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Introduction
A round up of blog posts about Platinum Coin Seigniorage
MSM bloggers and cable hosts weren’t alone in creating the new wave of posts and video segments on Platinum Coin Seigniorage (PCS) at the beginning of December. The blogosphere also produced brief posts from a number of bloggers, as well as a few more substantial ones. I’ll review the brief ones in this post, and the more substantial ones in future posts, but won’t include my own recent posts on PCS during December.
Reviewing the Posts
First off the mark on December 3, was David Dayen at FireDogLake who mentioned the “trillion dollar coin” as something thee President could do to strengthen his hand in dealing with the Republicans. His mentioned was quickly followed by Atrios, later in the morning, who wrote a very short post saying:
I really don’t know why the administration doesn’t take the “mint the trillion dollar platinum coin” option seriously. It is, as far as I can tell, perfectly legal.
This triggered a post by Michael Sankowski at Monetary Realism announcing that the “Trillion Dollar Coin Goes Mainstream” which says that if Atrios knows about the coin that everyone on “the smart left” knows about it!
Mike Sankowski then blogged again on December 6, wondering out loud where Zerohedge’s rant on the Trillion Dollar Coin (TDC) was? In that one Mike refers to the mainstream blogs by Yglesias, Drum, and Carney all on the TDC and then makes fun of Zerohedge for not picking up on the subject.
Cullen Roche at Pragmatic Capitalism, then blogged on the TDC on December 7, in a piece called “Platinum Coin Easing,” which draws its title from some views of JKH’s I’ll be reviewing in a future post. Cullen railed against the debt ceiling conflict calling it “stupid,” and also says that while PCS may look “Zimbabwean” it does solve the debt ceiling problem. Cullen points to JKH’s post and says:
“The coin would replace some of the bonds that the Fed currently holds solving three issues:
1) A non-inflationary way for the US Government to spend.
2) It circumvents the debt ceiling by effectively reducing the debt balance by $1T.
3) It’s a completely legal workaround.”
Donald McClarey at The American Catholic blog also posted on December 7, on “Of Trillion Dollar Coins and Fiscal Lunacy.” calls it a lunatic nostrum, quotes the WaPo article by Plumer, and refers to the “wacked out left.” That’s right, he offers no reasoning at all. Just name-calling and this:
“The country is in debt sixteen trillion dollars. By the time Obama finally leaves office we will probably be at least 20 trillion in debt. Of course this does not take into account dozens of trillions of debt in entitlement obligations coming due over the next few decades. We are rapidly reaching the point where it is mathematically impossible to ever pay off this debt without currency depreciation and/or hyper inflation. This scheme is basically currency depreciation as the US currency swells by two trillion dollars in a year’s time. If attempted I think it would lead ultimately to hyperinflation. The left are not all loons. Something like this will eventually be done by people who realize it is economic poison, but who are willing to do it anyway to get out of dealing with an unpayable debt. The impact on our economy would be likely catastrophic.“
Of course, McClarey, was in too much of a hurry ranting against the coin to notice that the first nearly $6.5 trillion of debt paid off using PCS couldn’t cause currency depreciation because it would not enter the economy at all, since it would be used to pay interagency debt and Fed-held debt. Nor does any other seigniorage spending need to be happen except when debt instruments fall due, and Congress appropriates deficit spending. So, to back his hyperinflation currency depreciation rant, McClarey has to show that PCS-based spending would be more inflationary than normal spending after debt issuance, along with normal scheduled repayment of debt. Of course, he does not, and, I think, cannot show this.
Next, brief mention needs to be made of a post at “Twitchy – Tweet on the Platinum coin.” This post also happened on December 7. The tweets are entertaining but contribute little, if anything to the debate. On the other hand, they do make more sense than McClarey’s post on PCS.
On December 8, James Hamilton at Econobrowser offered a post objecting to using the coin “from an institutional perspective:”
It basically amounts to the assertion that the Treasury Secretary has the unilateral power at any time to monetize completely the entire U.S. debt. The Treasury could issue a dozen or so of these coins and then pay off the Treasury’s debtors at maturity just by writing a check written on its resulting ginormous account with the Fed. The creation of this power is I suspect something that Joe and every other sensible economist would view with abhorrence.
