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This post records the history of platinum coin seigniorage in the blogosphere through the debt ceiling agreement on August 2, 2011. Its purpose is to correct errors in the record about the history of this idea appearing on mainstream blog posts by Joe Wiesenthal, John Carney, and Brad Plumer, during the past week. The idea of using coin seigniorage, the profits made from minting proof platinum coins, depositing them at the Fed, and receiving electronic credits in return, to remove the need for issuing debt, and so to always stay under the debt ceiling is due to a commenter (and occasional blogger) on economics and politics blogs whose screen name is beowulf (Carlos Mucha). Beowulf”s first comment on Platinum Coin Seigniorage (PCS) was on Brad Delong’s site on July 6, 2010 (h/t Cullen Roche, 01/05/13). But, the first comment of his I noticed on PCS was at New Deal 2.0. Unfortunately, when The Roosevelt Institute redid its New Deal 2.0 site, it wiped out the record of beo’s comment. However, I quoted his ND 2.0 proposal in a post on November 12, 2010 discussing a possible Government shutdown due to the debt ceiling. I cross-posted this at Correntewire too where beowulf commented further on the platinum coin option.
Beowulf continued his work on the coin seigniorage proposal as the weeks went by in various comments made at blog posts such as this one at FDL, and this one, also at FDL. Then on 12/15/2010 there was an exchange between beo and I about platinum coin seigniorage.
Following that beo wrote me, and we corresponded by e-mail from 12/15/10, roughly until the Christmas break, exchanging views about PPCS, with me urging beo to blog it, and telling him that I would blog in support of him soon after he did. On January 3, 2011, he posted the seminal blog on coin seigniorage. I followed two days later, raising the question of whether President Obama would use it to forestall an attempt to use the debt ceiling to extract cuts in the social safety net or not.
These posts were noticed by Warren Mosler, one of the originators of the Modern Monetary Theory (MMT) approach to economics, who sponsored what turned out to be a wide-ranging and very high quality discussion of the coin seigniorage option at his site. Beowulf contributed extensively and very creatively to this discussion, which remains one of the most important resources on the coin seigniorage option.
Throughout the next six months, I pushed platinum coin seigniorage in blog posts at Correntewire, FDL, and DailyKos from time-to-time and in comments at various sites. Then, in late June and July a spate of posts on platinum coin seigniorage appeared, beginning, I think, with wigwam’s at FDL and DailyKos.
He’s followed up since with a number of other posts including this one with a variation on how coin seigniorage might be applied by buying $2 Trillion in debt from the Fed to create “head room” relative to the debt limit.
Other important posts appeared in the first two weeks of July 2011 by Mahilena, DC Blogger, ubetchaiam, Cullen Roche, and Scott Fullwiler.
Accompanying the last two are extensive discussions of coin seigniorage and constitutionality of the debt ceiling with contributions from beowulf. Scott’s post also received extensive discussion with beowulf contributing at Cullen’s site. Trader’s Crucible, presented a post on the unconstitutionality of the debt ceiling. Its comment thread however, focused very much on platinum coin seigniorage with beowulf and myself making contributions.
In addition, I added a couple of my own posts, one on constitutionality of the debt ceiling and coin seigniorage (06/29/2011), and another on the President’s obligation, if no agreement on the debt ceiling is forthcoming (07/11/11).
At this point, the platinum coin seigniorage debate began to hit the mainstream blogosphere. Felix Salmon at Reuters provided the opening blog post (07/14/11) and he was followed a day later by Matty Yglesias at Think Progress. I replied to Salmon and Yglesias in this post, presenting a fairly comprehensive view of platinum coin seigniorage up to that time, with critiques of their posts (07/17/11).
