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Can the Federal Reserve Really Refuse To Accept and To Credit A Platinum Coin Deposited By the US Mint?

10:42 am in Uncategorized by letsgetitdone

The issue of whether the Fed can really refuse to accept and credit a deposit of a platinum coin with its face value, is being raised frequently on blog posts about Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin (TDC). In the past, I’ve argued that the Fed cannot; and the final decision on taking the TDC off the table was actually made by the President, and not by Chairman Bernanke.

Ellen Brown, the well-known author of The Web of Debt, and also of this recent post on fiat money, direct financing of federal spending, and using platinum coin seigniorage made this comment in a discussion thread at Monetary Realism:

Per the Fed’s website (or maybe it was the Treasury’s), a gas station can reject a $100 bill before the gas has been pumped. You only have to accept legal tender after the service has been rendered or good delivered. The Van Nuys Flyaway won’t take dollar bills. Apparently then the Fed can reject a tender before it has rendered the banking services involved. It’s a privately-owned bank, after all!

Here’s my reply to this comment.

The coin being presented to the Fed isn’t tendered as payment for services, or for a product. It’s a coin being tendered as a deposit into the Treasury General Account (TGA). Also, note these three considerations.

First, the Treasury Department is mandated to deposit its money into Fed accounts if it wants to enter the banking system. So unlike the gas station; the Treasury can’t find another bank; and it needs a bank to spend and implement Congressional appropriations. A Fed regiional bank, such as the New York Fed, in turning down a coin, would be refusing to perform a duty it contracted for to serve as the depository of the funds of the Treasury Department and the US Mint. I don’t think it can do that and remain a regional Fed bank.

Second, even though the regional Feds are privately owned banks; they cannot behave in ways that contravene the policy of the Board of Governors, a Federal Agency, and they are very tightly regulated by that Board. So, the regional NY Fed, the bank that has the Treasury General Account (TGA) will not be making any such decisions on its own authority. Additionally, in agreeing to house the TGA, the New York Fed has contracted to serve as the sole banking agent of the Treasury Department with respect to its spending account.

Somehow I don’t think the sole banking agent of the United States Treasury Department has the legal right to turn down a deposit of legal tender, and refuse to credit its face value in the Treasury’s own checking account. Imagine what the liability of that “private” bank would be to the US Government, if as a result of any such action, the US would be forced into defaulting on some of its payments and decided to sue the NY Fed for consequential damages. Not a pretty picture, and not a risk that the NY Fed would want to take w/o an explicit and specific instruction from the Board of Governors.

And third, consider the Board of Governors and the Chairperson of the Fed. What would they do? Well, they’ll tell the Secretary that they don’t want to do it. But if they say no; and the Treasury Secretary orders them to accept and credit the coin; then what? Then this:

12 USC § 246 – Powers of Secretary of the Treasury as affected by chapter
Nothing in this chapter contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.”

So, one of the powers vested in the Secretary of the Treasury before creation of the Federal Reserve system was certainly to spend its legal tender into the economy. But to do that under an arrangement where the Fed is its bank, requires that the Fed deposit and credit its legal tender into its spending account, the TGA. So, I think it follows that under 12 USC 246 the Secretary has the authority to order the Federal Reserve to credit that coin so Federal spending can proceed. If the Fed Chair still refuses, then the President can remove the Fed Chair for cause (12 USC 242)

And as beowulf has pointed out, the Fed really doesn’t want to go to Court over this because they risk a Supreme Court finding of unconstitutionality due to the Unitary Executive theory, which, in this case, may well have the support of some of the most conservative justices. My own view here, is that the Fed would not even make it to the Court because they’d be denied standing under 12 USC 246, if the Treasury Secretary also ordered them not to contest his order legally.

If you read through the discussion thread where Ellen Brown left her comment, you’ll see that both Philip Diehl, former Director of the US Mint under President Clinton, and Carlos Mucha (beowulf, or beo), the lawyer who first proposed the use of PCS and the TDC, and the author of the blog post, believe that no Secretary would treat the Fed this way. But what if the Secretary were ordered by the President to do it? And what if the President were somebody like FDR or LBJ? Then I think it could happen; and depending on how tough things get in the next few years who knows what Obama will do?

After all he’s the guy with the drones. And the guy who throws people under the bus when he thinks he has to. So, why wouldn’t he throw Bernanke under the bus too, if he thought he needed to? Just sayin’!

(Cross-posted from New Economic Perspectives.)

Downsides to the Platinum Coin; or Just Defense of the Status Quo?

4:27 pm in Uncategorized by letsgetitdone

As part of a wonderful discussion thread on the legal basis for using Platinum Coin Seigniorage (PCS), following a post by beowulf (Carlos Mucha), the first to propose the Trillion Dollar Coin (TDC). Michael Sankowski, one of the founders of the Monetary Realism approach to economics offered a very long reply directed at High Value Platinum Coin Seignorage (HVPCS), and the TDC itself. Mike’s reply is a good example of the many misgivings people have about using PCS with face values in the trillions. Since Mike is a supporter, rather than opponent of PCS and believes that PCS is legal, I thought it would be worthwhile to deconstruct his long comment and show that his downsides are pretty speculative and don’t provide good grounds for supporting incrementalism is using PCS.

Mike begins:

There are huge downsides to printing a high value coin. Like it or not, our current setup requires the buy in of a large number of participants.

I don’t think it does. Using PCS requires only a decision by the President and his willingness to command the Treasury Secretary to do his bidding. In turn, the Secretary must command the Director of the Mint, and also the Chair of the Fed, to play their roles in creating the coin and seeing to it that the Fed credits the face value of the coin to the Public Enterprise Fund (PEF) account at the New York Fed. The fact that the President can command the Secretary is well-known. What’s not so well-known is:

12 USC § 246 – Powers of Secretary of the Treasury as affected by chapter
Nothing in this chapter contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal Reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.