It’s good that Hamilton sees the implications of the coin so clearly, but he fails to explain why Joe Gagnon of the Peterson Institute, and “sensible” economists would object so strongly to the Treasury being able to fill the public purse so that the debt could be paid off without throwing the economy into a decade of recession, depression, or stagnation due to running continuous surpluses to “fix the debt.” If there are any economists who prefer this way of “fixing the debt” to PCS, then I think the proper label for them is “insane” rather than “sensible.”
Hamilton goes on:
The plan requires the Fed and courts to play along. The Fed would need to agree to credit the Treasury’s account for the deposit of the coins. I doubt the Fed would voluntarily hand over complete control of the nation’s money supply to the Treasury in this manner. And the courts would be asked to confirm that legislation originally intended to satisfy a small group of numismatists in fact ceded authority to the President to monetize the entire outstanding debt of the U.S. Government.
This is, unfortunately, a highly questionable argument. Its first problem is that the Fed would have no choice because 1) the coin is legal tender; and also 2) the law says that in case any power of the Fed appears to conflict with the powers of the Secretary of the Treasury, then the Fed powers shall be subject to the supervision and control of the Secretary. So, the Fed couldn’t even take this Court over the objections of the Secretary. See also beowulf’s more detailed comment.
More generally, any law suit by anyone objecting to the use of the coin, on grounds of the intent of the law, would require the Court to grant standing to the plaintiff. But what would be the grounds for such standing? We already know that for Congress to have standing to sue, it’s not enough to have a member of each House bring a suit to the Supreme Count because during the 1970s two progressives Sen. Phil Hart (D-MI), and Rep. Henry Reuss (D-WI), brought a case to the Supreme Court challenging the Constitutionality of the Fed, and were denied standing by the Supreme Court. So, both Houses would have to agree on an action. That won’t happen.
So, both Congress and the Fed are out as plaintiffs, and anyone else would have to show that they were damaged by the use of PCS to acquire standing. No holders of intra-governmental debt could show that, or would be allowed by the President to pursue such a case. And no non-government holders could claim they were damaged by the Treasury’s payoff of the debt they hold on schedule. So, again, who would have standing?
The next brief posts appeared on December 10. Louis Golino at CoinWeek posted on “Trillion Dollar Coins?” Golino follows the main line of mainstream bloggers saying that PCS is legal, but other alternatives would be tried first including the 14th Amendment and shutting down the Government gradually.
However, I’ve never thought that this is a sensible opening position, even though it’s not an unusual one. First, because I don’t think a 14th Amendment challenge to the debt ceiling law is viable as long as other alternatives exist for spending appropriations mandated by Congress, and one of these is Platinum Coin Seigniorage. And second, shutting down the Government without using an alternative that would avoid such a shutdown by allowing the President to spend Congressional Appropriations would leave him in violation of his oath of office, and potentially open to an impeachment action in the House.
Golino, and others, seem to think that all the options open to the President in a debt ceiling crisis are on all fours, so to to speak, and that he is free to select whichever option makes the most sense to him politically. But legally, if he can continue to spend Congressional appropriations without violating both the debt ceiling, and his obligations under the 14th amendment, then he’s legally obligated to use an option that allows him to do that. PCS is the best of those options.
Jim McCraigh, of Precious Metals Digest, in “Trillion Dollar Platinum Coins and Other Dumb Ideas” is another blogger who worries about Zimbabwe and hyperinflation. He thinks the idea would be laughable if the “illiterate”people advancing it weren’t “held out as so-called experts.”
… simply failing to understand one of the most basic economic truths… that a critical attribute of real money is as a store of value that remains stable over time. These ersatz coins would not be real money, but a super-sized fiat monetary fiasco sure to lead to political and financial chaos. Our national debt must be paid back the old fashioned way… by earning it through the creation of real wealth and not through the creation of more funny money.”
Unfortunately, for McCraigh, he has yet to adjust to the fact, that all our money these days, is fiat money, and that we can only pay back the national debt by using fiat money because it’s the only kind, just as he must pay taxes using that same fiat money. The creation of real wealth is important and necessary for keeping the economy strong and for ensuring price stability; but our national debt can’t be repaid with real wealth. It can be only be paid using fiat money. And from the viewpoint of its being paid when it falls due; it doesn’t matter whether it’s paid by fiat money acquired through taxing, borrowing, or seigniorage.
