary, alone

            by SouthernLiberalinMD on Tue Jan 15, 2013 at 03:10:34 PM PST

            [ Parent ]

        •  Misrepesenting again (7+ / 0-)

          ". . . There should be a very strong presumption against the idea that a single executive decision can (literally) painlessly retire our national debt and stimulate the economy in a way never before seen or even contemplated."

          Nobody's saying that. What the decision can do is to fill the public purse with $60 T. After that the Treasury still has to pay off debts when they are due; and cease to issue any new debt when deficit spending. In addition, Congress still has to appropriate the necessary deficit spending on worthwhile projects to create full employment.

          What we're saying is that the policy space will be there to do that with $43.6 T not already allocated to debt repayment than it is in the present situation.

          •  Exactly (1+ / 0-)
            Recommended by:
            Calgacus

            The "inflationary" pressures of the new money spending out is no great, and if I have it correctly from my reading (check me if I'm wrong) sans interest-bearing map-ups attached to it.

            cheers,

            Mitch Gore

            Want to end too big to fail banks? Then move your money and they will no longer be too big.

            by Lestatdelc on Mon Jan 14, 2013 at 11:21:57 PM PST

            [ Parent ]

        •  You're proving our case (4+ / 0-)
          Recommended by:
          jellyyork, bunnygirl60, katiec, catfood

          Not to speak for the Bunny, but I think she and I agree here -- as my post above says, it's very hard to break out of old paradigms.  I agree, that if it seems too good to be true, it usually is.  In this case, it's not.  This isn't a painless cureall.  We're not saying that suddenly all our problems go away like magic.  All we're saying is that we don't need to tie our hands artificially with a manufactured scarcity of money that need not exist except for a mental construct that no longer applies.

          Simply put, all the conservative sturm and drang disappears if the public and the political system realize that we won't and can't run out of money unless we want to!  

          "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

          by RenMin on Tue Jan 15, 2013 at 08:44:58 AM PST

          [ Parent ]

        •  Thing is.... (5+ / 0-)

          this really isn't magigal thinking, it's mostly standard textbook macroeconomics.  

          The first point is that the $60T doesn't do anything.  No one is saying you can spend $60T.  I think the point of the title is that all the $60T does is buy policy space; space to discuss actual policy alternatives rather than debate more "magical" things like "debt ceilings".  Those alternatives might include increasing spending, but only so long as it is wise to do so.  

          Second, there are a few things in bunnygirls post which may be overly optimistic.  I would dispute for example that we could easily get to 3.5% unemployment right now for example.  I think the natural rate right now is likely not lower than 4.5%, and I think it might be wise to start putting the breaks on fiscal policy even once we moved below about 6%.  But where exactly those limits lie can be debated, and ultimately the data will tell us who is right.  When we start to see inflation, we'll know then we've reached the limit and spending cuts are needed.

          I wouldn't dispute that we could retire the entire national debt, but I think one could debate whether that would be wise as well.  But that we could retire a significant portion is pretty mainstream.  Keep in mind, the Fed through QE3 is now commited to buying $85B a month in bonds, and seems intent on doing so indefinitely.  If they keep that up all year, that will amount to $1T right there.  They are putting some of that into MBS, but no reason they couldn't buy all US treasuries instead.  

          Unfortunately, the debt ceiling counts gross debt, so the $1.7T in Treasuries already sitting on the Fed's books still counts, even though it is really just as imaginary as that coin would be.  The treasury bonds do pay interest, but the Fed pays it's profits every year back to the treasury.  So there would be no real difference if they were to trade those treasuries for a platinum coin.

          And of course, the Fed board is alwasy going to be dominated by excessively conservative banker types whose number one concern may not be bringing down unemployment as quickly as possible.  If even they are on a pace for $1T a year in bond purchases (over $500B of that in treasury debt), don't you think still more might be possible?

          •  I agree with all that you say. Thank you for (3+ / 0-)
            Recommended by:
            RenMin, acerimusdux, Calgacus

            your thoughtful remarks.

            "When in doubt, do the brave thing." - Jan Smuts

            by bunnygirl60 on Tue Jan 15, 2013 at 10:26:36 AM PST

            [ Parent ]

          •  Fine, except on unemployment. (2+ / 0-)
            Recommended by:
            acerimusdux, katiec

            The natural rate of unemployment is today what it always was: 0%. It is extremely easy to return unemployment to the natural rate, which is what is ALWAYS seen in non-monetary, pre-monetary economies. A fixed wage governmental job guarantee. The government guarantees taxation - the demand for money. It is stark raving mad for it not to guarantee the ability of the taxed to pay it the taxes it demands. Interestingly, this, the decisive argument for the JG was made mainly by Warren Mosler, the richest, capitalist MMTer.

            Any other natural rate is basically an insult to one's intelligence, for it depends on other government spending and tax decisions, and therefore has no claim to naturality.

          •  Natural rate of unemployment: less than full (0+ / 0-)

            employment, minus those who simply can't or don't want work, would be due to what?

            •  There's no (2+ / 0-)
              Recommended by:
              katiec, jellyyork

              natural rate of unemployment. It's a doctrinal fiction of neo-classical economics. With a Job Guarantee program, that natural rate on unemployment is zero.

            •  nat rate = 0 (0+ / 0-)

              The natural rate of unemployment is zero, as I said above.

              In the MMT context, the phrase is from a billyblog comment, from Benedict@large I believe, rather than an academic.

              But the concept, rather than this very apposite name is well known among MMT academics. (MMT academics like to say that the natural rate of interest is zero - following Mosler & Forstater - but the natural rate of unemployment being zero is even more important.

              Non-monetary, pre-monetary economies have no unemployment. This is an important observation. It is the introduction of money, a creature of the state, caused by the state's taxation, that creates unemployment, which can be seen as the purpose of taxation - unemployment is people looking for a way to earn the state's money. Various billyblogs phrase things that way, and various papers by Wray, Kelton and other MMT academics.

              And the reason why premonetary economies don't have unemployment is that they are too poor to afford this idiotic, destructive extravagance. They just use common sense, and if someone is able to contribute to the common good, they are allowed to, and to claim something in return.

            •  Labor market and capital market inefficiencies (0+ / 0-)

              There's not anything "natural" about it, really.  I probably could have said NAIRU, which means "non-accelerating-inflation rate of unemployment".  That's really all I meant, but I guess I thought the term "natural rate" was more commonly understood.  

              So that's not to say that you can't get lower than that, only that that's as low as you can get with monetary policy and general demand stimulus alone without causing inflation.  To get lower generally requires some structural change beyond that.  A guaranteed jobs program for example would represent a significant structural change.  You aren't going to get to 100% employment just by printing money.

              As to specific causes, one is that sometimes there are willing workers, but insufficient capital investment to provide them all jobs.  You may have more willing factory workers than available factory capcity requires for example.  And since it takes time to build new factories, that would leave some at least temporarily unemployed.  Or you may have some workers who need to be retrained in different skills to keep up with technological change.  Or you might have jobs in one location, and workers in another.  

              So the types of things that can be done to help lower "NAIRU" would be jobs training programs, funding educational opportunities, and investing in public infrastructure.  

        •  There is a very strong presumption against that (3+ / 0-)
          Recommended by:
          bunnygirl60, katiec, jellyyork

          That's why we've been blogging it since January of 2011 and taking on all criticisms from all comers. What the criticisms come down to is mostly name-calling, labeling, and skepticism backed by general considerations, but not supported by reasons. The one really coherent criticism about why it won't work is criticism based on the Quantity Theory of Money (QTOM). But we already know that the QTOM is wrong. We've known that since Keynes in the 1930s.

          Also, here is a very specific analysis about why using PCS no matter how high the value of the coin, won't be inflationary. If you have specific criticisms of this piece, then they are welcome. If not, well then, it may be time to stop repeating what are essentially the same comments on blog post after post on PCS.

          Consider, there are now 28 million in the United States who want full-time jobs, but can't get them. Think about all the damage to the lives of these people and their families, the illnesses, the crimes resulting from this condition, and the victims of these crimes, the illnesses and deaths from lack of care, the breakdown of families, communities, and the social fabric as a result of this condition. Now, let's say I am wrong about inflation not being an impact inherent in PCS and we see inflation rise from 2% per year, or so, to say, 5% per year. Then are you really going to say to me or others who advocate PCS to set the stage for things like full employment programs that the possibility of a bit of inflation weighs against the social devastation we are getting from unemployment? Please think about this for a minute or two!

        •  Absolutely! (0+ / 0-)

          But in the case, the "magic" is the illusion that money is a limited resource. There's just no basis for assuming that.