My post appeared in an abbreviated form at Naked Capitalism, and was also cross-posted at MyFDL, New Economic Perspectives and Global Economic Intersection. It appeared amidst an explosion of blogosphere posts on the subject, including posts on the subject by many mainstream bloggers and others including: Tom Hickey: “Coin Seignorage Breaks into Mainstream,” (07/18/11) Scott Sumner: “Is coin seignorage Obama’s magic bullet?” (07/19/11) Joshua Holland: “There’s a Solution to the Debt Fight That Could Avert Catastrophe — Why Is Everyone Ignoring It?” (07/20/11) Darrell Delamaide: ”Smoke and mirrors with the federal deficit,” (07/20/11) Mark Kleiman: “Phony problem, phony solution,” (07/20/11) wigwam: “Mark Kleiman calls Coin Seigniorage a phony solution; to a phony problem,” (07/23/11) upyernoz: “Platinum Pieces Were Always My Favorite,” and Yves Smith: “We Discuss the manufactured UD Debt Crisis at the Real News Network.” (07/25/11)
These posts were an immediate wave, so to speak, of responses to the Salmon and Yglesias posts. But there was more to come in July. I posted again, presenting a variety of platinum coin seigniorage face value options, along with differing political and inflation implications of the options (07/20/11).
Then I followed with an open letter to Congress and the President on getting around the debt ceiling (07/25/11), and a post on the President’s apparent views on the debt ceiling. (07/26/11)
Meanwhile, Jack Balkin, a Constitutional Law Professor at Yale, had blogged about coin seigniorage telling a good story in an important post (07/18/11).
And Balkin next did a post at CNN, where he reviewed a number of options for getting around the debt ceiling (07/28/11). And, in doing so, brought the platinum coin seigniorage idea into the mainstream discussion.
Balkin’s efforts seemed to fuel another wave of the July 2011 platinum coin seigniorage explosion. These include:
”Capt. Fogg: Billion Dollar Coins and Exploding Options — oh my!” (07/28/11)
Logan Penza: “(Platinum) Pennies From Heaven (UPDATED);” (07/28/11)
Jonathan Chait: “The Coin That Will Save The World;” (07/28/11)
Matthew Yglesias: “The Platinum Coin Option;” (07/28/11)
upyernoz: “platinum, baby, platinum” (07/28/11)
Master of Interesting Links: “The meme that will not die!”; (07/28/11)
Tyler Cowen: “Crank up the mint for the platinum coin!” (07/28/11)
Edward Harrison: “The #trilliondollarcoin meme”; (07/28/11)
Matthew Yglesia: Neutralizing Platinum Coin Finance; (07/29/11)
The Economist: “The trillion dollar coin solution;” (07/29/11)
Eric Hayden: “A $1 Trillion Coin Seems Like a Nice Idea” (07/29/11)
Paul Krugman: “Lawyers, Coins, and Money” (07/29/11)
Annie Lowery: “The $5 Trillion Coin” (07/29/11)
Johnsonville: “Debt Watch/Coin Trick: the Trillion Dollar Coin” (07/29/11)
Seneca Doane: “Cut the Gordian Knot with the Platinum Sword;” (07/30/11) This Post was a particularly important because it recognized the key political implications of PCS, and also was enormously popular at DailyKos and elicited 569 comments there.
Laurence Lewis: “The Debt Ceiling Dance and the Trillion Dollar Coin.” (07/31/11)
David Weigel: “The Platinum Coin Hysteria of 2011;” (07/31/11)
So, that was the second wave of responses by mainstream bloggers, and others, to the Platinum Coin Seigniorage idea. In addition, I added two posts on 07/31/11:
What If a Debt Limit Extension Is Voted Down?” (07/31/11) and
Progessives In Congress: Vote for The President To Do It!” (07/31/11)
Also, the last notable post on Platinum Coin Seigniorage (08/01/11) before the debt ceiling settlement of 08/02/11 was Scott Fullwiler’s Coin Seigniorage and Inflation. It’s still the most comprehensive and rigorous discussion available of the relationship between the two.