Dorothy Kosich at Mineweb also wrote a post on December 10: “Can trillion dollar platinum coins solve the US Debt Ceiling Problem?” This one was a “he said, she said” post linking to and citing Chris Krueger, myself, Jack Balkin, Pethokoukis of AEI, Joe Gagnon of Peterson Institute, Brad Plumer, and John Carney. It offers no new interpretations, but just the author’s selection of the most important points from previous authors without using specific links to the posts or other documents cited.
In December 11, The MomCat at docudharma offered “The Debt Ceiling Myth and the Platinum Coin.” She reviews PCS and what it does with a focus on some posts of mine. She mentions my $60 T coin post and the distinction between the contents of the public purse and the purse strings. She also notes the difficulty of impeaching the President if he uses PCS, and quotes Jack Balkin on the possible use of the14th amendment and the likelihood of a conviction of the President in case of impeachment.
The platinum coin made The Daily Beast on December 11, with a post by Matthew Zeitlin called: “How a Platinum Coin Could Solve the Debt-ceiling Problem!” Zeitlin reviews the usual background on the TDC and then asks whether “. . . isn’t this what banana republics do, print money to fund the government when they can’t collect enough in taxes or sell their debt at a reasonable rate?”
And he answers the question yes, but also thinks it only becomes a problem when “printing money” is used regularly to cover the gap between tax revenues and spending. And he ends by saying that the platinum coin option really shows how odd the debt ceiling legislation is in applying a constraint to the Government spending on what has already been approved, and on interest payments it is already obligated to pay. He says that’s a legal limit on spending and not an economic one, and that that is “the real joke,” rather than the platinum coin itself. In short, Zeitlin says nothing very different from other commentators and contributes very little to the earlier MSM discussion.
After December 11, brief replies to the PCS MSM posts seem to quiet down somewhat. But on December 17, two more appeared. One was by Fred E. Foldvary at Foldvary calls the TDC a joke, and says it would be inflationary; but he fails to specify any kind of causal mechanism for showing that this would be the case. Instead, he basically repeats the increasing the money supply leads to money inflation which leads to real inflation, Quantity Theory of Money (QTM) meme. In doing this, he ignores discussions about why QTM isn’t applicable to economies like ours experiencing output gaps. He also ignores specific posts analyzing the relationship of PCS to inflation which focus on types of PCS spending, and show that these would not be any more inflationary than spending accompanied by sale of debt instruments.
A second brief reply to the MSM new wave on December 17 is from John Slater at Seeking Alpha and is called: “Balanced Budgets, Seigniorage And The Strange Case Of The Trillion Dollar Coin.”
“It appears that there is serious discussion afoot aimed at pressuring President Obama to engineer a transfer of power to the federal executive branch comparable in scope to the historical shifts engineered by Lincoln and Franklin Roosevelt during previous times of great crisis in America. This topic has gotten little coverage to date in the serious economic and political press.
“Don’t doubt for a minute that we will begin to see such suggestions in spades should the Republicans stand firm when the debt ceiling issue again comes to the fore in early 2013. There will be tremendous pressure to give the President unfettered authority to spend all budgeted funds. Since the Congress seems incapable of adopting a budget, does this mean that all de facto spending authority will soon be transferred to the executive branch? The implications for the debt (TNX), foreign exchange (DXY) and equity markets (SPX) of such a transfer of power are more significant than any single factor currently driving the markets.”
I find Slater’s reasoning here, a bit slippery. Congress may be avoiding doing formal budgets, but it’s still appropriating money for deficit spending under continuing resolutions. So, Congress still has the purse strings in its hands, and the President won’t be able to deficit spend any seigniorage profits without Congressional approval, which it can refuse to give whenever a CR comes up. In addition, of course, it could decide to do its job and arrive at a budget. Insofar, as PCS facilitates that, which it would if a $60 T coin showing that the US isn’t running out of money were minted, then this is an advantage and not a disadvantage of that PCS option.