So, one of the powers vested in the Secretary of the Treasury before creation of the Federal Reserve was certainly to spend its legal tender into the economy. But to do that under an arrangement where the Fed is its bank, requires that the Fed deposit and credit its legal tender into its spending account, the TGA. So, I think it follows that under 12 USC 246 the Secretary has the authority to order the Federal Reserve to credit that coin so Federal spending can proceed.

The coin is new. The coin is weird. Even if the effect of the coin is the same – or similar – to quantitative easing, it’s still new and weird for nearly everyone in the United States.

Well, it’s a new use of coinage, sure. That will make it “weird” for some people; not so weird for others. Using the coin forces the Fed to add reserves to the PEF which in turn gives the Treasury the ability to fill the pubic purse with most of the face value a platinum coin. I don’t find that “weird.” I think it’s the way things ought to be done. What purpose is served by using the term “weird” to describe PCS? Is it to discredit the idea because it’s new; or is Mike trying to show that even though he’s a supporter of PCS, he’s still a Very Serious Person (VSP).

Actually minting a very high value platinum coin could easily disrupt markets, it could easily freak out the larger investment community. This proposal is totally out of left field – heck the mainstream is only now thinking about the coin. We’ve had a few years over here at MR and in the MMT community to think through the pros/cons, and I bet we still haven’t covered many of those pros and cons.

First, I think a good many of the pros and cons were vetted in a single thread at Warren Mosler’s site soon after the first blog post by beowulf appeared focused mainly on the coin. And there’s been an awful lot of discussion of it since then, including a lot of mainstream discussion in the Summer of 2011 and for the past two months.

Second, labeling the coin as “out of left field” is is strange because beowulf is certainly not “left,” but a long-time Republican. His idea is new, that’s all, and it’s about Treasury creating fiat money. Looking at the history of the United States, Treasury has created fiat money from time-to-time under strong Executives. So, why is the PCS proposal to do that again “out of left field”?

And third, what exactly does “freaking out the investment markets” mean. I understand that there will be lot of excitement and maybe some hysteria if the President mints a $60 T coin. But if he uses it only to pay down Government and Fed-held debt immediately and to cover deficit spending, then why would people be overly concerned for too long; especially if the Federal Reserve takes care to assure people, that as Treasury Securities get more scarce, it will be compensating by paying Interest On Reserves (IOR), to provide a continuing vehicle for risk-free investment.

Market confidence isn’t something that is easily shaken, but when it is shaken, the results are disaster. The actual flows in the market only shut down for about a month or so in 2008 before they started to recover, but the job losses were horrific. The impact could have been much worse had the fed not reacted like it did.

“Market confidence” is a slogan that the financial community uses to scare the rest of us. Mostly, it’s just the “confidence fairy.” It was lost in 2008; but there was a concrete reason for its collapse in the collapse of Lehman Brothers and the exposure that created for the rest of the FIRE sector. That is, back in 2008, following on the housing crash, and Lehman’s failure, there was reality behind the reaction to hold on tight and panic.

But, if the President mints a $60 T coin and uses it to pay down nearly 40% of the debt subject to the limit; rendering debt ceiling conflicts immediately a thing of the past; then why should that shake market confidence for more than a few days, if at all? I don’t see the factors that would reinforce any initial irrational psychological reaction to that event. Also, I think that if the financial system is that fragile that we have to postpone implementing direct issuance of money by the Treasury, when we need to have that done to defuse austerity; then that is just another reason for taking the big banks into resolution and rebuilding the whole system from the ground up.

The world is not ergodic, as Paul Davidson points out. There are random features of the world which cannot be foreseen, cannot be accurately forecast, cannot even be put into a probability distribution. Keynes called this uncertainty, as opposed to risk, and Keynes was right.

Stepping out into the world with something which is in every sense revolutionary for our existing monetary system isn’t something to take lightly. Not only that, there are no boundaries or programs in place to constrain the power to directly issue money. As it stands, we’re just making it up without any constraints at all.

Taleb calls these “Black Swans,” and they certainly do exist. But we can’t deal with Black Swans by pursuing all innovations incrementally, or in safe-fail modes. We have to weigh the likely costs of waiting to fully implement an innovation with the explicit costs we’re experiencing without taking advantage of it.

Right now we’ve got 15-16% of the work force wanting full time jobs and unable to get them. We’ve got millions of home owners underwater. We’ve got 55,000 fatalities due to lack of health insurance, since the ACA hasn’t really gone into effect yet, and even after that, we’re likely to still have 35,000 annual fatalities unless we pass Medicare for All. We have a crumbling infrastructure which needs $3 T in new investment and on and on and on. I won’t counsel an incremental introduction of PCS over a period of a decade when the minting of a $60 T coin could free up the whole political system to begin to solve these problems in a matter of months; because of the possibility of a Black Swan that escaped my analysis.

And as far as constraints are concerned, the ones that are important here aren’t constraints on how much can be put into the public purse. They’re constraints on the purse strings. Those constraints are fully in place even with huge PCS face values. Congress still controls appropriations of deficit spending so that no seigniorage can be spent unless Congress appropriates that. The only other spending of seigniorage that would be allowed is repayment of scheduled debt.

Putting together a program where this change is introduced to the market in small increments seems wise to me. I do like the “target” plan you’ve suggested. It’s measurable. We know how much it will be in advance of the program being implemented.

I’ve already critiqued the “target” plan of beowulf’s Mike refers to, in this piece, which is a lengthy evaluation of incrementalism in using PCS. The bottom line is, that incrementalism won’t work, because it will end in likely repeal of the PCS authority.