          My favorite analogy is that the "bank" in Monopoly by the rules never runs out of money. If you run out of printed Monopoly money, the rules say you just hand-write some more. Of course you do that! The bank isn't a player. It can't go broke.

      •  Another option.... (1+ / 0-)
        Recommended by:
        katiec

        ...the Treasury could keep issuing T-Bills simply to give people a safe, long-term investment option. Trillion dollar coins and debt financing aren't mutually exclusive.

      •  As a matter of fact (1+ / 0-)
        Recommended by:
        katiec

        the Fed could issue its own debt if it wanted to remove money from the economy.

    •  Like all that (12+ / 0-)

      quantitative easing is now out there in the economy being "vaporized by price inflation." I just can't believe all the inflation going on after all that QE stuff. In fact, last time I checked, inflation was so low we couldn't even see on the horizon--unless we were a crazed neoliberal austerian playing Chicken Little. The fact of the matter is that added reserves, which is what would result in paying off debt, would actually push interest rates down--unless the Fed turned around and sold more treasuries or paid interest on the reserves at the rate it wanted.  That's what all the debt is really about--the Fed managing the interest rate, not the Fed controlling the money supply (which is a functional myth that does not live up to empirical inspection).

      There is no such thing as bad money.  There is only such a thing as bad money use.  If you use money sovereignty to eliminate unemployment, maximize sustainable economic growth and maintian price stability that is good money use.  If you constrain money use to keep unemployment high and productive GDP distribution unequal that is bad money use.  We have been highly into bad money use for the last 40 years.

      Money is not a constraint--real resources are. Since money is created by man, it is potentially iinfinite.  What's really under constraint is real resources.  So let's stop worrying about having enough money--which really is infinite--and start dealing with how we use what really is limited,the real resources in our environment, including labor.  Why do we need to constrain a real resource--labor--for lack of an infinitely available creation--money?

      •  QE is negligible compared to what's proposed now! (2+ / 0-)
        Recommended by:
        rcbowman, shadyvale

        $60T, even over a quarter century, would be so much larger that recent QE that it doesn't even bear comparison except like we compare bugs to skyscrapers.

        You know, I sometimes think if I could see, I'd be kicking a lot of ass. -Stevie Wonder at the Glastonbury Festival, 2010

        by Rich in PA on Mon Jan 14, 2013 at 02:20:03 PM PST

        [ Parent ]

        •  At the current rate of (10+ / 0-)

          QE over 25 years, $60T is a drop in the bucket.  If Monetarists were right, the US and especially Japan would now be rocking in inflation.  Since the national debt is in reality the Private and External Sector net savings, the question you should be asking is "How will the Private Sector net save without Treasuries if they stop printing them and pay them off."  The fact of the matter is that the Fed would have to pay interest on the reserves instead to keep monetary interest rates at the target. Would the reserves climb to $60T?-- not a Chinaman's chance.  Would the Treasury still have the undistributed credit from the $60T coin?--absolutely.

          So the real key is not the $60T coin but rather how effectively the Gov uses its financial potential resource to stimulate the economy and reduce unemployment without increasing inflation.

          •  THIS is where I get lost. And I can read this (3+ / 0-)
            Recommended by:
            jellyyork, rcbowman, newfie

            paragraph over and over, and still not quite get it.

            And if I can't get it, then lots of people can't.  I'm neither too smart, nor too not smart.

            So, stupid question:  When China gets paid in dollars for stuff, what will they do with those dollars if Treasuries are no longer available?

            •  They will (8+ / 0-)

              leave them in the reserves of the account that they hold with the fed and get paid interest on the reserves.  Or they will, as they can now, buy something with them--thus stimulating the economy.  But right now they don't want to buy things with our dollars; they want to sell things to us for those dollars.  Should they seek to exchange them for something else they could deflate the exchange rate.  But that would compromise their export strategy.

              Randy Wray's new book has the best explanation of this process I have seen.  It's not that expensive.

            •  katiec - You make a REALLY IMPORTANT (12+ / 0-)

              point. I got into all of this when I heard an interview, last November, of Stephanie Kelton on Sam Seder's The Majority Report. The last time I had thought about economics in any deep way was waaaaayyyyyy back, as an undergrad. Here's the thing, I got interested in Dr. Kelton's interview so I went on-line to "read more about it" and guess what, everything I could find was dense and difficult and inaccessible. I looked around for a while before I just dove in and started reading and taking notes and reading more and more and more. Eventually I decided to put my very, very simplistic understanding up in a blog. I thought it would end there. HA! As it turns out, you and I and lots of other people really do want to understand all this but we don't have the language to really understand what a lot of these guys post. I'm not an idiot and, based upon your comments here and elsewhere, I know you aren't either, so what is clear to me is that the MMT community, et al, needs to be looking for a simple, accessible way to say, "YES!!! We have the power to change everything just by deciding to do it." I'm trying to do my little part but the reality is that VSP (very serious people) would never listen to me and they will listen to people like LetsGetItDone, Clonal Antibody and DeficitOwl. On the other hand, there are lots and lots of people who aren't VSP out there and I do think that the rest of us, all the little MMT people, have some ability to be active in that conversation and make a contribution if, in no other way, by keeping it visible and providing momentum.

              "When in doubt, do the brave thing." - Jan Smuts

              by bunnygirl60 on Mon Jan 14, 2013 at 04:01:31 PM PST

              [ Parent ]

      •  I fall at your feet. Well said. (2+ / 0-)
        Recommended by:
        katiec, psyched

        "When in doubt, do the brave thing." - Jan Smuts

        by bunnygirl60 on Mon Jan 14, 2013 at 02:29:37 PM PST

        [ Parent ]

    •  The thing is, "money" as far as legal tender (2+ / 0-)
      Recommended by:
      RenMin, Calgacus

      in the United States, all of it it, really is created ex nihilo (i.e out of thin air). It is inescapably fact).

      cheers,

      Mitch Gore

      Want to end too big to fail banks? Then move your money and they will no longer be too big.

      by Lestatdelc on Mon Jan 14, 2013 at 11:20:02 PM PST

      [ Parent ]

  •  Excellent. Just today someone was trying (8+ / 0-)

    to discredit the seigniorage coin idea by calling it a magic coin. Hell, for half my lifetime the US Dollar has been magic paper, i.e. fiat.

    Thanks for this fun and informative post. You rock!

    Move Single Payer Forward? Join 18,000 Doctors of PNHP and 185,000 member National Nurses United

    by divineorder on Mon Jan 14, 2013 at 05:01:19 PM PST

    •  It is amazing to me (6+ / 0-)

      that this administration (supposedly--I haven't looked at the actual links) has already flat-out said that "the POTUS will not use" either the platinum coin or 14th Amendment remedies to resolve this "crisis".

      Now, ask yourself, "Why would a Constitutional Scholar of a President refuse to avail himself of Lawful Constitutional Remedy, available specifically to a President, to avoid throwing this country into utter financial turmoil?"

      Worried about public perception over the use of a "magic coin" to solve a "magic fiat money crisis", when the law is what it is? What nonsense. I don't like the death penalty, but it's a law in certain places.

       It doesn't matter whether you or I like it or not. It's a law.

      I've wondered, for the last couple of days, that if Mr. Obama availed himself of the powers granted him by the Constitution, that it would actually expose our Central Bank for the fraud that it really is. When the Constitution was written, we had no Central Bank.

      Which in turn should tell you who is really in charge here. But that's a whole other diary.

      And this one is awesome as it is--I'm with you, divineorder: bunny rocks :))

      It is time to #Occupy Media.

      by lunachickie on Mon Jan 14, 2013 at 05:19:41 PM PST

      [ Parent ]

    •  Hey (0+ / 0-)

      I'm with you on Medicare for All! Everybody In, Nobody Out!

  •  All this fixation on debt misses (6+ / 0-)

    Large issues of what is wrong with our economy.  In short, we simply are losing good paying jobs faster than we are creating them.  That is the real unspoken crisis. Not the debt.  If anything the debt is just a symptom of this crisis.

    "The real wealth of a nation consists of the contributions of its people and nature." -- Rianne Eisler

    by noofsh on Mon Jan 14, 2013 at 05:20:18 PM PST

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

      is the excuse for inaction.  Sad.....