Conclusion
The brief posts on PCS don’t add very much to the picture, Many of them just reflect stereotypical fears about inflation. Others review previous literature just spreading the news as it were. Still others attack the idea as silly, pretty much based on a psychological reaction rather than on any reasoned critique of the PCS idea.
The best understanding of the idea is in Cullen Roche’s post. The best review of PCS posts is probably MomCat’s. The posts by Hamilton and Slater bring forth legitimate institutional concerns. But to take Hamilton’s seriously; you have to be supportive of the Fed’s independence, which some, like myself, do not support because we view that “independence” as, in practice, subordination to Wall Street. Slater’s post, voices the different concern that more de facto power still, will be shifted over to the presidency and away from Congress by PCS.
About that, I can only say that PCS gives to the presidency the power to prevent an abuse of power by the Congress, namely the debt ceiling legislation itself, and also gives the President the power to avoid interest bearing debt instrument-based financing of Congressional deficit spending appropriations if he/she desires. I think both of these are very good things, especially since the key power of controlling the purse strings still remains with the Congress, and not with the President. It seems to me that any greater leverage that falls to the President as a result of using PCS is leverage that can always seized back by Congress anytime it wants to do its collective job and represent the majority of the American people. On the other hand, if it wants to continue to represent narrow and plutocratic interests seeking to block any Federal spending that doesn’t directly benefit them, then PCS profits may be viewed as a check on such an abuse of power by the Congress, and a reminder to Congress that the “how are we gonna pay for it” excuse for not legislating Federal programs people desperately need won’t work anymore!
Cross-posted from New Economic Perspectives.
Photo by jessebezz released under a Creative Commons No Derivatives license.
38 Comments
letsgetitdone,
Early this morning, I posted a diary and titled, “FDL’s Best of the Best for 2012″ and as of just now, no one has posted their ‘best’ for this year.
And if you take a gander, my “best” speaks to this trillion dollar ‘opportunity’ and which moves America into a solely defict-financing model for many years to come.
And I should add the following for your consideration:
Over at the Washington Post and in their Second Annual Wonk Awards, the ‘superficial’ Progressive, Ezra Klein and his WonkBlog buds, have designated that the subject of “platinum coins” falls into the amusing category for public policy, and which demonstrates that Klein is indeed shortsighted and narrow-minded for the issues that pertain and concern America’s “racial and ethnics.” Consequently, Klein and his buds at the Washington Post are, at worst, inept in their self-perceived punditry and wonkitude.
And this self-serving polemic for these two paragraphs of mine is reinforced when Klein and buds, designate Grover Norquist as both a pundit and a wonk. To wit, America’s Standard for Nonsense, as defined by Klein and his buds, has increased to the aberrant level of Bovine Superficiality/Excrement.
Jaango
Dude, this issue don’t fly at FDL. I’m not sure it flies anywhere other than the few places you go that none of us go.
It’s not real, it’s not a real issue, it’s not an issue, it’s not ever gonna be an issue . . .
But like the beloved Norweigan Blue (Lovely Plumage, don’t you think) in the Monty Python sketch, you keep trying to sell it.
It’s dead. It’s an ex issue, that never was.
One does not even have to nail it to a perch for it to stand, there IS no perch.
Why, Let’s, why?
Oh shit, now I’ve dissed you . . . but dude, hoss, Jaango, it’s a non issue!
It’s less than fantasy, why would a scholarly gent of the the worlds matters like you befuddle themself with this fantasy?
I don’t get it . . . but sorry if I dissed ya. ;-)
The concerns about PCS constituting a shift in power from the legislative branch to the executive branch are founded on a couple of misunderstandings.
The first is the meaning of the word “appropriation.” A congressional appropriation declares a certain expenditure to be “appropriate,” thereby granting needed permission to withdraw a certain amount of money from the Treasury for a particular purpose. No money can be withdrawn, otherwise.
But, an appropriation does not issue money to cover the appropriated expenditure. Article 1 Section 8 gives Congress three powers to raise funds to raise such funds: taxation [Clause 1], borrowing [Clause 2], and minting of coins [Clause 5]. Congress has subsequently delegated various aspects of each of these to the Treasury. Specifically, 31USC5112(k) delegates to the Secretary of Treasury the power to mint platinum coins of arbitrarily large denominations, which are “legal tender” and can therefore be deposited into the Treasury’s general account at the Fed. But, and this is critical, none of that money can be withdrawn except for congressionally appropriated expenditures.