Many people who trade bonds are severely freaked out by the inflation prospects of QE. Yes, they are dead wrong. They are terribly wrong. But this doesn’t mean we should flip them the bird and shove $60T down their throats, just because we can. It’s possible, but is it wise – even if some parts of our financial overlords are directly responsible for criminal activity?

No one’s suggesting that $60 T should be shoved down their throats. The $60 T proposal is to end debt issuance accompanying deficit spending and use seigniorage instead, and to repay the $16.4 T debt as it falls due, except for the intragovernmental and Fed debt which would be paid immediately. The other $43.6 T would be spent in accordance with Congressional deficit appropriations over 15 – 25 years. Is this a “wise” proposal? Well, I think it’s a lot wiser than one that leaves austerity politics in place for a decade or more, and costs our fellow citizens so much in foregone government financial investment in the public purpose.

Like Bill Black, I am pissed the banksters never got charged with any crimes. They knew. They freakin’ knew. They did bad things. But not everyone did bad things, and I’d argue even most of the finance industry did not do bad things. But this does not excuse the criminals, and there were many criminals.

If you’re so pissed at the banksters then why aren’t you out there doing something about them. There’s an institutional structure out there that nourished the banksters and the fraudsters. At the center of it is the big banks and the Federal Reserve which refuses to regulate them. The Fed needs to be subordinated to the Treasury if this system is going to placed under control. And the first step toward doing that is minting very big coins as part of a process of subordinating monetary policy to fiscal policy.

So we’re here, with a slightly better understanding of how the world of money works. It’s not a perfect understanding, because you see disagreements even among people with a deep level of understanding of the monetary system on our side. But it is better than the current status quo.

So What do we do? First, do no harm.

Pushing the country into another recession because we flip out the repo market by taking away every last safe asset they are using is probably not a good or wise path. Even if this was a good way to strip the bankers of their power – and I don’t agree with it being a good method – it would probably be worse for most people in the United States. There would be many job losses.

Beowulf’s plan to use a series of coins to pay the interest owed at the end of the year is a pretty good one.

The $60 T coin, in itself, does no harm. In fact, it does a lot of good by allowing the political issue of austerity to finally be taken off the table, and allowing the political system to get back to legislating to meet the real issues face. I also don’t think that “flipping out the repo market” will be a problem because IOR means the continued existence of a risk-free, interest-earning place for USD reserves.

That place is at the Fed in reserve accounts. What’s so bad about that, if IOR interest is comparable to bond interest? Why should there be any job losses as a result of this move; and if there are, then the $60 T in the kitty will allow the Federal Government to quickly respond with MMT policies that would have the economy roaring in 3-6 months, in contrast to the economic stagnation we have now.

Finally, the plan to pay interest on the debt using seigniorage isn’t good enough; because it leaves the national debt still in place, even increasing it. So, it leaves austerity politics in place, and fails to create the political background needed for economic legislation that will finally end the Great Recession. That is, it’s a big fail; as are so many attempts at incrementalism.

(Cross-posted from New Economic Perspectives.)

Beowulf and Diehl Embrace Trillion Dollar Coin Incrementalism!

11:34 am in Uncategorized by letsgetitdone

A wonderful discussion thread has been going on at Monetary Realism (MR) after a very good new post by beowulf (Carlos Mucha), who first brought forward the proposal for the Executive Branch to use the authority provided in the 1996 Platinum Coin Seigniorage (PCS) legislation to fill the public purse, on whether the Fed had a legal basis for turning down PCS in the form of the Trillion Dollar Coin (TDC). I’ll leave the legal discussion for another blog post, since I agree with beo on these, and also need to review some legal arguments against the TDC by some George Washington University Professors. Here I want to write about some of the MR discussion relating to High Value Platinum Coin Seigniorage (HVPCS) vs. incremental PCS options.

Why the $60 T Coin Is Needed

Beowulf addresses himself to my call for High Value Platinum Coin Seigniorage (HVPCS) using a $60 T coin in this way:

Once you blow past the size of the public debt is there a reason to go right to $60T? You need to ease into something that’s such a break from current practices. Even a trillion dollar coin is too big to be practical (of course, like Mike said, once you think it, you can’t un-think). IIRC it was Philip who suggested minting $25B coins would be a good place to start.

“Philip” is Philip N. Diehl, former Director of the US Mint in the Clinton Administration and Co-author with Mike Castle, (Rep. DE) of the PCS legislation. In comments of the post, Philip joined beo in advocating for an incremental process of PCS introduction.

An important reason for using a $60 T coin, isn’t because we need all that money right away. In fact, we can spend very little of it because the spending hasn’t been appropriated by Congress, and most of the outstanding debt subject to the limit, will have to be paid as it falls due rather than immediately.

Still we need the $60 T coin to be minted because:

– a) the coin legislation may be repealed at any time by people who don’t want seigniorage to be an alternative to taxing or borrowing; but once the $60 T coin is minted, the cow would be out of the barn, and the proceeds would last 15-25 years, by which time we’d have a chance to get political acceptance for reorganizing the Fed under Treasury and ending its existence as a politically unaccountable agency dominated by private banks and Wall Street;

– b) the seigniorage from a $60 T coin would serve as a potent symbol of the truth that the Federal Government can never involuntarily run out of money. This is one of the central ideas of MMT that the public needs to accept routinely to understand that the Government’s budget isn’t like their household budget;

– c) the mere presence of the $60 T in the public purse makes clear that the claim of those favoring austerity that we can’t afford to enable full employment; or to pass Medicare for All, or to rebuild our infrastructure or do 101 other things that need doing are false, and to oppose them the austerians would then have to argue on the merits of the policy proposals and not almost solely on grounds that we just can’t afford it because of all the debt we’re going to leave to our grandchildren; and

d) the presence of the $60 T in the public purse would be a positive enabler of progressive legislation creating benefits that people want now but austerians say we can’t pass because “we can’t afford it.”.