But then, and lastly, there was Beowulf responds to Dave Weigel of Slate.” (07/31/11) I think this reply is worth quoting, because, in a way, Weigel’s reaction is pretty typical of most mainstream posts, reacting to the idea in what only can be described as a superficial way, part brush-off; part poking fun, almost as if mainstream bloggers were afraid of discussing the idea without an obligatory heaping slice of skepticism accompanying their mention of it. Obviously beo’s reply doesn’t apply to everyone, so I don’t want to over-generalize it. But if you read all the posts, I think you’ll see that Weigel’s reaction is pretty common, so beo’s reply is pretty broadly applicable.
There’s nothing fanciful about it. The strange thing is that the USG is constrained by debt ceiling but a part of the USG (The Fed describes itself as “an independent government agency”) is unconstrained by a debt ceiling. Even more anomalously, Fed-held Treasuries are counted against the USG debt ceiling.
This isn’t about selling drilling rights on the moon but a practice almost as old as the Republic. The US Mint has used coin seigniorage continuously since the Coinage Act of 1792 (in a legal sense, a single $1 trillion platinum coin is the same as trillion $1 coins but with far less expense and effort). It violates no laws nor federal regulations nor prior obligations for the USG to transfer debts from the constrained whole to an unconstrained part (that is violates all logic is the fault of Congress).
The idea actually originated in a note I sent the Department of the Treasury on a collateral issue (as it happened, I had “buried the lede”). I posted about this on Firedoglake (and Correntewire) only after discussing the issue at Warren Mosler’s blog (Incidentally, I’m hardly a lefty. I voted for Romney in the 2008 GOP primaries, will probably do so again next year).
Writer Joe Firestone suggested to me that the platinum coin seigniorage issue was something worth posting a blog about and bugged me until I did (after which, Joe took the leading oar on developing the idea). I’d point out that Warren Mosler also picked up on the economic ramifications very early. But I trust that every reader here with an interest in economics has already read his book The Seven Deadly Innocent Frauds (you can download for free from his site if you haven’t), so that should come as no surprise.
http://moslereconomics.com/2011/01/20/joe-firestone-post-on-sidestepping-the-debt-ceiling-issue-with-coin-seigniorage/
Of course, there is historical precedence for using coinage to pay the national debt, the Legal Tender Act of 1862 authorized the issuance of fiat currency, US Notes or “Greenbacks” (the predecessor of today’s Federal Reserve Notes) required that Tsy pay debt service only with US Mint-issued coins. Of course Nixon freeing us from the gold standard changed everything, but if our politicians understood that, we wouldn’t have a debt ceiling now would we?
And finally, I should note, that once the debt ceiling compromise was agreed to on 08/02/11, the sudden explosion of posts on platinum coin seigniorage quickly faded away, as I predicted it would then. I’ve blogged a lot about it, since, trying to develop the political context further and to make people aware of the policy variations available in the platinum coin seigniorage toolbox. But bloggers doing posts on it were few until just this past week.
Now people are starting to see that there may be a fiscal cliff settlement and immediately afterward a new debt ceiling crisis for us to cope with. So, suddenly the mainstream has taken up where it left off with platinum coin seigniorage in early August 2011. It’s again in a frenzy about it, and it’s again making errors in its analysis of it and in the information it’s spreading about the history of the platinum coin seigniorage idea.
In future posts of mine, I’ll look at the new wave of blog posts and discuss the issues they raise. But for now I want to correct one immediate thing. Joe Wiesenthal, Brad Plumer, and John Carney have been saying that the platinum coin seigniorage idea originates with Cullen Roche’s blog post of 07/07/11 cited earlier with a commenter on that post. Plumer even says:
*Update: Cullen Roche appears to have been one of the first people to discuss the platinum coin idea in 2011 ― it came from one of his readers. See also here.
If Plumer had read the first of his references with the accompanying comment thread, he would have found a host of links to earlier work on PCS. And if he had read the 07/17/11 post of mine he references (also linked to in the review above), he would have found that the first statement of the PCS idea by beowulf, Cullen Roche’s commenter, was on November 4, 2010, more than 8 months before Cullen’s own post. As it turns out even this date is too late, since Cullen, himself, (h/t to Cullen Roche, 01/05/13) discovered an even earlier occurrence at Brad Delong’s blog in another comment of beowulf’s, a full 12 months earlier than Cullen’s first post on PCS.