    •  You emphasize a critical point. As Paul (4+ / 0-)

      Krugman has been saying all along, the crisis isn't a debt crisis, it's an unemployment crisis...which is absolutely and completely true. The devastation to lives is truly unimaginable and we will not recover some of those losses ever. There is a study that says that college graduates who graduate during an economic recession and have to take lower paying jobs which do not utilize their skills NEVER catch up with a comparable person who graduated during a stable economic period. More than 25% of recent graduates are entirely unemployed. There has been a dramatic upsurge of 24 - 34 year olds who are living at home with their parents presumably because they have no other choice. (I know I would have to have been neigh unto death to have moved back in with my parents even though they are perfectly fine human beings.) We are talking about debt because THEY are talking about debt. That is a tide that is already turning and we are in a position to help it.

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Mon Jan 14, 2013 at 10:32:45 PM PST

      [ Parent ]

  •  Umm.. is this snark? (2+ / 0-)
    Recommended by:
    misslegalbeagle, Calgacus

    "The reality is that the coin is not a necessity. All that it does is give physicality to an accounting transaction. Large PCS would make it plain to all that the US government will not and cannot run out of money. There are constraints on our economy (inflation and the exchange rate) but "having enough money" is not one of them. The ability to spend whatever we need to bring the economy into balance has been available to the government since 1971, since the day the US dollar became a fiat currency, we just haven't realized it and haven't used it"

    •  And sometimes (1+ / 0-)
      Recommended by:
      Calgacus

      "giving physicality to an accounting transaction" is just what the doctor ordered.

      •  I don't get it (1+ / 0-)
        Recommended by:
        misslegalbeagle

        Is this snark? Magic coins are either snark or silliness.

        •  The coin is (4+ / 0-)

          a means to enable everyone to realize "The ability to spend whatever we need to bring the economy into balance has been available to the government since 1971, since the day the US dollar became a fiat currency, we just haven't realized it and haven't used it."  

          It is real.
          It is legal.
          And it enables.

          But it is not magic.  Magic is the neoliberal economic mainstream view of how the economy works without the "coin."

          •  jeez (2+ / 0-)
            Recommended by:
            misslegalbeagle, AmericanAnt

            Why not mint 16 of them and remove the deficit? or better, mint 500 and giver everyone a billion dollars?

            I'll stick with reality. And the President. And the Treasury. rather than the Simpsons.

            •  Reality (3+ / 0-)
              Recommended by:
              bunnygirl60, RenMin, Calgacus

              is that we have too little aggregate demand in the economy which causes ongoing high levels of unemployment.  And we have a government enamored with fiscal austerity which will only reduce aggregate demand even more and create greater and longer lasting unemployment.  We have convinced ourselves that we have limited money--which is really infinite--and that we must also constrain our productive use of resources in order to live within our financial means.  But the truth is that we are living below our real means. We have put the financial constraints in front of real growth opportunity because we believe in the financial constraints, but not the real opportunity to employ what is available and sustainable.  Those created dollars we're about to run out of have become more important than those people without jobs and those other opportunities to grow the economy.

              The "coin" is not a means to spend anything.  It is a means to allow the government to exercise its constitutional responsibility to exercise a budget without some arbitrary debt ceiling getting in the way. It gives the government the ability to spend what it has already approved for spending. It is not magic.  The only magic is the belief that the financial must constrain the real--now that's real magic!

              If you're interested or intrigued follow some of the links in the post.  They potentially lead to a new view of reality.

            •  It's infinitely better (2+ / 0-)
              Recommended by:
              jellyyork, SouthernLiberalinMD

              to understand an argument before you try to refute it.  Simply waving your arms and calling names doesn't work.  It makes you sound like a Republican.  (And I know you're not.)

              "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

              by RenMin on Tue Jan 15, 2013 at 09:00:13 AM PST

              [ Parent ]

              •  I am not (1+ / 0-)
                Recommended by:
                RenMin

                waving my arms and calling people names. I have however taken the stance of the President, The Treasury, Laurence Tribe, etc. To argue that simply minting a coin with some arbitrary value made up out of thin air is a responsible way to address fiscal problems is, like I said, silly.

                •  We have no fiscal problems (4+ / 0-)

                  But the only "fiscal problem" we have is the idea that we have "fiscal problems". The economists and politicans of 1950 would have laughed at our current problems. They had lived through the Depression, and seen what works. Government spending. Financial regulation. Honesty.

                  They would have solved for another few decades, the 2008 GFC in a few months. Modern "economics" turned into a subdiscipline of astrology around 1970 - exactly when Nixon simplified things and made Keynes truer than ever before.

                  Again, the Treasury prints bonds out of thin air. For practically all intents and purposes, this is printing money out of thin air. There is a crazy, idiosyncratic limit on the amount of these bonds. There is no such limit on the amount of the bonds which are called "platinum coins".  So why not print/mint the "platinum coins"? No reason at all not to.

                  •  So, SO TRUE! It's like Krugman's theory about (1+ / 0-)
                    Recommended by:
                    Calgacus

                    economists suddenly entering a "Dark Age" when they either forgot or decided to deny everything they had learned (and proved) before. It's so frustrating, especially for those of us in the real hard sciences who have to fight for every proven theory and then hang on to it for dear life. (Please forgive the physics bias. My peeps would kill for a unifying theory as complete as economists  managed to lose right along with the keys to the economy. Maybe the first thing we should use some of that PCS for is buying a clapper for every economist so they can remember where they put their education.) THUMP!

                    "When in doubt, do the brave thing." - Jan Smuts

                    by bunnygirl60 on Tue Jan 15, 2013 at 01:07:05 PM PST

                    [ Parent ]

                    •  Yup, Krugman's Dark Age is/was very real (1+ / 0-)
                      Recommended by:
                      katiec

                      It happens in other fields too, even the "hard" sciences. Planck's idea of progress occurring by funerals isn't always right. The rebellious young are sometimes brilliant innovators. But sometimes they just tear down works of genius that they do not understand, and replace them with boring, decrepit superstitions.

                      But what happened in economics is a truly spectacular triumph of this human spirit. Of Stupidity.

                      It was as if Galileo got everybody to look through his telescope at the moons of Jupiter. And rather than inquisitioning him, they all said: Well, thank you Galileo! That proves the world is flat, and the sun revolves around it.

                      Huh?!

                  •  good grief (0+ / 0-)

                    "Again, the Treasury prints bonds out of thin air. " No it doesn't. They have to be purchased, by other entities, with real or promised currency.

                    No fiscal problem? 16 trillion in debt?

                    Rising inequality?

                    Spending (24 % of GDP) is at the 4th highest level in 40 years?

                    Revenue (15%) at the 3rd lowest in 40 years?

                    And the projections are exponentially worse?

                    SS will be in the red in 2033, medicare in 2024.

                    No fiscal problem? Just make up a coin? And "poof"! It's all better?

                    I wish were as sanguine about my parents', my own, and my children's future. Gimmie' some of what you're smokin'.

                    •  That's right. (0+ / 0-)

                      No fiscal problem--every bond is purchased with money the government deficit spent in the first place.  Without past deficit spending there wouldn't be any reserves around to buy them with. And since we're talking about paying off the debt, let's also understand that the debt that we are taking away is really the Private and External Sectors net savings in US dollars. That's right--every dime ever net saved by the Private Sector in a country that runs an external deficit, was deficit spent by the government first.  I don't see the Private sector taking this very well in the long run. Especially when saving is the sacred cow of finance!

                      •  what? (0+ / 0-)

                        US Bonds are purchased by financial institutions (then sold out to public and other entities), as well as foreign investors and a handful of other interests. They have a "value" based on the dollar's value. Yes the government can print more money (or even a magic coin" to cover the bond if the money isn't  available for payment, but that would lead to spiraling inflation. Printing more money to pay off debt is like maxing out the Visa to pay off the AMEX, and then selling the silverware to pay AMEX, and then ... ?

                        •  US Treasuries (0+ / 0-)

                          are purchased by anybody who has dollar reserves which only exist because the government spent them first.  No one is printing more money to buy anything that isn't appropriated by Congress. The coin backs future approved spending only!

                        •  Incorrect analogy - here is the correct one (0+ / 0-)

                          No, printing more money to "pay off" the debt (not really), is like calling up the credit card company and lowering the interest rate you are paying to 0%. This does not destroy the debt - it just transforms it.

                          Of course, you and I can't do that. But the government can. The government controls the interest rate it pays.  

                          It just changes the composition of how the public holds the government's debts - from a mix of bonds & currency (coins and dollars) - to another mix, with fewer bonds and more currency. Bond supply down, Currency supply up --> Bonds are more expensive --> interest rates go down.

                          The US government has a monopoly supply on both bonds and currency, which are really "one and the same thing" (FDR).