Specifically, the Treasury cannot monetize the national debt except insofar as such expenditures are appropriated by Congress.
It should also be noted that, for the past 220 years, the Treasury has been paying a portion of each years expenditures via the markup (seigniorage) on the minting of coins. Abraham Lincoln went even further and paid for the civil war with printed money (“Greenbacks”).
Thanks, Rec’d, and: Happy New Year.
Thanks, jaango, Your comments were very well-taken. As for my best of 2012, I don’t know if I could choose one. I might be able to select my top ten. -:)-:)-:)
Well, you see, Larue; I’m a stubborn cuss. When I decide to support a creative idea that would lead to transforming this nation, and perhaps the world, then I’m all in. I really don’t care much whether others don’t think it’s an issue or not! If they don’t then they can just pass my diaries by.
Meanwhile, when I started blogging about this there was only Beowulf and I behind it. It was January 2011. Now it’s nearly January 2013. A lot of the MMT people are now behind or at respect it. It gets featured at New Economic Perspectives and Monetary Realism frequently. It’s gotten to Naked Capitalism. It’s very important at Correntewire. It’s gotten a lot of notice at DailyKos and quite a bit of approval. It’s known, at least, at ourfuture.org, and it’s made many mainstream blogs as my previous posts have shown. It’s even gotten to CNN and MSNBC, and according to Bruce Bartlett, even to the White House. Here at FDL, it’s gotten David Dayen’s attention and wigwam has done great work in joining me in pushing and analyzing the idea.
The debt ceiling nonsense is coming up again Larue. And the Rs will hold the nation hostage once again and demand the weakening of SS, Medicare, and Medicaid using the national debt as the excuse. The President has said he won’t negotiate. Well, if he does, then he’s going to have to hurt a lot of people to get the Rs to allow the Government to go back into business,
If he doesn’t, then he has only so many alternatives. One is to let the Government shut down to force the Rs to capitulate. That may work; but in the process, again, a lot of people will be hurt.
So, it would be best if he can both avoid negotiating, and also find a way to avoid shutting down the government. There are really only two clearly legal ways.
One is to use PCS; the other is to use consols. PCS is the best way, because then the debt ceiling is off the table, the national debt will be repaid in due course, and the Government won’t be committed to paying interest forever on debt instruments (consols) whose principals never have to be repaid.
In short, how the President decides to respond to the debt ceiling crisis is a big issue because he can either hurt people, or select an alternative that will be really good for the United States. So, I think which alternative he selects is a really big issue. The biggest issue of his presidency so far.
If you don’t agree, then you don’t need to read my posts. Kapish?
Great comment, wigwam!
Thank you, wigwam! Happy New year to you and to everyone
Happy New Year lets, platinum coins for all!
One further point. The president has an obligation to pay the Nation’s bills, if that is legally possible, and Congress has the right to tell him that he can’t borrow any more money. And, it is not within the president’s discretion to refuse to pay the Nation’s bills simply because he believes that the means legally available are not economically sound. He’s obliged to pay them and, if Congress removed the only sound means of paying the bills, the voters should remove this congress.
As I pointed out at #4, the Constitution gives the government three sources of revenue: taxes (including fines, tariffs, etc.), borrowing, and the coining of money. If the president has run out of tax money and Congress has denied access to further borrowing, then by process of elimination, he must coin money to pay the nation’s debts. And, there’s nothing weird about that; we been doing it ever since the Mint was established in 1792. The only difference here would be the scale of the amount would be about 100 times larger than in 2011.
I know you know that Bill Black has been edging toward PCS lately. He mentions it in this TRNN interview with Paul Jay. I’d posted this video along with the Robert Pollin interview about the Fed ‘targeting unemployment‘ by…giving the banks more money. ;o) I linked to the discussion over it at Yve’s house.
It had so few comments I took it down to make room on the list for other posts.