Also the first full blog post on PCS, as you can see from both Plumer’s reference and the account above is on January 3, 2011. And after that, there are numerous blog posts on the subject before Cullen’s post on 07/07/11. So, I think that Wiesenthal, Plumer, and Carney, all got it wrong. Probably because they relied on each other, rather than on reading their own links, or on using “the google.”
(Cross-posted from New Economic Perspectives.)
Photo in the public domain.
32 Comments
Had to recommend this for future reference — for me anyway
Thanks for the resources LGID
Recommended.
Crank up the platinum Wurlitzer again. See if it can become enough of conventional wisdom to allow President Obama to consider it. (Likely the nitwits who have to be convinced are Bernanke and Geithner. See the immediate political difficulty.)
Rec’d. Thanks for setting the record straight.
Note that Chris Hayes discussed PPCS when he hosted The Rachel Maddow Show on Wednesday (or Perhaps Tuesday) evening.
The counter arugment that I’m reading these days is that because 31USC5112(k) was clearly meant for numismatic purposes only, e.g., to enable the issuance of commemorative coins. Any other attempted use of it would surely create a constitutional crisis that would wind up in the Supreme Court.
However, the occasional commenter, clonalantibody, has some counter-counter arugments. He cited some stuff from one of Ellen Brown’s books and conversations at the time that the law was passed indicating that the drafters were aware of the possibility of paying the nations debts via coin seigniorage.
PPCS was covered yesterday at HuffPo by Harry Bradford, but ended on a pessimistic note:
Also yesterday Matt Yglesias wrote:
I really don’t understand the peurile giggles at the notion that the Secretary can direct the Fed to credit the Treasury’s account. Does it really make that much difference whether the directive is printed on paper or inscribed on a piece of metal?
It sure looks like the T-bill market makers on Wall Street have communicated that they would get heartburn over this.
I remember the panic on Wall Street when Al Gore’s platform was to cut the national debt in half in ten years on the way to eliminating it entirely. Alan Greenspan about had a duck.
When it comes to covering a tax deficit, there is probably some economically optimum mix of borrowed money and freshly issued money. It may be the case that it is important that there be a secure, government-backed investment vehicle for U.S. citizens and/or foreign holders of U.S. dollars. I don’t claim to know what that mix would be, but there’s no a priori reason to assume that it must involve 99% borrowed money, which is the status quo — we currently cover 1% of the deficit via coin seigniorage.
If nothing else PCS is a useful thought experiment that forces one to look at received conventional monetary thinking in a new light and question assumptions that were assumed as being givens.
And then there’s this from Kevin Drum at Mother Jones:
So the intent of the platinum coin law was to compete with the Franklin Mint for collectables? Interesting that.
My sense is that for Obama the politics is going to weigh heavier than the economics, monetary or fiscal. Making the public and Congress face up to the bullshit rhetoric about deficits that has gridlocked Congress. And insistent that Congress actually do its job instead of playing the President as a foil. Or some other political strategy. At any rate, the signals from the White House are that he will not dodge the hard decisions. And if Congress causes pain for the public, he will obey the law and cut spending. People are angry with Congress, but they are not yet angry at their own Member of Congress. That anger will be evidence of public awakening.
I’m sticking to my “check back with me after the budget comes out” position on predicting anything that is likely to happen. If what I say looks like a prediction, it isn’t; it’s a thought experiment on the dynamics and logic at play. The next three months domestically (and increasingly it seems internationally) are pretty much unpredictable.
I’ve always had a vicerally negative reaction to arguments that go: “You can’t use X for Y because X wasn’t intended for that purpose.” Did the Constitutional Convention intend that the First Amendment would protect our right view pornography on our iPhones? Of course not. But it has worked pretty well for that purpose.