Easing Into PCS and Being Practical

Beo also says we have to ease into something that is such a break with current practices. But, I ask, why?

Are current practices so beneficial to us that we want to preserve them as much as possible? Haven’t they been a critical part of a public financing system that’s been failing us for a long time now in enabling us to do what must be done to create full employment and various other elements of public purpose that would create a better life for Americans? Haven’t they failed us in a very critical way by creating such complexity in public financing that the public can’t see that Federal “debt is not debt,” and instead are easily fooled into believing that we can “run out of money,” and can’t afford to pass progressive economic legislation?

Beo knows what the answers to these questions are. And he must also know that our current procedures for financing deficit spending are poison to progressives, to the need to fulfill public purpose and to the American people. The only people who really like them are people who directly benefit from the system of issuing debt instruments. These procedures are not something we should want to conserve for another moment; because they do not benefit the 99%.

Beo. also says that the TDC is ‘too big to be practical . . . ” But what’s “impractical” about it? Assuming it’s legal, which he and Philip both believe, it strikes me that in its $60 T version it’s both efficient and effective in ridding us of austerity politics. Beo goes on to talk about the fear of inflation:

Considering that the fear of inflation is the biggest political hurdle to “printing money” (and needs to be addressed when it comes up), a shock and awe $60 megaton coin strategy will lose more political support than it gains. Besides, there’s no point to creating a Strategic Petroleum Reserve-like buffer stock of something the govt has the ability to create at will, especially if its just going to scare the hell out of people (and that it certainly would).

I can’t see how beo can possibly know that, due to inflation fears, a $60 T coin strategy will lose more political support than it gains. Maybe, he’ll oblige me by doing a political analysis showing the transmission mechanisms involved. Here’s mine.

The $60 T in seigniorage would allow the President to pay off all the debt instruments held by the regional Federal Reserve banks and by Federal Agencies. Since the reserves used to redeem these instruments would not be spent into the economy, they can’t possibly cause inflation without a causal transmission mechanism. That’s a pay off of nearly 40% of the debt subject to the limit. If the Treasury pays that off in the week following minting and depositing of the coin, the most likely reaction on the part of the public will be very strong approval of this action.

When the Treasury then pays off $1.7 T in Treasury Bills over the next year, and the Administration points out that debt subject to the limit has been reduced by 50% overall, people will be even happier. When, next, people see that no more debt subject to the limit is issued over the first year to cover deficit spending, I think they will be happier still.

When, finally, they see that there is no inflationary impact from paying off half of the national debt, they will be ecstatic and conclude that Obama is a genius for coming up with this great new platinum coin trick that has stopped both spending cuts and further tax increases, and yet still allows the debt that their grandchildren might have inherited, to be paid off as it falls due, with NO NEW DEBT ISSUANCE needed!

The proof of the pudding is always in the eating. We, including beo, and maybe Philip too, know now that paying off that first $8.2 T in debt will not cause demand-pull inflation during the first year after minting the coin. The public will know that too when they experience it.

During that first year, inflation fears will gradually recede from the first day the money is used to pay off debt. By the end of the year those fears will be largely gone among most people, except for those for whom that fear is part of a “religious belief,” leaving inflation hysteria to “the gold bugs,” and Austrian school economists.

I would have done the $60 T coin in May of 2011; or most recently the day after the election. And, then I would have given a speech like the one in this post followed by a mobilization of Organizing For America (OFA) behind the initiative.

The Senate, then, never would pass a House bill to repeal PCS, because everything would have become so visible that sticking with the coin would be a litmus test for any Democratic candidate want to run with Party support. Then, if Obama got a high percentage of the debt paid by November 2014, I doubt there’d be any trouble in the mid-terms in either keeping control of the Senate or winning back the House. After all, what’s not to like: 1) debt rapidly disappearing; 2) the end of any need for austerity and no entitlement cuts; 3) no battles with Congress over debt ceilings or fiscal cliffs or austerity budgets; 4) Congress still controls the purse strings; and 5) attention turned to real issues about how to create good times here in America.

So, the brouhaha over the $60 T coin would pass. The Rs wouldn’t be able to repeal the coin capability until they got hold of both Houses of Congress, and if Obama played his cards right, actually doing things for people rather than the banks, and Wall Street, I don’t think we’d see Republican control of both Houses again for some time; in spite of wholesale gerrymandering. Their earliest opportunity to get the Senate again might not be until 2018, when there will probably be many more D Senate seats than R Senate seats at risk. As for the House, if the Democrats win in 2014, and don’t screw up (a big assumption I know), then they’ll win in 2016, and again the Republicans will have to wait until 2018, provided their party doesn’t split apart before then.

On beo’s buffer stock of reserves in the public purse point, of course there would be no point in creating one if the Treasury always had the power to create Trillions to pay off that national debt; or to deficit spend Congressional Appropriations; but the authority to do that is dependent on a Congress that has little understanding of fiat currency, and that may repeal that authority at any time. So, the “buffer stock” of reserves in the public purse is needed for that reason and the other three reasons I gave earlier.

The Incremental Approach

Philip Diehl, and beo joined together in an exchange advocating an incremental approach to introducing PCS which would feature a step-by-step approach to gradually increasing the amount of PCS annually. Beo suggested starting out with a $25 B coin, and said this:

On first day of fiscal year, Tsy deposits coinage equal to net interest paid the previous year. I like plays that end in the first act. . .