                          There is no reason to think that lower interest rates, QE, printing money instead of "printing bonds"= "borrowing" will cause "spiraling inflation". Everyone used to know this. That's why we had low interest rates during and after WWII. Raising interest rates doesn't really fight inflation, especially in the long run - which is obvious asymptotically, at arbitrarily large interest rates. WWII was "financed" more by "printing money" / low interest.  WWI more by "printing bonds" / high interest. Result: The bigger war had LESS inflation.

                          But after the Great Leap Backwards of economics around 1970, that high interest rates ALWAYS disinflated became an almost universally axiomatically held belief, even among otherwise sane, otherwise good self-styled "Keynesians".

                          •  Huh? (0+ / 0-)

                            'Of course, you and I can't do that. But the government can. The government controls the interest rate it pays. "

                            for a very brief moment. Then the bond holders, investors and traders get wind of that and say, hmmm. the US dollar is now worth less, because there are some many more of them. The "government" does not control the interest it pays. all sorts of factors and institutions figure into that.  Thus more money is necessary. And inflation occurs. Tight monetary supply reduces inflation (typically). The "government" does not control the interest it pays. All sorts of factors and institutions figure into that. What is the dollar worth against other currencies, etc.

                            Let's stop the macro econ lessons though. I'm tired, really tired, of talking to immovable objects about reality. I'll just leave it at this:  minting magic coins is as silly as the magic bean stalk. If it were a real workable idea it would have been done, oh, about 100 times by now don't you think? I mean why not mint millions of dollars and give it away to each household? Utopia! Because you can't, that's why.

                            You can disagree, that's fine. I'm done.

                          •  Calgacus - don't spend any more time on T, (0+ / 0-)

                            he doesn't want to learn anything new. That kind of thing doesn't make sense to you or me but there you have it.

                            You have tried valiantly and he just keeps coming back to his insistance that because he can't conceive of something it can't be true. When Steve Jobs said there would be a "computer in every home," T is the kind of person who laughed. He would have been in the majority. The media mocked Steve viciously. You and I (I have no idea how old you are, you probably weren't even born yet so apologies for the example), anyway, we thought to ourselves, "who is this Steve Jobs and tell me more about these personal computers." Some people feel a vibration in a train track and they step to the side before the train even comes into view. Others just get hit by the train.

                            "When in doubt, do the brave thing." - Jan Smuts

                            by bunnygirl60 on Tue Jan 15, 2013 at 08:55:23 PM PST

                            [ Parent ]

                          •  Quite the opposite (0+ / 0-)

                            I've explained WHY I think printing a trillion dollars will be useless at best and ruinous at worst. Your position is that it will work simply because we have a printing press. Let me posit two questions: If this is such a grand idea why hasn't it ever been done?  Why isn't it being seriously considered by people with the means to implement it? Ask yourself those two questions. I thought this was supposed to be a "reality based community".

                          •  Because, as far as I can tell, it threatens the (0+ / 0-)

                            position of the banks.

                    •  Seriuosly (1+ / 0-)
                      Recommended by:
                      Calgacus

                      Take a look at Warren Mosler's 7 Deadly Innocent Frauds of Monetary Policy Here.  It's really short and simple.  Then take a few minutes and think it through.  And then try to refute it.  That's what I did.  And I'm still looking for the refutation.  So far I can't overcome the fact that facts are facts.

                      •  I did (0+ / 0-)

                        Now I;m no economist (and neither is this guy). According to Mosler's 7 myths:

                        1. The government must raise funds through taxation or
                        borrowing in order to spend. In other words, government
                        spending is limited by its ability to tax or borrow. I agree

                        2. With government deficits, we are leaving our debt burden
                        to our children. I agree

                        3. Government budget deficits take away savings. I agree

                        4. Social Security is broken. I agree

                        5. The trade deficit is an unsustainable imbalance that takes
                        away jobs and output. eh? The government receives goods for paper and ink which is then dependent on the government printing money. It is also necessary (for Mossler) that the U.S. dollar is the world's reserve currency. Which it currently is.

                        6. We need savings to provide the funds for investment. I agree

                        7. It's a bad thing that higher deficits today mean higher
                        taxes tomorrow. I agree- and this refutes your position BTW.

                        Mr. Mossler is correct when one takes into account that the government has a printing press. But your position is not his position as he sees printing money wantonly as bad thing not a good or benign thing.

                        Again, like Mossler I am no economist but i would agree that Mr. Mossler is correct on some of the particulars. But way off on the path to take to address these problems. Note that 6 of Mr. Mossler's "debunking of myths" require the government's ability  to create money out of thin air (printing it) under a fiat monetary system. And specifically requires the dollar as the world's reserve currency.

                        Mr. Mossler points out problems that just printing money can cause at the end of his arguments. (e.g. inflation. although he paradoxically dismisses this as being a function solely of  of increased oil prices. Silly. Inflation was with us long before oil shortages. Inflation has been around forever and is a product of increased money supply. Mossler assumes debts are simply an entry on the ledger. Silly.

                        Debts are real. There are only three ways to address them
                        1) pay them
                        2)refuse to pay them
                        3) inflate them

                        Mossler's take leads to #3.

                        He (and you) believe there is a free lunch. But there isn't.

                        here is reality:

                        Debts that cannot be repaid will not be.
                        Promises made that cannot be kept will not be.
                        Something that cannot go on forever will not.

                        •  Now you're being silly nt (0+ / 0-)
                          •  Fine... (0+ / 0-)

                            You asked, I delivered. You ignore. I win.

                          •  Your delivery was a troll's (0+ / 0-)

                            hop into the bunny hole--nothing there.  Along the way you forgot to think--but that's what happens when the task at hand is merely to "win."  

                          •  whatever (0+ / 0-)

                            i note there is no rebuttal.

                          •  Hey! No one goes down the rabbit hole on (1+ / 0-)
                            Recommended by:
                            jellyyork

                            this thread except me.

                            T is making a point of not learning or even thinking so don't waste your time on him. Let him get hit by the train.

                            "When in doubt, do the brave thing." - Jan Smuts

                            by bunnygirl60 on Tue Jan 15, 2013 at 10:53:00 PM PST

                            [ Parent ]

                          •  Not agreeing with you (0+ / 0-)

                            is "not learning" evidently. You must know a lot of ignorant people. I provided a detailed response and got playground taunts in return. Later tater.

                          •  This wabbit hole is dark! (1+ / 0-)
                            Recommended by:
                            dorkenergy

                            Mr. T, I don't think you are a troll. I am not opposed to the spirit of your remarks. In fact in some of them I see what I think is the right way of thinking.

                            But you just aren't doing the accounting right. Everything I have said can be backed up with theory and real world examples. It has all been tried before - and proved very successful when it was tried.

                            It is not at all coincidental that the current Dark Age of economics was inaugurated when courses on economic history, accounting and finance were purged from economics curricula.

                            What you think is right, the things taught nowadays and incessantly dinned into everyone's ears by the MSM - sounds right - has lots of the words of the correct statements - enough to push peoples' buttons.

                            But it is not right. It does not make sense, and has no empirical or logical basis.  The only way to really understand is to go slowly, to make baby steps where you absolutely understand everything as in a mathematical proof. I would be happy to go over any particular thing you want to go over.

                          •  Ok (0+ / 0-)

                            so show me your

                            'Everything I have said can be backed up with theory and real world examples. It has all been tried before - and proved very successful when it was tried."
                            I have yet t see it.
                          •  My OK to your OK (0+ / 0-)

                            OK - as to great success - look at the postwar Keynesian full employment era til the 70s.

                            It's a little bit obscured in the USA, because the Keynesian era got an earlier start in 1933, and while the nonsense-economics has largely emanated from the USA, it is a case of do as I say, not as I do. And the USA has been markedly more Keynesian than say Europe since 1980 say, which is why it went from having relatively generally higher unemployment and lower growth to lower unemployment and higher growth.

                            The theory is - just do the accounting right. In particular understand government bond sales and reserve accounting. Keynes & Lerner and others understood it fine. The modern mainstream makes complete hash out of it, and many other things, and erects gothic cathedrals of fake mathematics on nonexistent foundations.

                            Yes, there is an analog of the money supply and quantity theory in MMT. The real, the important base "money supply" is the nongovernmentally held National Debt (including currency and reserves) - the supply of government NFA - all the government paper out there - including bonds and "ready money". The most important thing about a financial asset is - who issues it, and the safest security is US government liabilities.

                            More particularly, consider interest rates. The USA definitely did control them - and not for a brief moment, but from WWII to 1951 (the Treasury- Fed Accord) and to some degree thereafter, until Volcker.
                            Japan has controlled them for 20 years with a ZIRP (zero interest rate policy). The USA controls them right now.
                            There are historical examples of fixed interest rate control extending over 1000 years.