The PTB; the politicians in Washington, and their bosses on W$ have us tied in knots with their finely crafted stand-off.
They seem to find the stand-off as a sort of perfect tool with which to provide cover for the execution of their ‘real’ agenda, which is handing the MOTU everything they want.
Having already stolen everything that wasn’t nailed-down, they are now intent on stealing the rest, which is to say, ‘all of it’.
PCS represents a way for us to evaporate the stand-off, which, it must be obvious, they won’t stand idly by and allow to happen.
What we’re discussing here is tactical ways to save what we’ve been calling the ‘real economy’, from those who seem bent on destroying it for their own profit.
The problem as I see it, is that they’ve already demonstrated that they will do anything to destroy our resistance, up to and including the use of force, so how can we realistically expect that they will allow us to develop and sell a tactic that destroys their carefully crafted super-weapon?
The Washington stand-off is their super weapon, and they’ve built it at great cost, and decades of effort.
How can we expect to side-step the vicious bastards who would clearly rather kill us all than give up their super weapon, and their intended victory?
Seems obvious to me that rather than allow us to outflank them, they’d fly planes into tall buildings, and bomb whole countries into oblivion.
Exactly. More specifically, it forces us to face the fact that we have a fiat currency. The policy of covering 99% of our tax deficit with borrowed money is a hold-over from the days of the gold standard, when issuing fiat currency would have diluted the gold to currency ratio. Today, the dollar is simply a transferable tax credit that has value because U.S. taxes must be paid in dollar. And, while we couldn’t always raise more gold, we can raise taxes.
The U.S. MOTUs have competitors all over the world who would gladly replace them. Much of their power lies in the fact that the U.S. dollar is the world’s reserve currency, and IMHO they’ll be cautious about fucking with that.
First off, you’re not a MOTU if you have competition, and second, have you any evidence that they show any, even the smallest bit of caution in their behavior?
this works,because we now live in said BR
letsgitdone,
Recommended! And thanks for the history lesson.
I am both pessimistic and optimistic for this coinage, regardless of what the legal eagles have to say.
First and foremost, the Great European Migration is coming to a close, and which means that Native Americans and Chicanos from the Sonoran Desert will have to step-up and provide the leadership cabal for the years ahead, given the current demographic trends.
Thusly, and with a tad of context, 13 years ago, I accepted the invitation to write a column for the Chicano Veterans Group focused on business and politics. As such, back in the early 2000′s and with the Bush Era for Gross Incompetence, we, the military vets here in the Sonoran Desert took pencil-to-paper and quickly concluded that our national debt in about the year 2040, our debt would range between $28 trillion to $32 trillion, and which would make America virtually ungovernable.
And for starters, we took the decision that we would advocate for sending the Marines into the offshore banking havens in order to “repatriate” the wealth and done under the aegis of Lincoln’s Inaugural Address that “capital pertains to labor.” And getting any well-known economist to conduct an assessemtn of a national debet of #28-$32 trillion, to determine the viabililty of today’s democracy and where today’s democracy has to morph into a prevalent “Consensus” Democracy, will not be addressed by any less than stellar economist, will continue to remain the status quo.
Therefore, 28 coins will have to crafted and lodged at the Federal Reserve, and with the first annual increment (of $500 billon in federal revenue) of 56 annual increments will have to be paid to the Fedeeral Reserve just to “buy down” our national debt, will take place, especially, from the standpoint of us, America’s “racially and ethnics.”
And that’s our future as we see it, as this status quo continues to reign among our business and political elites.
Jaango
Every nickle they spend on lobbying, campaign contributions, digging up dirt on opponents (e.g., Elliot Spitzer) are caution measures. We can outvote them unless they take great care to keep us disempowered.
You’re always welcome, John
The President really doesn’t have to convince them. They don’t have to agree. he may feel he needs their agreement. But he doesn’t. He’s the President. If Geithner doesn’t like it, then he can resign. If Bernanke doesn’t like it; it’s too bad, he still has to credit the coin.