If you’re looking for a more incremental strategy, perhaps the way to ride the TDC wave while also defusing opposition is to propose a “responsible alternative.” Say, Tsy and the Fed should cooperate on a pilot program using $25 billion coins to see what effects positive or negative the use of debt-free money would have on our financial system, which is swimming in debt. If it’s negative, that should quiet critics who are pushing for a trillion dollar coin. If it’s positive, then it will be worthwhile to slowly expand the program, to gauge its impact in larger amounts. The only time we should ever mint a trillion dollar coin is sometime after the evidence is clear to everyone the $500 billion coin, the $100 billion coin and the $25 billion coin worked just fine (a red herring of course, the Mint can strike 40 $25 billion coins almost as easily as a single $1 trillion).

I guess it’d be worth stressing that it’s not a transfer of power from Tsy to the Fed since it is the Fed who orders coins from the Mint. You could call the article, “Beating trillion dollar coins into plowshares: Can a political weapon be converted into a useful monetary policy tool?”

I think beo meant to say a transfer of power from the Fed to the Treasury, just above.

Philip Diehl added this to the case for the incremental approach:

Beo, I like the step by step approach but I’d go faster and with a specific target in mind–like increments of at least $50 billion a year to reach the goal of covering the annual carrying cost of the debt. I figure that with the debt continuing to rise and interest rates also rising, it would take, say, ten years before HVCS is covering the full annual interest on the debt. Let’s say that’s $500 billion a year. At that point, we’d be minting a half trillion dollar coin every year to continue covering the annual interest on the debt, is that correct?

A slow ramp up like this would not only alleviate fears over the inflationary effect of HVCS (assuming we’re right that there won’t be any), it would also make plain its significance as a way of relieving the zero sum game of budgetary politics. A constituency will form inside and outside Congress to continue or even accelerate the pace HVCS is ramped up in order to ease the squeeze on the rest of the budget as entitlement and other spending increases.

Also, wouldn’t we expect interest rates to fall from what they would otherwise have been if Treasury was no longer longer competing in credit markets? And wouldn’t we expect tax revenue to rise if there were fewer tax free bonds in the marketplace? If I’m correct on this, it seems like HVCS would develop a powerful public constituency for the lower interest rates it would bring.

What’s wrong with this picture? It seems to good to be true. Where’s the downside, the tradeoffs?

The HVCS acronym means High Value Coin Seigniorage, and is intended to refer to all coins with face values in the millions, billions, or trillions. Here’s another contribution from beo, supporting the incremental approach in the context of a comparison with HVPCS (which refers to platinum coins with face values of $30 Trillion or more), using this scenario:

. . . Philip was once Chief of Staff to Tsy Sec. Lloyd Bentsen, imagine if Philip presented him as policy options:

1. a trillion dollar coin (against the Fed’s wishes)
2. a $60 trillion coin (against the Fed’s wishes)
3. a joint Tsy-Fed pilot program beginning with a $25 billion coin ( or whatever face value the Secretary was comfortable with, maybe it starts with a $1 billion coin).

Does anyone really think Lloyd Bentsen (or any Tsy Secretary) would take a “screw the flight simulator, lets see us try this in a real plane” attitude?”

So, that’s the case for the incremental approach, which I’ve tried to present fairly, and in its strongest possible light. So, now we can get to answering Philip’s question about the downside.

The Downside of the Incremental Approach

First, if an upside of the $60 T option is that its implementation through a “lightening strike,” to quote Philip, eliminates the chance for its opponents to mobilize against it until after it’s a fait accompli, and also removes the efficacy of any move towards repeal, before repeal no longer matters; then the opposite is true of the incremental option. Beo and Philip envision years, perhaps a decade, of ramping up until coin seigniorage is making an appreciable impact on the conditions underlying the drive towards austerity.

During that time, surely a very well-funded and powerful opposition to deficit spending and debt instrument payoff will form and do everything it can to repeal the platinum coin. And they will be able to mobilize and work against the coin before it has had a chance to solve any problems, or do any good; before, in other words, the coin can get enough love from the broader public, to ensure that the capability won’t be repealed.

Philip points out, correctly I think, that during the PCS rampup, the coin, if left in place as a capability, would develop a powerful constituency of its own, both in an out of Congress. This is true. But at $25 or $50 B per year in PCS value, can enough people grow to love its impact to counter-balance an all-out propaganda and political campaign by Wall Street, the Fed, and right-wing austerians like the Koch brothers? I seriously doubt it.

They will see the threat from the coin, probably have already seen it, judging from the reaction to it at AEI. And they will try to get rid of it soon; at the very first opportunity. I’m sorry to say that I think an incremental strategy is not just impractical, but even feckless, given that they are now, or shortly will, come after the coin with everything they have, in much the same way that the health insurance has come after any serious health care reform. So, incrementalism in applying coin seigniorage, will only lead to its repeal before its own constituency is powerful enough to protect it.

And what do beo and Philip hope to accomplish by this incrementalism? They hope a) their proposal will be viewed as “reasonable,” compared to HVPCS options like the $60 T or even the TDC; b) to calm inflation fears by minting coins with values low enough that they cannot possibly trigger inflation, and then increase face values gradually until over a period of years the fear of inflation is calmed and people are ready to consider really serious uses of PCS; and 3) to show people more and more positive impacts of the coin, so that they build a more and more powerful constituency as time goes on.

So, when it comes down to it, they want incrementalism to mollify people against the coin enough that they will be allowed “a seat at the table” and taken seriously by their opponents. They also want it because they care a lot about calming inflation fears, and they also care about having a general consensus about using it, before they “go big” with the coin.