                            What you are calling "tighter money" is sometimes, often looser, more inflationary money, while "loose money" can be in reality tighter - as it is right now. QE, the Fed's sooperevil money-printing is almost certainly depressing the economy, not stimulating it. Deflationary, not inflationary, as Japan has learnt.

                            The method of control is easy - the only thing that the US government accepts as payment for a bond is US currency - bank reserves. The US government is the monopoly issuer of both US dollars and US bonds. So of course it can set any relative price for the two. This amounts to interest rate control.

                            The USG cannot determine the amount of demand for its NFA, its bonds and currency. It can't unilaterally determine how much anyone wants to save up in them, and in what proportion. But it can certainly set the relative price = interest rates. What it does now tends to be trying to determine the quantity of bonds at various maturities, and let the price = interest rates  be "market determined". It could do the same with Lincoln notes (fives) and Washington notes (ones) - and depending on how many Lincolns and Washingtons be printed, have their value be determined by markets within some ranges. This has no more sense than letting interest rates move around, which is almost always a bad idea.

                          •  here are some charts (0+ / 0-)

                            in your halcyon days of perfect policy (1950-1970) federal spending as a % of GDP was much much lower than today.

                            Debt was practically non existent then rather than the 16 trillion today.

                            So it would seem that the remarkable thing about 1950-1970 is that the government spent less and ran lower deficits. Exactly what you argue against now?

                          •  Yeah (1+ / 0-)
                            Recommended by:
                            bunnygirl60

                            The fact is he didn't read Mosler's book or if he did he misread it.  I was wasting my time.  He wants to win something, but I'm not sure what it is....  A can of cat food from Simpson Bowles, maybe?  He'll get no more response from me.

                •  Silly (1+ / 0-)
                  Recommended by:
                  Calgacus

                  is labeling without reason. Laurence Tribe as a great Law Professor stated his opinion that the coin was legal. His opinion that it is not good politics or is silly is beyond his area of expertise.

                  What you're missing is this: The coin itself is an instruction to the Fed to fill the public purse, the Treasury General Account at the New York Fed with electronic credits, in the case of the $60 T coin, with $60 T in credits. There's nothing "silly" about that in itself. It if there is, you need to say what is "silly" about it. Note that the $60 T would not be spent except to repay debt when it falls do and to cover deficit spending so that no more debt has to issued. So, what's "silly about that."

                  Do you think there's some problem with repaying debt and implementing deficit spending without issuing new debt? If so, then what's the problem with it? Please tell us. We can't wait to hear what it is.

    •  Just to be very, clear, no, this is NOT snark. (2+ / 0-)
      Recommended by:
      jellyyork, RenMin

      The response comments already given cover what I would have said but Arliss wanted be to add, THUMP!

      (Now that IS snark.)

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Mon Jan 14, 2013 at 10:34:24 PM PST

      [ Parent ]

  •  I think a Googol Dollar Coin (3+ / 0-)
    Recommended by:
    dorkenergy, RenMin, AmericanAnt

    would be even better.  That's 10 to the ten to the hundred power, a number so big you couldn't even write it out on a platinum coin.  It would make the point that the actual number is unimportant.

  •  Franklin Mint to offer PCS Commemorative Coin! (1+ / 0-)
    Recommended by:
    katiec

    PCS commemorative coin price is ten times spot price of 1/10 of an ounce of platinum and is based on premise that your money is just paper.

    History: PCN was a gift of insanity from the people of Numismatic Neverland to the people of the United States and is a universal symbol of legalism and despair.

    The coins obverse was designed by followers of Chartalism and pictures a ship sailing over a fiscal cliff. The reverse has a scene of a family with their belongings on a curb with a sign reading "willing to work for yuan." Behind them can be seen The Statue of Liberty with the words GIVE ME YOUR TIRED, YOUR POOR, YOUR HUDDLED MASSES YEARNING TO BREATHE FREE.

    PCS is a symbol of patriotic pride, liberty and freedom for all who promoted her. It is a monumental coin portraying the federal reserve escaping the chains of tyrannical monetarism which lie at her feet. Held aloft is a flaming torch, representing MMT's promise of prosperity and a tablet on which is inscribed in roman numerals, the date the United States contemplated PCS, January 14, 2013. Seven rays of a spiked crown jet out into the sky symbolizing the seven seas and continents upon which PCS would reek havoc.

    Minted with a beautiful Proof finish – the highest level of the minter’s art - and exact amount of platinum that was to be used in the true PCS. Each coin is sealed and protected inside a clear capsule designed to withstand even the harshest climate change.

    "If the past sits in judgment on the present, the future will be lost." Winston Churchill

    by Kvetchnrelease on Tue Jan 15, 2013 at 06:49:17 AM PST

  •  Monetary Policy 101 - (1+ / 0-)
    Recommended by:
    AmericanAnt

    Get it today at your local community college!

    If the USA were the only country in the world, your little scheme might work.

    But when the price of oil (and every other global commodity) skyrockets to $1000 per barrel, you might think it was not such a good idea.

    Of course, if you personally have no savings, no home equity and no income, I suppose you wouldn't much care, huh?

    •  They might well (4+ / 0-)

      teach that in community colleges now to brain wash the sheeple. The analysis of historical data does not reflect your conclusions.

      But that is not what many years of graduate school and interaction with (later to be) Nobel laureates taught me. But that was well before the rise of neo-liberal economics and the rightward shift in the polity of economic departments around this country.

    •  Umm - you really do have NO IDEA what you are (3+ / 0-)
      Recommended by:
      Calgacus, katiec, SouthernLiberalinMD

      talking about. Follow the links in my article and LEARN SOMETHING.

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Tue Jan 15, 2013 at 10:31:06 AM PST

      [ Parent ]

      •  You mean the links to those esteemed seats of (0+ / 0-)

        economic thinking -  Fire Dog Lake and New Economic Perspectives?

        I shoulda known to ignore those fake economists at Wall St Journal and Forbes, etc. etc..!  What was I thinking??!!

        Here I thought hyperinflation and devaluation would be a problem.. who knew?

        •  You were thinking that if you read articles (2+ / 0-)
          Recommended by:
          katiec, jellyyork

          by people who have a vested interest in deceiving you, you might learn something. Silly rabbit, cancel your subscriptions and use your brain cells instead.

          "When in doubt, do the brave thing." - Jan Smuts

          by bunnygirl60 on Tue Jan 15, 2013 at 01:09:26 PM PST

          [ Parent ]

        •  You mean (1+ / 0-)
          Recommended by:
          bunnygirl60

          the economists at WSJ and Forbes who failed to predict the crash of 2008 who advocated for all the Wall Street that led to the crash that tanked the world economy. Well, yes, you should have ignored them. As for NEP economists, they did predict the crash. They knew it was coming from sectoral financial balance model. And as for FDL economists, at least one who posts there, Dean Baker, also predicted the crash on the basis of his bubble analysis of the economy.

          Btw, an MMT economist named Johnblogging at Forbesat Forbes.

    •  Do they teach supply and demand at that college? (2+ / 0-)
      Recommended by:
      jellyyork, Calgacus

      How do you propose that money sitting in a treasury department account at the Federal Reserve would affect the price of oil?  You haven't thought this through.

    •  pretty soon a whole lot of people (1+ / 0-)
      Recommended by:
      jellyyork

      will have no savings, no home equity and no income.

      Do you want to wait till then to fix the economy while indulging in asinine austerity games to avoid non-existent inflation? Or shall we start fixing things now? Real things, like unemployment and crumbling infrastructure?

      if necessary for years; if necessary, alone

      by SouthernLiberalinMD on Tue Jan 15, 2013 at 03:24:30 PM PST

      [ Parent ]

    •  you know, it's a shame (0+ / 0-)

      that there's no way to express disagreement with a rating.

      There's a way to express agreement, and a way to express  OMG this is a horrible comment which damages the community! but there's no way to express: Damn, that's wrong. Not in the numbers.

      if necessary for years; if necessary, alone

      by SouthernLiberalinMD on Tue Jan 15, 2013 at 03:26:05 PM PST

      [ Parent ]

  •  A figment of our imagination? (3+ / 0-)

    The fiat currency only has value as long as we believe it does. If everybody voted for secession tomorrow the US dollar would cease to exist with no government to stand behind it. But money certainly has its uses so we all continue to make it real by believing in it.
        Old folks living on fixed incomes are terrified of inflation so they can easily be persuaded by Fear TV to resist anything as scary as PCS policy space. But the real power here is that held by the winners of Citizens United. They have the most to lose from inflation (think about the value of 1.6 quadrillion dollars worth of debt derivatives). The power of the debt holders is why citizens of democracies around the world are being dragged, kicking and screaming, into deflationary austerity policies.
        But there is a much bigger picture here. We have a world descending into chaos because of a belief that we can’t afford to fix global warming or provide health care and other necessities of life for our fellow earthlings. The thing that is stopping us from doing what needs to be done is the love of money, the value of which exists only in our imaginations.

