You are browsing the archive for Joe Firestone.

Origin and Early History of Platinum Coin Seigniorage In the Blogosphere

12:15 pm in Uncategorized by letsgetitdone

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)

Brad DeLong: ”The President’s Obligation to Take Care That the Laws Be Faithfully Executed Requires Him to Start Minting Large Denomination Platinum Coins” (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.

Would Congress and the President Try to Cut Federal Spending If . . .?

8:40 pm in Uncategorized by letsgetitdone

This one is a message intended for all progressive organizations, especially those who have worked so hard to derail the drive for cuts in Social Security, Medicare, and Medicaid, or are working hard to protect other valuable discretionary programs.

There’s another hostage-taking coming in the next three months over the 2012 Budget legislation. You know it! I know it! Everyone knows it!

So ask yourselves these questions:

1. Would Congress and the President be trying to cut Federal spending if the Treasury General Account (TGA) at the Fed had more than $50 Trillion in it?

2. Would Congress and the President be trying to cut Federal spending if the President has already paid off roughly $50% of the national debt?

3. Would Congress and the President be trying to cut Federal spending if the national debt was scheduled to be almost entirely paid off by September of 2014 and they knew that the Treasury had the money already to make the necessary payments?

4. Would Congress and the President be trying to cut Federal spending if they knew that the US could never become insolvent and never had to borrow back its own dollars?

5. Would Congress and the President be trying to cut Federal spending if they knew that all four of these conditions was true?

So what if I told you that by the time the hostage-taking is likely to happen all of these conditions can provide the background for budget negotiations, and whether they do or not depends on what the President, alone decides to do?

Then shouldn’t it be the highest priority of those who are opposed to austerity and cutting the social safety net to carry out a strong campaign to make the President take the few simple steps needed to create these conditions and head off the hostage-taking?

Here are the steps:

A. Mint a platinum coin with face value of $60 Trillion, deposit it in the U. S. Mint’s Public Enterprise Fund (PEF) Account at the Fed, then have Treasury “sweep” the difference between the cost of minting the coin and its face value into the TGA.

B. Immediately pay off the $6.2 trillion owed by the Federal Government to the Federal Reserve Bank, the various Government Agency Trust funds, among them Social Security and debts to other Government Agencies.

C. Pay off the non-Government sector debt, as it comes due using Proof Platinum Coin Seigniorage (PPCS) revenue when necessary. Since the estimated cost is about $300 Billion paid off per month; we can expect another $1 Trillion to be paid off by the end of the year leaving a national debt of about $7.1 Trillion, with a bit less than $53 Trillion still left in the TGA.

D. Pay for any 2011 spending not covered by taxes between now and the end of the year, estimated at about $600 Billion, using the credits in the TGA, rather than issuing debt.

The function of minting the high face value proof platinum coin, filling the Federal purse using PPCS, and beginning to pay off the national debt quickly, is to demonstrate dramatically that there is no US solvency problem, nor any debt and/or deficit reduction problem.

Issuing the coin and getting the Fed to issue $60 Trillion in credits to Treasury, will demonstrate exactly that, and blow any justification for austerity and spending cuts out of the water. The Republicans won’t be able to spin that; and without a plausible claim that austerity is necessary, the drive to take hostages and force austerity on America will evaporate. Within a few weeks we will have a new political discourse, and hostage-taking will no longer be part of it.

(Cross-posted from Correntewire.

Bill Mitchell on the Austerity War

4:01 pm in Uncategorized by letsgetitdone

A number of people including myself have been furiously blogging for many months now on the world-wide austerity war that most Governments are fighting against the well-being of their citizens. The position we’re blogging is that there is no deficit problem requiring fiscal austerity for those Governments including the United States that issue their own non-convertible currencies with floating exchange rates, and have no external debt in currencies not their own; and also that there is no fiscal sustainability problem for these Governments because they cannot run out of money, and therefore the level of their deficits, national debts, and debt-to-GDP ratios are just irrelevant from a real fiscal sustainability viewpoint. I’ve offered a number of posts supporting this argument including here, here, here, and here. Others, including Bill Mitchell, Warren Mosler, Randy Wray, Stephanie Kelton, Pavlina Tcherneva, Jamie Galbraith, Marshall Auerback, Mike Norman, Matt Franko, Tom Hickey, and Scott Fullwiler have filed numerous posts and articles on the subject.

It’s been very hard to get our “deficit owl” views aired beyond the blogosphere, and into the publications of the progressive establishment. These publications publish pieces that reflect a “deficit dove” point of view, advocating spending now during the recession, but a long-term fiscally responsible” plan to solve “the deficit problem” and reach “fiscal sustainability,” by making the tax system much more progressive than it is today, and cutting corporate welfare. Implicit in the deficit dove view, in agreement with “the deficit hawk” view that is at the heart of the austerity propaganda machine, is the idea that the United States must raise money by taxing or borrowing to fund its spending, and also that surpluses, in the abstract, are a good thing, and that deficits are undesirable, and unsustainable, in the long term.

Today was a good day in the fight against austerity. One of the leading “deficit owls,” and a leading figure in the Modern Monetary Theory (MMT) School of Economics, Professor Bill Mitchell of the University of Newcastle, Australia published an article in The Nation entitled “Beyond Austerity.” Jamie Galbraith publishes there occasionally, but has pulled his punches in expressing the MMT point of view. This article, on the other hand, is an admirable summary of many of the main points of MMT as they apply to the issues of austerity and fiscal sustainability. It touches every base in the MMT argument, at least in outline.

Read it if you care about what progressives can do to bring back a prosperous America, where everyone can work, get the health care they need, and where the level of inequality is reduced enough to remove the threat to democracy from the rich that we’re experiencing today.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).