The problem with this approach is that people who want the FIRE sector defended from the coin, and its lessons about fiat money, will never give them a seat at the table, have no incentive to do anything but discredit and ridicule them, and won’t be convinced about the low likelihood of inflation from PCS because they have a vested interest in continuing to claim and/or believe that the coin is inflationary. Even those among them who come to believe it isn’t inflationary will still oppose it on grounds that it is, because they won’t consider the advantages and disadvantages of the coin in good faith.

But in addition to these problems, there is the still more serious problem that an incremental approach taking a decade to implement has very serious likely costs. Apart from the possibility of losing the capability for PCS, there are also unemployed, partly employed, uninsured sick people, ill-educated young people, and people whose careers and social mobility are heavily impacted by the refusal to use the full power and potential of HVPCS when it is available for use.

Beo and Philip are, in effect, suggesting that the underlying condition supporting austerity politics remain out there for perhaps a decade or more, when the President has the power to eliminate it now, because they want to calm fears, get a seat at the table, and have consensus before they go ahead with PCS in a big way. Is this really a serious proposal when we look at the full political context we face? Is it actually “practical,” or does it just avoid facing the most important problem we need PCS to solve for more than a decade?

“First, Do No Harm,” is a great maxim; but when excessive caution and waiting have the very high costs just mentioned; then we have to weigh those already experienced and continuing costs of not minting a $60 T coin, against the potential cost and very low likelihood of inflation resulting from it filling the public purse, and getting used only to pay down debt and cover Congressional deficit appropriations. I’ve done the inflation analysis, and I’ve been unable to find any causal transmission mechanism directly from PCS to demand-pull inflation. I invite beo, Philip or anyone else to critique my analysis and show me where I’ve made a mistake.

Of course, demand-pull inflation can result if Congress appropriates too much deficit spending; but that would happen whether seigniorage, or Treasury Securities or both, are used alongside deficit spending. So, before we so easily propose and decide to follow an incremental PCS strategy, perhaps its proponents ought to make clear the causal mechanisms they see that are at least minimally likely to cause inflation, beyond the inflation from deficit spending accompanied by debt issuance? Until that’s done, I don’t think the incremental PCS proposal can be considered a serious one.

Second, let’s look at beo’s three options in the Lloyd Bentsen type of scenario. I think the President does 1) or 2) if he wants to start a long political struggle that he may very well lose, or if he wants to engage in kabuki. But if he wants to destroy the foundation of austerity politics, then he will select 3) or maybe a $100 T coin (because it’s more powerful as a meme), because those alternatives will actually do the job.

So, what coin seigniorage option should be pursued depends on what the goals of the President are, and his/her perception of the problem. Beo, Philip, and other incrementalists seem to think that the problem is how to get everyone used to fiat money, so it can be introduced on a large scale, fairly non-controversially, and with a good deal of consensus support. They think we can afford to wait for that result for a decade, and that it will be worth waiting for.

I, on the other hand, think the problem is how to destroy the political power of the austerians, now, so we can build a more equal and prosperous economy and society. The incremental approach could well leave us with austerity, a stagnant economy, and growing inequality, for a decade or more.

I don’t think we have that much time left, before our society sees its democracy extinguished by a soft, but, nevertheless, totalitarian plutocracy. That is much too high a price to pay for the benefits of the patient, careful, and experimental introduction of platinum coin seigniorage that beowulf, Philip Diehl, and others who like the incremental approach have in mind. Incrementalism is always favored by the Very Serious People (VSP), as the “practical” alternative; but all too often it is “impractical” in the highest sense of the term, because it simply will not work!

(Cross-posted from New Economic Perspectives.)

Good Luck Stopping Austerity With Incremental Platinum Coin Seigniorage!

5:05 pm in Uncategorized by letsgetitdone

Some have responded to the recent boomlet for using Platinum Coin Seigniorage (PCS) as a solution to the debt ceiling problem, by reacting to the ridicule visited upon PCS advocates by know-nothings like Heidi Moore of the Guardian and Matt O’Brien of the Atlantic, by proposing “smaller ball” PCS than the clearly inadequate Trillion Dollar Coin (TDC) itself. This post will focus on J. D. Alt’s interesting post which makes five points about the TDC debate as it was addressed on a recent Chris Hayes show.

– 1. Stephanie Kelton’s reframing of a question about financial constraints to point out that the real issue is resource and productive capability constraints and not purely financial constraints, is a point that is essential to keep in the forefront our discussions and also that this is “. . . the central truth of MMT.

– 2. It’s not laws but social norms that:

. . . that form the living tissue, muscle and sinew that cling to the bones. Social norms change, but they change slowly, over time—they do NOT, by their nature, change “all at once.”

Clearly, it is a social norm that will not allow the Trillion Dollar Coin to be considered as a plausible solution to the national debt—and which necessitated so much giggling on the show. Legal or not, economy-saving or not, minting trillion dollar coins is NOT how our society pays its bills. Any shift in this social norm has to be very incremental.

– 3. Producing too much money and spending it into the economy, as Joe Wiesenthal pointed out on the show can cause inflation if the amount of spending injected exceeds the resources of the economy to absorb it. On the other hand, if it doesn’t exceed those resources then “the result will not be inflation but rather a growing of the economy and an expansion of national assets; in that case, in could be argued, to withhold the spending is indefensible.”

– 4. “Paying your debts and living within your means”:

. . . is a very powerful message to the religious psyche that permeates our cultural norms. It can only be countered by explaining WHY, in fact, the sovereign government is in debt (see item no. 5 below) and making clear, over and over, Dr. Kelton’s point that the “means” we have to live within are not FINANCIAL means but, rather, RESOURCE means.