Hi Wendy,
Thanks for reposting that link to the Bill Black interview. I didn’t have time to watch it when you first posted it but watched it just now. Bill Black is amazingly good. He posted three articles on austerity and the fiscal cliff at NEP last week, and they were three of the best article I’ve read in many weeks.
I do have some quibbles with the way he characterizes the president’s “three options for defusing the dept limit”:
(1) He calls the 14th Amendment option the “cleanest.”
(2) He calls PCS “weird.”
(3) He calls “simply changing numbers in a computer” acceptable.
IMHO, (1) would cause a constitutional crisis, since the Constitution deliberately puts money matters into the hands of Congress. Also, (3) would be illegal unless authorized by Congress. The beauty of (2) is that Congress has already given its approval, 31USC5112(k).
Thanks, again.
I watched the interview.
While Bill say that PCS was weird, he also said it would work. I don’t think that his use of the word weird was meant to be a criticism, just that it was an idea that people aren’t used to thinking about.
He also opined that some people would think that (3) was weird because they were unaware that we’ve been doing it for years.
Regarding (3), the way we’ve been doing “it” for years is very restricted and would be illegal for present purposes. The problem is to get money into the Treasury’s General Account (TGA) at the Fed, which is the account from which the Nation’s bills are ultimately paid. But various laws prevent the Fed from loaning money directly to the Treasury, e.g., crediting the TGA without receiving a compensating asset. Moreover, the Fed can buy treasuries only on the open market. So, what has been going on is that the Fed does loan money to the Treasury but only indirectly, i.e., by buying up Treasury bonds on the open market — it’s called “quantitative easing.” And, the Fed now owns about $2T of the Nation’s $16T debt. In essence, the Fed has paid off $2T of the Nation’s debt, but those T-bonds held by the Fed still count at part of the national debt, i.e., they count toward the debt limit.
So, although we have been doing this for years, the debt limit would make further use of this trick illegal.
FWIW, there is a fourth way around the debt limit that LGID and Beowulf have been mentioning, i.e., the selling of perpetuities (a.k.a., consuls), which are simply bonds that never mature. Because they never come due, selling a perpetuity is technically not borrowing and therefore not covered by the debt limit. But, of course, they do create a perpetual drain on the Treasury, which would not be popular with people of some economic persuasions. ;-)
OMGoodness, more nonsense from the Kansas City Crew.
OMGoodness. And where did Wandy Wray’s money come from? I guess it was time to play Robbin Good after his killing.
Their fraud just never ends.
Happy New Year, Elliot!
Nice presentation, wigwam!
Yes, Wendy, Bill has surprised me in moving toward it! I had no idea he was doing so until I saw that interview and a recent blog of his in which he mentions it.
I suspect he asked Randy whether it would work, and Randy confirmed that it would. I don’t think it’s the favorite move of all MMTers. But I think they generally recognize as a valid, legal way to go that need not be inflationary. Among younger MMters in some of the closed MMT Facebook Groups, the coin is considered to be pretty cool, I think.
Btw, when I answered Larue above about the status of MMT at FDL, I forgot to mention your increasing interest in the MMT approach. Sorry for the oversight!
yes, I think Bill may be following Jack Balkin in his assessment of the choices and preference for the 14th. My personal view and I think your too is that the existence of PCS weird or not means that the President has an obligation to try that before he violates the det ceiling on 14th amendment grounds.
It wouldn’t be popular with me, not because we couldn’t afford it. Of course we can. But if we do that, then we’ll be paying interest to the nations and rich entities that buy the consols in perpetuity at a fixed interest rate. From my point of view that’s paying those entities a guaranteed stock dividend on a riskless basis. I’m against welfare for the rich!
Ludwig, What the hell are you talking about?
I couldn’t agree more.
But, after I posted that, I got to wondering if the Fed could, on a technicality, buy perpetuities directly from the Treasury. Hmmmmm.
The interest would go directly to the Fed and return to the Treasury as profit of the Fed. Hmmmm.
In the words of W.C. Fields: “Looking for loopholes.”
‘Sorry for the oversight!’ LOL! I ain’t much of a ‘get’, my friend, being pretty ignorant after how long now? ;o)
I confess I can get a little bit more out of wigwam’s explanation, more of a ‘peoples’ language’, I guess. There are just so many bloody things to learn and read, and so many hours in a day.