Hi wigwam, here’s the way I see the situation. There’s a law that states that the Mint can specify whatever denomination on those coins it chooses. Then the President decides he wants a $60 T coin, and he has the Mint deposit it at the Fed. At that point the Fed Chair objects or he doesn’t. If he does, the Fed law says that in case of disagreement between the Chairperson and the Secretary that the Secretary’s opinion will be controlling. The Secretary will do what the President wants he or she to do or they must resign. So the President eventually gets his way with the Fed Chairperson. Then the coin is credited, and the President pays off $6.7 T of debt in the first week. Who has standing to object to that at this point. No one but the Congress.
Previous cases in relation to the Congress having standing suggest that both Houses must agree to any suit or they don’t get standing. Individual Congressmen are not enough. Clearly the Senate won’t go along, so it stops right there.
Then let’s say the President starts to pay off outstanding debt to the non-government sector in the second week. Who can object? Will it be the recipients of the repayment? What beef do they have? They’re getting repaid. Who else’s business is it?
Then the Treasury goes on repaying debt. Again who can object? On what grounds that they have suffered damage? Answer, no one.
Then the President starts using the seigniorage money to do deficit spending. Again, who has standing to sue? Only the Congress, as far as I can see. But, again, the effort has to get a majority of both Houses against the President to authorize the suit. Sorry, no way that’s going to happen right now.
But let’s say that by some miracle, someone sues who has standing in the Court’s eyes, and that person tries to sue and it comes before the Court. In what world is the Court going to say that a President who by the time it reaches the Court will have repaid most of the national debt and stopped any issuance of further debt, acted illegally, because the Court majority in its infinite wisdom has divined that, in conflict with the plain language of the Law, the Congress never intended to allow the Executive Branch to Mint high face value Platinum coins. Please . . . I think the Court majority would risk being lynched if they did that, especially since there’s no plausible way to determine that their interpretation was correct.
But the real key to this is the question: why would the Court take this up? Whatever the intent of Congress in passing that Law, if Congress doesn’t like it now it can fix it, and the Court would see it that way. So, why should the Court get between the Executive and the legislative branch on this issue if the Congress can change this law any time it wants to?
Me neither. Maybe they were chuckling because they know very well the President can trump the Rs this way!
At least they now know about PPCS, whether or not they they think its silly.
Maybe Greenspan was having a duck because he knew that the way Gore wanted to do it would have crashed the economy.
I wonder. Why assume that at all. Few working citizens can afford that vehicle, and wouldn’t it be better if the wealthier ones had to place the money in real investments with some risk; rather than welfare payment vehicles? And as for foreign nations; why should we offer them savings accounts at all. Do we need their US money? Not really.
Neither Drum nor I are Lawyers. But I do know that Courts don’t intervene without a litigant. That litigant must have standing and must be able to show that would be damaged if the US paid its debts with the seigniorage money.
They will probably seem very predictable, after the fact.
Did the Congress intend that the 14th Amendment would be applied to benefit corporate artificial persons. Somehow, I don’t think so. That was an invention of the Court itself.
C’mon, be realistic. If the President mints the big coin and starts paying down the debts what will they do? Take up arms and storm the White House? Somehow I doubt that. Their private armies are still too small.
Actually, no. Their private armies are about equal in number to the regular army.
I don’t know if they’ll shoot at us when ordered, but they’ve been known to shoot at Iraqis and Afghanis for fun.
Actually, they don’t need violence to defend their political impasse illusion, they just need to keep doing what they’ve been doing, which is to make fun of anyone who questions the reality of the ‘fiscal cliff’.
Those private armies are over there; not here!
I still don’t think you’re getting it. If he mints a very big coin; then the “fiscal cliff” will have little meaning; because once that firs $6.7 T of debt is paid down with the coin; they’ve got no rationale anymore.
We’ll have to wait and see who is ‘getting it‘ ;
I say ‘they’, the MOTU will be successful in preventing the minting of the very big coin for the very reasons you illuminate.
That’s a pretty big ‘if’ there my friend.