– 5. A point not directly addressed in Hayes’s show is that the constantly and casually reiterated idea that the Federal Government can only raise money for spending by either taxing or borrowing is false; and that it can also create money though issuing currency. He also points out that it has to be made clear to people that the reason for the existence of the debt is this false assumption. And then he ends with:

“Issuing” currency (rather than borrowing in the bond market) to pay for sovereign spending over and above what is collected in taxes might be one of those things that could be done incrementally. Instead of threatening the institutional and social norms of the bond market with total annihilation, MMT could propose that sovereign spending be “monetized” only on a limited basis, to accomplish certain specific and special goals that would strengthen and benefit the nation as a whole. Over time, as people saw the benefits of monetized sovereign spending—and became assured it did not, if properly managed, lead to inflation—the social norm would likely shift. If that happened, the next time Chris Hayes had a panel discussion about the national debt, there wouldn’t have to be so much giggling.

I agree with the first of these five points. But I have either questions or qualifications to raise about the rest.

On Social Norms, and their impact on MMT Policy Advocacy

First, I don’t flatly disagree with the notion that social norms change slowly over time, but do not change all at once. I just wonder about the application of this generalization to reality. For example, if something were called “a social norm” and that something did, apparently, break down rather quickly, to be replaced by another something we called a social norm, would we then change our mind about the first thing we called a norm, or would we conclude that it was not, after all, a “real” social norm. In other words, what evidence would J. D. Alt accept as sfficient for him to falsify the generalization that social norms change only slowly? There has to be some or we’re looking at tautology here, not empirical social science.

Second, in looking at a specific social norm that doesn’t “change all at once” how would we mark the beginning of the process of change of that social norm over time? In a recent article, Ellen Brown points out that the idea of using coin seigniorage to pay off the national debt was first suggested in the early 1980s by a chairman of the Coinage Subcommittee of the U.S. House of Representatives. Does this count as the beginning of a process to change the social norm that Federal spending must be based on either taxing or borrowing?

How about the beginning of the MMT synthesis in 1996, and the thinking associated with it that the Governments with fiat currencies can spend freely by printing money? Is that the beginning? What about the acceleration of MMT work in the late 1990s and early 2000s? Is that the beginning of the change in social norms involved here? How about the publication of Ellen Brown’s book in 2007; which mentioned the possibility of coin seigniorage being used to disintegrate “the Web of Debt”? Is that the beginning?

I could go on with this; but you see the point. Unless we can agree on the starting point of the process of change for a social norm, J. D. Alt’s generalization is pretty meaningless for any coherent application.

He wants us to think that High Value Platinum Coin Seigniorage (HVPCS) won’t happen anytime soon because it violates a social norm, and these change only very slowly; but if we don’t have the starting date of such a change, we can’t very well evaluate whether we’re looking at an overnight change about to happen; or whether a change that happens tomorrow, or next week, or next month, has actually been 42 years in the making; say since Nixon took the US entirely off the gold standard; or even since FDR took the domestic economy off the gold standard 80 years ago.

Third, I have some background in Complex Adaptive Systems Theory (See Ch. 2), plus many years of research in Conflict studies, Civil Strife, mass movements, and the social sciences more generally. I know that when complex systems are having difficulties maintaining themselves at “the edge of chaos,” they can easily fall into the death spirals of either rigid mechanical order, or seemingly chaotic dynamics, before they reorganize into a new pattern that successfully maintains their identity as a complex system. During the process of reorganization new global properties of the reorganized complex system emerge in very short time frames. These new global properties can easily involve social and cultural norms that were never dominant in the previous state of the complex system subject to system transformation.

Does that mean that the old dominant social norms changed very rapidly or only very slowly? Again, that’s going to depend on your perspective. If you look at the rapid breakdown and transformation of the system involved you’d swear that the change was very rapid.

On the other hand, if you do a historical analysis, it’s almost never hard to show that the change you’re analyzing has deep historical roots and was a long time coming. Do I really have to cite historical examples on this point? What about the norm that the major European powers wouldn’t fight major wars against one another. That one lasted for 1815 – 1914, almost 100 years; and then was gone with the wind. How about the social norm, that Russia would always be ruled by a Czar? That one lasted for hundreds of years, until 1917, even if we date it from the first Romanov? How about the gold standard? How about slavery in the US? How about no taxes on income? How about the norm of not having a Central Bank in the United States?

Fourth, it’s important to keep in mind that social and cultural norms are properties of social systems, and that there are many levels of social systems ranging from families and small friendship groupings to international social systems. J. D. Alt says that there’s a norm against using the TDC as a plausible solution to the national debt, and he flat out claims that this is not how our society pays its bills.

Well, it’s certainly true that we haven’t done it in the past; and it’s certainly true that people working for, or identifying with, the FIRE sector are opposed to using PCS as a solution to the debt problem and take refuge in ridiculing us and trying to activate a social norm and frame that they think is dominant. But these things don’t show that there really is a social norm preventing this in the United States when viewed as a large-scale political/economic system. Or that President Obama has to move incrementally to change “the social norm” because he would have a problem with implementing High Value PCS with a bold lightening strike minting a $60 T coin, since the country as a whole would rise up in opposition to such a move due to the strength of the social norm that we shouldn’t use PCS.

There’s no evidence to suggest that this would be the case, and every reason to believe that most people don’t care how the national debt is paid off; so long as it’s paid off, and is not there to burden themselves, and “their grandchildren.” After all, most people are completely unaware of how deficit spending and debt instruments work, and completely unaware that “debt is not debt” as we MMTers like to say. What they do know is that the United States has more than $16.4 T in debt instruments out there. That scares them, because they’ve been made to believe that it’s their debt, and I think they really don’t care if this “debt” is paid off by taxing more than we spend, or through using platinum coins to get the Federal Reserve to create money out of thin air for Treasury to use in a way that has no obvious short-term effects on them.