  •  Have to quibble about Nixon and Bretton Woods (0+ / 0-)

    Nixon may have thought that ending the Bretton Woods arrangements would solve some obstinate economic policy problems, but I believe the truth is that Nixon was manipulated into it by, among others, Paul Volcker, who was then Under-Secretary of the Treasury for International Monetary Affairs.

    Volcker was implementing, on behalf David Rockefeller's Citibank, and other financial interests, a "controlled disintegration" of the world's economy.  What they meant by  "controlled disintegration" was a roll-back of the regulatory powers of sovereign nation states, through deregulation, most especially banking and financial deregulation. This "controlled disintegration" would open up the policy space, as you call it, for a massive expansion of financial fun and games, or "profit making opportunities." For example, governments tightly controlled interest rates prior to 1971, including through usury laws. After 1971, the whole panoply of speculative instruments on interest rates was developed. LIBOR, for instance, was not created until 1985-1985. Interest rate swaps and futures contracts on interest rate swaps similarly came into being after 1971's "controlled disintegration." Not to mention the now monstrous trading in foreign exchange, which dwarfs trading in stock and bond markets. In the 1990s, I once found a late 1950s article in the Wall Street Journal reporting on the nearly 1 to 1 match of forex to travel expenses overseas, exports and imports, and international payments to US military overseas (paychecks, and leases for foreign bases, and payments to foreign suppliers.

    You should read Bill Engdahl's multi-part series, The Financial Tsunami: The Financial Foundations of the American Century.

    It should also be noted that the new policy space opened by "controlled disintegration" allowed the corporate buyout (aka, "restructuring') binge to shift into high gear in the 1980s, giving us leveraged buyouts, and Michael Milkin. This is the mechanism by which most of the 1950s-1970s dirty money of, for example, the mafia, "went legitimate" by buying control of thousands of companies.

    All of which, of course, caused the de-industrialization and de-capitalization of the U.S. economy.

    A conservative is a scab for the oligarchy.

    by NBBooks on Tue Jan 15, 2013 at 10:16:37 AM PST

  •  Can we put Rainbow Unicorns on the coin??? (2+ / 0-)
    Recommended by:
    Paradigm Change, dizzzave

    This whole line of reasoning is ludicrous, and cloaking it in the moniker of Modern Monetary Theory doesn't make it so.

    You are correct that we have a completely fiat currency, but everything after that seems completely misguided. Given that the currency is not explicitly backed by any hard goods it has only the value that we agree to assign to it (in aggregate). The Saudis agree that they will accept $100 for a barrel of oil and I agree to give them the money in exchange. But WHY do they agree to accept this intrinsically worthless paper? Because it can be used to purchase hard goods at reasonably easy-to-predict future prices. And the reason it can be used for such purchases is that the government, with lots of guns and jails, says that people doing business in this country have to accept it as a form of payment. Also, this same government says that all of the bills we as citizens owe to the government must be paid using the worthless paper, so we need to find some way to acquire it, either by working for them or selling stuff to the aforementioned Saudis.

    The reason this $60T of new money is inflationary is that just adding more numbers to everybody's account does not cause any new goods or services to spring into existence. Consequently, since the supply of dollars has gone up and the demand for them has not changed, the value of the dollars drops until it reaches a new equilibrium.

    Here's the deal I'll make you. I'll send you a piece of paper with any number you like written on it and you send me your car, or the deed to your house, or a stick of chewing gum. If you think this makes sense then I'll understand your point in writing this article, but otherwise it's just foolishness.

    •  As you say-- (4+ / 0-)

      "Also, this same government says that all of the bills we as citizens owe to the government must be paid using the worthless paper, so we need to find some way to acquire it, either by working for them or selling stuff to the aforementioned Saudis."

      However, what you forget to add is that every penny you acquire to pay what you owe to the government must first be spent by the government or it does not exist to be paid (all payments to the government must be made in reserves held in accounts at the CB).  In addition, the government does not mandate the use of its currency by decree, it does it through taxation.  Taxation by the government creates the need for the otherwise useless money.

      What part of the above description does not describe a monopoly of money creation?  The "coin" is just a device to stand behind and enable that monopoly--especially when the key player in the game (the government) has lost the wisdom to understand and utilize its empirical monetary creative power.

      •  When there was a gold standard, historically, (2+ / 0-)
        Recommended by:
        jellyyork, Calgacus

        it traced back to a time when goldsmiths actually created, essentially, IOU's, for the people whose gold they were storing in their safes (since not everyone who had gold had a safe.) The gold standard and commodity-backed currency (of all kinds) goes back to that as does your thinking. Since then, we have evolved and I understand that it is hard to wrap our collective brains abound all that a fiat currency means but here are some of the things you left out.

        1. Currency doesn't appear magically (platinum, paper or otherwise), it must first be spent into the economy by the Department of the Treasury.

        2. Value is conferred and enforced into US currency because it it the currency in which the US government requires taxes to be paid. Without this one element, it would be useless paper.

        3. US currency acquires value throughout the economy because everyone needs to pay taxes (well, everyone except some astronomically massive percentage of corporations who have managed to pay off politicians, with US currency, so that tax-loopholes can be customized, but that's another whole topic of discussion.) It also acquires value because those who are paid, by the Treasury, for their services to the government, are paid in US currency and that covers just about every conceivable industry.

        4. You are completely wrong about demand. Just, well, completely. We do not have a shortage of resources, capacity or workforce in our economy right now but we do have a MASSIVE shortage of currency. That is an imbalance that can easily, for all intents and purposes, be corrected immediately. (By "immediately," I mean as quickly as could be balanced by rising employment.) When demand is high and currency is low, the answer is obvious.

        5. The size of the US economy is insanely huge and large sectors of it are sitting on relative idle. Are you telling me that if those engines were turned back up that it would be a bad thing or that any company anywhere would be saying, "No, no. Take your dirty money and contracts and business and go elsewhere." Yeah, I thought not.

        6. No one, not me, not my diary above, not anyone anywhere is talking about dumping $60T into the economy in one fell swoop. Re-read the diary and follow the links for more information. In particular, read the recent diaries by LetsGetItDone.

        7. There are lots of reasons the Saudis will continue to deal with the US in US currency and the fact that we are the big dog with the big guns is not the least of these reasons. It isn't pretty but it is true. Oh yes, and they own more property here then they do in Saudi so crashing our economy is not really in their best interests. Besides, where are they going to flee after the revolution? (Now, there's yet another diary topic.)

        8. Yeah, I'm not really a rainbow unicorn kind of rabbit. My SBUNY degree is in Disapproval, after all, so I was thinking more along the lines of Bugs Bunny but if you prefer the Easter Bunny, I'm willing to consider compromise. (Also, paying tribute to the Easter Bunny would be throwing a bone to the religious right.) Thoughts?

        "When in doubt, do the brave thing." - Jan Smuts

        by bunnygirl60 on Tue Jan 15, 2013 at 12:47:38 PM PST

        [ Parent ]

        •  Money does not have to be spent into the economy (0+ / 0-)

          Your point #1 claims that money only appears in the economy when the Treasury spends it, which is clearly wrong in the fact of a fractional-reserve banking system. I can go down to the bank and borrow $30K to purchase a new car. The bank doesn't call the Treasury and ask for a bag full of $20s to be sent over - they just invent the money and mark some amount of money much less than $30K as allocated reserves in case I decide not to repay them and the repo man can't find the car.

          This is why lowering interest rates is stimulative because it presumably (big presumption) inspires more people and businesses to borrow cheaper money, thus driving up the amount of currency in circulation. However, part of the problem with the current economy is that there are not enough borrowers with enough collateral/unsecured credit to borrow all the money the banks can lend them. This means that further declines in interest rates do not in fact inspire additional lending.

          However, I fear that you are all Much Smarter Than Me, so I'm happy to leave this discussion here with an agreement to disagree.

          •  Largely Right, but there are some fine points (0+ / 0-)

            AmericanAnt - Currency is not the same thing as money.
            Currency - reserves, dollar bills, coins - is government money, state money. Base money, high-powered money. Money issued by the government. Only the government can create it. Bunnygirl correctly said "currency". As you point out,if she said "money" she would have been wrong.