You’ve probably read these two pieces of Michael Hudson’s; even Mr. wd liked them. ;o)
Yeah, it’s good to hit home with people unfamiliar with the technical mechanics of government monetary policy the options that are available.
But, Obama has been in office for four years now and has never even submitted a balanced budget, so the whole notion that deficits even matter is the real problem.
Clearly when DC politicians want to pay for something, like extending the Bush tax cuts or expanding military spending, they’re not worried about pesky little things like debt issuance and coin seigniorage.
However, I do get a little concerned when we start throwing in discussions about inflation. Siegniorage is one of the core methods of inflation (i.e., expanding the money supply). That’s why we would mint $1 trillion platinum coins – so the government can spend 1,000,000,000,000 dollars reserved with the Fed.
I think you’re making a key mistake here, though. The problem is not Republicans. If it were, the solution would be finding clever technical ways around the obstacles they attempt to place in the way.
Rather, the problem is the Democrats, starting with the President. It’s the President who has done so much to soften up rank and file Democrats and prod members of Congress to accept notions that tax cuts are good, corporate bailouts are good, prosecuting rich people is bad, the budget deficit is a near-term problem, and the Social Security Act is too generous.
Inflation is a matter of the value of the dollar, and the only intrinsic value to the dollar is that U.S. taxes must be paid in dollars. Like anything else, the value of the dollar is a matter of supply and demand. Taxes provide the demand and they also reduce the supply of dollars in circulation in the private sector. The only real way to debase the dollar is to reduce taxes. But, try to explain that to Paul Ryan. ;-)
You can’t have it both ways, though. You can’t simultaneously say:
1. PCS is a valuable tool because it puts more dollar value into circulation, and
2. PCS doesn’t put more dollar value into circulation
I wasn’t trying to make either of those points, but I do agree with #1. PCS puts dollars into the Treasury’s account at the Fed, which is not money in circulation. But, paying the nation’s bills with that money rather than borrowed money has the effect of putting more money in circulation, because borrowing takes money out of circulation and replaces it with Treasury bonds. So insofar as PCS replaces borrowing, it puts more dollars into circulation, which is a good thing, up to a point.
Once we are back to full employment and the slack is out of the economy, they putting more money into circulation will only increase prices. And that point, we need to curtail spending and/or raise taxes. Borrowing doesn’t really help so all that much, because anyone can get their Treasury bonds monetized at a bank, either by selling them or by pawning them.
Or to put it differently, if the value of the existing stock of dollars is unchanged by PCS, then PCS is unnecessary – the spending power is already in the economy through the corporate contract or government employee wage or interest disbursement or SNAP EBT card or whatever. No need to mint a coin!
If PCS is needed, then that by definition, is inflationary. Unless of course you want to get into a semantic definitional game about what it means to increase the money supply or decrease the value of the dollar or whatever.
We can do that, but that travels us awfully far away from any political reality in which PCS matters. What I don’t understand is why people get defensive about a policy that is so obviously inflationary. Letting AIG collapse is deflationary. Bailing out AIG is inflationary. Why is that a stumbling block? Why can’t we evaluate policy based upon whether the benefits outweigh the costs, rather than creating a construct wherein we say inflation as technically defined isn’t an issue?
I guess I’m confused then. You said earlier:
Letsgetitdone has been saying PCS isn’t inflationary. I prefer to caution against going down that road, because actually, spending money is inflationary (particularly at the marginal dollar that is so wasteful over the past few years of war fighting and corporate bailouts).
Are you saying PCS reduces taxation, thus it’s inflationary? I guess that way we could agree to disagree on the mechanism but reach the same conclusion!
P.S., it also points out one of the simple policy options to address wage stagnation – a HUGE tax on the wealthy…
Increase the value of the dollar enough, and $8 an hour is a decent wage :)
Issuing fresh dollars, e.g. spending dollars created by PCS, will increase the money supply and taxation reduces the money supply and increases the demand for dollars — the value of the dollar is a matter of supply and demand. The balance becomes critical and can cause inflation when the slack is gone from the economy, i.e., as we approach full employment. Then, too much supply and too little demand shows up as increased prices. In such a case, growth in the money supply shows up as a growth in the demand for goods and services.