            Yes, banks can create money. Bank-money, bank credit. Loans create deposits. You have it right. Everybody knew that 50 years ago. However, economics entered a Dark Age - and so economies are run by idiots who do not understand what you understand, that banks create money. Leading "economists" picture things in the way you correctly deride!

            Governments use the currency they create to back the money the banks create in various ways. Which makes banking very much NOT a private "capitalistic" business, but a public-private partnership. When unregulated, when regulators are cronies of the banksters, it is a license to steal.

            You sketched one way that lower rates can sometimes stimulate economies.  But that is not the only effect. Right now, it is almost certain that lower rates are depressing, not stimulating the economies.

            •  Could you put this in terms of "The Currency Wars" (0+ / 0-)

              Lots of people are scared that the currency wars are going to cause a war.

              even some "progressives" think the gov is using inflation to steal from China

              And they're scared.

          •  As I understand it: Right the Fed doesn't (0+ / 0-)

            control the money supply directly.

            But when private banks run low on reserves because they lend to you for a car, then the Fed acts as lender of last resort, so get more reserves.

            Second point, if banks can make more money off of investing in financial instruments and currency arbitrage, then why invest in you, where the ROI is lower?

      •  I'm probably shouting into the wind, but (0+ / 0-)

        I'll keep playing here.

        Money is valuable in part because the government demands it, but not solely. Surprisingly enough, I used to live in Saudi Arabla, where there is no taxation at all, on anybody, for any reason (or at least not in the late 70's), since they had so much money and so few people that the government did in fact give money away in various forms to keep the population semi-happy.

        The reason the Riyal had value was because you could use it to buy oil, which is something people wanted. The owners of the oil (the government) stood ready to convert your paper into oil but there was no "oil standard" behind the money.

        I'll address the whole issue of getting money into the economy in a minute.

    •  I agree with AmericanAnt (1+ / 0-)
      Recommended by:
      Calgacus

      but appreciate the link to the MMT article.  Keep up the work though, you may be on to something.  For example, it seems to me you need to think through how this theory should be applied through the appropriations process.  

      Dedicated to recapturing the American Dream by changing the framework of the debate to focus on: Growth, Efficiency, Community, Sustainability and Economic Fairness. Improve constantly and drive out fear - Dr. W. Edwards Deming

      by Paradigm Change on Tue Jan 15, 2013 at 12:13:14 PM PST

      [ Parent ]

      •  it's interesting that you should ask about the (1+ / 0-)
        Recommended by:
        katiec

        process detail. I'm thinking about a diary on that. I was invited over to this amazing thread a couple of days ago where people with Fed, Treasury and Mint backgrounds were talking about the specifics in minute detail because even they aren't sure how it would all work. There are apparently two main options so I was thinking it would be interesting to translate their discussion into human and bring it to dKos.

        BTW - AmericanAnt, totally wrong but he is in good company. It's stunning, really, really stunning, how many supposedly qualified people haven't ever really worked through what fiat currency actually means. In an article that will surely be nominated for "Most Idiotic Article on Economics for 2013," an economics editor, Heidi Moore, at The Guardian makes some statements so stupid that she makes Peggy Noonan seem like an intellectual giant.

        "When in doubt, do the brave thing." - Jan Smuts

        by bunnygirl60 on Tue Jan 15, 2013 at 01:17:41 PM PST

        [ Parent ]

        •  Gosh, her article was atrocious! (0+ / 0-)
        •  Is there really such an award? (0+ / 0-)

          Must be quite the list, since most macroeconomics is nonsense.  I am working on an article related to this.  I look forward to your upcoming articles.  

          Dedicated to recapturing the American Dream by changing the framework of the debate to focus on: Growth, Efficiency, Community, Sustainability and Economic Fairness. Improve constantly and drive out fear - Dr. W. Edwards Deming

          by Paradigm Change on Tue Jan 15, 2013 at 03:08:38 PM PST

          [ Parent ]

        •  Is there a place other than DKos (0+ / 0-)

          diaries where you guys congregate?
          This is the best and most hopeful stuff I've heard for a long time, and I like the "policy space" you've created.

          And I don't give a damn if it sounds silly. See my comments above.

          P.S. How do you learn about this stuff? Is it an Econ degree, or?

          if necessary for years; if necessary, alone

          by SouthernLiberalinMD on Tue Jan 15, 2013 at 03:37:19 PM PST

          [ Parent ]

          •  I've been spending a lot of time on a number of (2+ / 0-)
            Recommended by:
            SouthernLiberalinMD, Calgacus

            other websites that are populated by economists. As a physicist (who blogs for a rabbit) I am an exception there as you might imagine. =:3  (That's a smiling rabbit in case you have never seen it before which, if you are sane, you probably haven't.) I spend the most time at New Economic Perspectives where there is SO much information and I recently started reading a lot at Monetary Realism. LGID cross posts everything over to Corrente and there is plenty there too. All of these sites, and more, have plenty of economists but few have as much actual conversation as dKos.

            I took three econ classes years ago (micro, macro and international), then I did business all over the world and now I run a company so I have learned a few things along the way BUT I knew nothing about MMT until last November when i heard Stephanie Kelton interviewed on Sam Seder's, the Majority Report. I went to the internet to learn more but had trouble finding anything that seemed accessible so I just dove in and started reading everything I could manage. I took notes and eventually wrote a blog that outlined the simplest framework of MMT, primarily for my friends, and because it was an exercise I enjoyed. As it turns out, that blog sort of took off and got cross-posted all over the world. Presumably because it is, as one economist so correctly put it, "MMT FOR DUMMIES." Once I had a taste for it I was hooked. It is fascinating and I managed to stumble across it and catch the wave just before it was taking off. So, that's all a long way of saying, no, it absolutely doesn't take an economics degree.

            I think there is talk about livening up the MMT group here at dKos, Money & Public Purpose. If we want to be more focused on gathering action around HVPCS, there has been a conversation about developing a group that talks about how best to organize the effort. If you haven't already, join Money & Public Purpose and I'll keep you looped in if anything else springs up here at dKos or elsewhere that sounds interesting.

            Regarding hope - I agree.

            "When in doubt, do the brave thing." - Jan Smuts

            by bunnygirl60 on Tue Jan 15, 2013 at 04:19:48 PM PST

            [ Parent ]

          •  Take a look at the following sites (1+ / 0-)
            Recommended by:
            SouthernLiberalinMD

            New Economic Perspectives

            Bill Mitchell

            Warren Mosler

            and from these sites there a many, many others referenced.

    •  Opps! I replied to the wrong post. Read my (0+ / 0-)

      response to you posted right below the one Clonal Antibody made to you.

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Tue Jan 15, 2013 at 12:48:59 PM PST

      [ Parent ]

    •  Nobody says: create $60T (3+ / 0-)

      Nobody is saying to create $60T of new money. Of course that would be inflationary if done immediately, in one swoop, although probably less than you think.

      For just adding more numbers to everybody's account does not cause any new goods or services to spring into existence. IS NOT TRUE. In depression conditions, or when there is unemployment, adding more money emphatically does cause new goods and services to spring into existence, because it employs people to create them.

      What people suggest is putting $60,000,000,000,000 into the Treasury's account at the Fed. Which is something completely different. It isn't money until the Treasury spends it, and it would just spend it as Congress ordains. Just as had been done for hundreds of years, before anybody had really heard of the debt  limit, which is a new tool used by unprecedentedly irresponsible Congresses to attack the population of the nation they govern.

    •  It doesn't increase the supply of dollars (3+ / 0-)
      Recommended by:
      bunnygirl60, jellyyork, Calgacus

      She didn't say to add more money to everyone's account, she said to add it to Treasury's account.  That has zero impact on the value of the dollar.  

      Now if -Treasury- Congress decides to actually spend that money, then it can begin to have an impact on prices.  But that also might create entirely new goods and services.  

      Really it depends entirely on how much congress actually decides to spend, and on what congress actually decides to spend it on.  Spend it on things that actually employ unused resources, and that's not inflationary.  Spend it on productive investments that produce a sufficient increase in output (like needed infrastructure), and that's likely not inflationary.

      I doubt you could find non-inflationary ways to spend the entire $60T, but no one is suggesting you should.  I think the point of the $60T number was to just ensure that there is no artificial debt ceiling in effect for the next 25+ years.  So the point was to make it a number more than you could possibly reasonably want to spend.

      •  Again, I disagree, but you're not surprised (0+ / 0-)

        The whole reason to create the coin(s) in the first place is that Congress has already decided to spend the money, so we know that it's going to be disbursed at the rate of the federal deficit, which is currently on the order of $3T/year. So, claiming that it's just going to sit in the Treasury is inaccurate.

        Also, there is a world of difference between simply handing the Treasury $3T and making them borrow it from somebody. When you borrow it from somebody who already has it on hand you are not injecting new cash into the system but rather moving it from one account (the lender's) to another. In particular, if you borrow it from foreigners who have earned it in a different currency and eventually want to have more money in that currency, they make an assessment about the future value of the dollars with which they will be repaid and set their interest demands accordingly. Anybody remember 20% mortgages in the early 1980s?

        •  They're not claiming the whole amount will just (0+ / 0-)

          sit in the Treasury, they're claiming ONLY the amount Congress appropriates will be spent.

          Would they care if they earned interest on their reserves as opposed to their bonds?

        •  government "borrowing" etc DOES inject new cash (0+ / 0-)

          Also, there is a world of difference between simply handing the Treasury $3T and making them borrow it from somebody.

          Again, good points. The thing to realize is that - No, there is NOT a world of difference. There is hardly any difference at all. Handing the Treasury $3T - which I understand to be the same as the Treasury (or Treas/Fed, or just "the government") - printing/creating it out of nothing, or "out of" the platinum coin and spending - IS practically the same thing as what is called "government borrowing" and spending.

          The point is that THAT is what we are doing RIGHT NOW.
          This is "the reserve accounting at the heart of MMT".

          You are right that there would be a difference between printing money and the Treasury borrowing money. But the US government does not and can not borrow US dollars. It is a logical impossiblity.

          What is called "government borrowing" IS NOT BORROWING. Not because the government has magic powers, not because it is anything special. But because the transaction simply is not borrowing, the way the word is used in any other context. Government "borrowing" IS NOT BORROWING in the same way that playing baseball IS NOT BORROWING.

          In real borrowing/lending - two IOUs in opposing directions are exchanged. In government "borrowing" two IOUs in the same direction are exchanged.  However you slice it, after government spending & government "borrowing", the private sector has more government debt. It is as if the government paid its bills in bonds. A dollar bill is a government bond. A government bond is basically money already. Government bond is much closer to exchanging two fives for a ten, money-changing, than it is to real borrowing.

          When you borrow it from somebody who already has it on hand you are not injecting new cash into the system but rather moving it from one account (the lender's) to another.
          That is precisely what DOES NOT happen in government "borrowing". The government spending process (usually optically confused by "borrowing") certainly is "injecting new cash into the system".

        •  Where'd you get that $3 T from (1+ / 0-)
          Recommended by:
          acerimusdux

          I wish the deficit had been $3 T we'd be at full employment now and have some inflation; but unfortunately, in the FY ending 9/30 it was only something like $1.2 T, far short of what was needed to compensate for demand leakages due to savings, and the trade deficits.

        •  No difference right now (0+ / 0-)

          1. Right now congress is already spending that money, and it's not inflationary, so continuing to do so would not be inflationary.  

          2. Right now, with interest rates near zero, there is little difference between borrowing or printing money.  When there is a difference, the Fed will still have full control of the money supply.

          3. Right now, the Fed has $1.7T in US Treasuries already on it's books, which it can sell if it thinks it's important that the money be borrowed from the private or foreign sectors.

          4. Right now, rather than selling, the Fed is buying an additional $85B in bonds a month, which if they continue it all year would be enough to finance the entire $1T (not $3T) projected deficit for 2013.  

          You are right though that at some point down the road inflation could be a problem, if congress just decided to spend recklessly without restraint without regard to economic need.  Eventually that could lead to the money supply and value of the currency getting out of control of the central bank.  But we're a long way away from that happening.  The current congress in fact is arguably spending too little, not too much.

    •  Not as ludicrous as threatening to (2+ / 0-)
      Recommended by:
      jellyyork, Calgacus

      crash the debt ceiling every 6 months. Not as ludicrous as giving the rich a massive tax cut while starting two wars. Not as ludicrous as magicking money out of our ass to save a bunch of criminals who just crashed the global economy. Not as ludicrous as rating junk as AAA investments and getting away with it, and then turning around and downgrading the credit of the country whose economy you just tanked with a bunch of irresponsible lies.  Not as ludicrous as wringing money out of old women and disabled soldiers to pay for past economic and financial malfeasance. Not as ludicrous as inventing catastrophe in order to justify wringing money out of old women and wounded soldiers against the will of the American people.

      if necessary for years; if necessary, alone

      by SouthernLiberalinMD on Tue Jan 15, 2013 at 03:31:05 PM PST

      [ Parent ]

  •  End result is $12/gallon gasoline (0+ / 0-)

    That is, assuming you can actually get gasoline.

    Let me explain. Suppose you owned the entire US national debt. It gets paid by minted money, and you no longer have any interest-bearing funds. What do you do with that money? You sell it to anyone to invest in safe options overseas.

    While nobody owns the entire US national debt, that's the long and short of what will happen if we were to pay it off by minting. Minted money gets sold to buy safe investments overseas, and suddenly we have a really hard time buying stuff from overseas.

    I picked gasoline in particular because of how much wealth is tied up in oil-producers holding US dollars. When that static wealth gets moved to other currencies, the US will largely lose it's ability to buy petroleum at the low prices it currently enjoys.

    •  Okay - for other reasons I just happen to know (2+ / 0-)
      Recommended by:
      jellyyork, Calgacus

      a great deal about the US/Saudi relationship. (I have a book closely related to that subject in the hands of an editor as I type this and, easily, 200 books on my shelves filled with highlight and notes and cross referencing.) There is so much wrong with what you just said that I'm not sure I know where to begin because my brain blew up with a thousand possible responses when I was reading.

      I'll start with this, the Saudis will NEVER move out of the US dollar and they have every reason to be deeply invested in the success and health of the US economy. The only way the Saudis allow $12 gas is if they were to decide to turn off the spigot (cut supply) and because of technical reasons, having to do with the way the wells and pipelines are built and, additionally, having to do with storage, they can't even really do that. Saudi money stays in dollars and stays in the US no matter what. Are you imagining they wouldn't be able to find ways to spend that money? Surely the Saudis have never given any evidence of being at a loss for ways to spend. I know, for instance, they are especially anxious to upgrade their air force. Also, given that we are talking about paying them off over a period of twenty-five years, I feel even more confident that they will be leaving their money here.

      Besides, EVEN IF I accepted your premis, where would they put said money. Surely you don't think they put it in the Euro or the Yen or the Rouble! Now, that would be insanity and they may be terrorists but they aren't crazy.

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Tue Jan 15, 2013 at 03:07:09 PM PST

      [ Parent ]

      •  An important point (0+ / 0-)

        here is that the US is the monopolist when it comes to USD, and the Saudis are the monopolists when it comes to oil and the price of oil. Because of this, the price of gasoline isn't free floating with respect to the dollar and has little to do with US Government spending. It is only determined by how much the Saudis want to charge. So minting the $60 T coin will have no impact on that unless the Saudis want it to. But they will not want it to, because they are too dependent on the US is various ways.

    •  The end result (2+ / 0-)
      Recommended by:
      Calgacus, bunnygirl60

      is going to be $12 a gallon no matter what we do!  Austerity isn't going to change that one iota.  Investing in something else might, though!  But, oh my, where will we find the money for that investment?

    •  How about paying it off slowly (1+ / 0-)
      Recommended by:
      jellyyork

      Nobody is saying pay it off all at once.

      if necessary for years; if necessary, alone

      by SouthernLiberalinMD on Tue Jan 15, 2013 at 03:38:18 PM PST

      [ Parent ]

    •  No it's not what will happen (2+ / 0-)
      Recommended by:
      jellyyork, Calgacus

      First, the debt will not be redeemed all at once; but gradually, when it falls due.

      Second, the bonds out there are actually more inflationary than the reserves would be.

      And third, if by some chance, inflation were to ensue, then the Fed could sell its own bonds or pay interest on reserves to keep the reserves out of the economy.

  •  Arliss (0+ / 0-)

    what a wonderful hop out of the rabbit hole you just created.  I haven't had this much fun in years.  Thanks again!

    •  Me too but now I have GOT to get back to (0+ / 0-)

      dealing with the final end-of-year inventory adjustments and the inevitable, "how the hell did we lose/go through/break/selvage so much of ______!!!!" I spent so much time on this today, I'll be up all night. sigh

      "When in doubt, do the brave thing." - Jan Smuts

      by bunnygirl60 on Tue Jan 15, 2013 at 07:13:57 PM PST

      [ Parent ]

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