Also, inflation can be triggered by a drop in supply.
It’s a somewhat delicate balancing game, but the last time we really lost control was during the late 70s. The MMT folks insist that that was due to “supply-push” inflation having to do with the OPEC Oil Embargo against the U.S. for helping Israel during the Yom Kippur war of 1973. (I don’t know if I believe that.)
Thanks for continuing the conversation last night. I think we’re taking two different semantic approaches to inflation/deflation – you’re approaching it from the price level while I’m approaching it from the monetary level – but I think it gets us to the same place.
In other words, I would say changes in the currency unit price of an item are caused by either a ‘real world’ event altering the supply and demand of the item being priced (for example, a new technological innovation, or an embargo by a foreign country, or a change of taste by consumers), or by a ‘monetary’ event altering the amount of currency units available to purchase the item (such as a government contract to purchase services, or government backing loans at below market interest rates, or government bailouts of companies that would otherwise go through bankruptcy courts). What I hear you saying is that the change in price itself is the definition of inflation/deflation.
What frustrates me is these kinds of technical discussions distract energy from the main point of political economy on which the neolibs/neocons/whatevers have attempted to distract people for decades now – how the resources are allocated. The currency units are just the accounting method; it doesn’t matter how many zeroes exist on FRNs and bank statements. What matters is who has them (the relative distribution) and, for areas with significant market failures (transit, defense, education, healthcare, etc.), how the government uses the ‘printing press’ to invest in those areas.
Our challenge, I would suggest, is not a technical exploration of finding out how to use the printing press (PCS, debt issuance, taxation, etc.). Rather, the challenge is that a significant cadre of the DC establishment supports a distribution of resources that is highly concentrated in a few hands.
To me the key problem is that the neoliberals are imposing austerity programs on common people worldwide based on fear of debt and deficits, which in turn have been imposed for fear of inflation. Therefore, I think it’s important to agree on what inflation is, where it comes from, and how best to control it.
Per the Wikipedia: “In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.”
One of the theories about where it comes from is “the volume theory of money,” i.e., that prices rise or fall inversely to the amount of money in the system. That has been pretty well refuted in various places, except that it starts to hold when supplies tend to be constrained at the current level for whatever reason and are unable to expand with demand, i.e., when all the slack is gone.
But even so, you get into the question of “what’s money?” Very little of our money is issued by the Treasury: only coins. Much more is issued by the Fed, but even that’s small compared to the amount issued by the commercial banks. And, per this article:
I’m not an economists, but I’ve been trying to understand this stuff. And, I’ve dropped the simple version of the volume-of-money theory of inflation.
Now you know everything I know about it. ;-)
Thanks for the background. Yeah, that’s why I didn’t major in economics…I think some of the concepts like that are pretty dumb, and insulting Basic Stuff doesn’t get you far in the field :)
(Just My Opinion…) I find the whole notion of a ‘general price level’ bizarre. There basically is no such thing – you can’t observe it or measure it or do anything to it that you can in the hard sciences to claim that one persons’s description of it is superior to another person’s description. It changes over time yet it can’t be empirically measured in anything resembling real-time speed. By the time you have decided how to price the value of a Blackberry, the iPhone arrives.
This is why I don’t think it’s fair to poke too much fun at government agencies developing metrics like CPI, because there is no objective truth like ‘the Earth revolves around the sun’. Some people can say that a KC strip is equivalent to herb roasted chicken. Other people can say the strip is more valuable. Others still can say it’s less valuable. No one is wrong, because the principle is trying to price a ‘value’ rather than a specific good. Since value is neither observer-independent nor time-independent, it’s extremely difficult to measure in any independent fashion :)
FWIW, my concept of money is as an idea, a mental construct for associating value, a system of credit. I’m quite flexible as to specific medium of exchange, which is why I think most of the public huffing and puffing about deficits and debt and so forth is for show, not for real. No one in DC actually fears debt; it’s just a tool, like electricity.
PCS is worth the cost of inflation if the return on the investment is greater than the cost. But I think we do ourselves a disservice in that analysis to claim that the cost is zero.
See you around.