Joe Wiesenthal and Inflation

Joe Wiesenthal’s formulation on inflation during the Chris Hayes panel discussion was a good one. But in Joe’s writing he’s taken pains to point out that while the inflation issue doesn’t affect the Trillion Dollar Coin (TDC); Higher Value PCS applications are likely to create inflation and perhaps even hyperinflation. Joe Wiesenthal has no basis for saying this that is apparent in his writings. But, it is a position opposed to HVPCS, and biases him towards what I’ve called “small ball” PCS applications, rather than game-changing ones.

Paying Your Debts and Living Within Your Means

I agree that this meme is powerful and representative of our cultural norms, and also that it needs to countered with explanations of why the public debt exists, and also that the issue of “means” is not financial, but involves our resources and our productive capacity. But I don’t agree that telling or teaching people this is the “only” way to counter the norm as applied to financial means.

Telling and teaching is important for both the short and long terms; but even more important is action that will remove the public debt, while not tanking the economy or causing inflation. This is what a $60 T PCS solution will do, that small ball PCS activity will not.

In fact, if the President used a $60 T solution to pay off large chunks of the national debt, people would quickly get the point that the debt existed only because Congress and the Executive blocked using coin seigniorage on the debt and the deficit and insisted that only taxing and borrowing could be used for spending. Using the coin would illustrate that there was never any issue of financial means. When that debt began to get paid off quickly it would be “a teachable moment;” one in which we could get the message across that the real constraints are in resources and capacity, and that we need to quit worrying about the financial end and start building a prosperous sustainable economy characterized by economic and social democracy.

Currency Issuing Incrementalism

J. D. Alt’s last point is that “issuing” currency to pay for deficit spending might be introduced incrementally, “instead of threatening the bond market with total annihilation.” He thinks that if we propose to use seigniorage to do deficit spending on specific policies that would be clearly of benefit to the nation, and these policies were legislated than as people saw the benefits, and also saw that there was no inflation accompanying the currency issuance, then the social norm against using seigniorage or just issuing currency without debt would change, and then there wouldn’t be “so much giggling” about us PCS advocates, by panelists on TV shows representing the FIRE Sector.

The first problem with this is that people like me who favor HVPCS, don’t favor “threatening the bond market . . . “, but rather, destroying its foundation, new debt issuance, nearly over night. I don’t intend this flippantly. I don’t think the President should threaten HVPCS. I think he should just do it; and let the chips fall where they may.

The second problem with this and similar proposals, is that neoliberal deficit hawks will be unalterably opposed to PCS, no matter the context in which it is used. They will work as hard as they can to prevent the PCS camel from getting its nose into the public financing tent.

They will do everything possible to repeal the PCS legislation. And they will try to impeach any President who uses PCS for any significant purpose at all, because they know very well that if either small ball or game-changing PCS works, then their austerity politics game, so important for the developing plutocracy, is up.

J. D. Alt assumes that “small-ball” or incremental PCS will be less threatening to the FIRE sector than game-changiing PCS, and so, will elicit less vigorous opposition. It is the same kind of assumption that led progressives to turn away from supporting Medicare for All, and to push for the “public option” sparkle pony, prior to caving in to the ACA, because “it’s better than notihing,” and the same kind of assumption that led the Clintons to propose managed care rather than Medicare for All in the 1990s, which got them a great, big fat loss to the opposition.

These kinds of “pre-compromises” do not work, because they elicit just as vigorous opposition as a “full-monty” option, would, but don’t offer the same level of benefits to people. That is, people often don’t love the compromise legislation, so you can’t get them to support it, or to support you in the next election. That’s certainly what happened with the ACA, which was a big factor in costing the Democrats the election of 2010.

In the case of PCS, incrementalism will lead to a series of exhausting political conflicts in which progressive victories will be pyrrhic, because they will drain political capital, but won’t solve the problem that people are concerned about, and that the deficit/debt hawk/austerians use for leverage to make austerity politics seem reasonable. That problem is not getting PCS or currency issuance accepted. But acceptance WILL occur as a by-product of solving the problem that most people care about.

That problem is a national debt that seems self-evidently outrageous in size to most people and opposed to common sense. We can’t solve that problem in a visible way that people will instantly understand with ‘small-ball“ PCS. We can only solve it with game-changing PCS, that eliminates the national debt, covers projected deficits for a long time to come, and so transforms the basis of progressive politics addressed toward the economy.

Conclusion

The idea that we need to move slowly with policies that will significantly change politics and economics, because social norms are arrayed against such policy changes is perhaps the central idea of Conservative Ideology (notice I’m using the capital “c” and not the small “c” here). Edmund Burke might have made the same argument against PCS as J. D. Alt put forward in his post.

It is an argument that is vague in nature, lacks criteria for application, and is opposed to the rational progressive temperament that is in the tradition of long-time MMT authors like Bill Mitchell, Randy Wray, Warren Mosler, Mat Forstater, Stephanie Kelton, Scott Fullwiler, and Pavlina Tcherneva. And it’s also opposed to the temperament of newer MMT writers like Marshall Auerback, Mike Norman, Bill Black and Michael Hudson.

The position of MMT is that the preferred situation for a nation sovereign in its own fiat currency is that its Treasury Department simply create currency in the act of deficit spending without issuing accompanying debt. Let’s be clear here.

A $60 T or $100 T platinum coin would, if minted and deposited, achieve this MMT preference for some time to come. Not forever, but it would be the proper pilot experiment for legislating that MMT preferred change, because it would give people years to assess how that kind of system would work. So why aren’t all MMT writers supporting this change? It isn’t quite pure MMT; but it’s damned close, and much closer than incremental PCS would be.

The counsel of pursuing incrementalism makes no sense here. There are some problems that incrementalism just won’t fix. Getting rid of the national debt, and the discomfort of people with it, can’t be done incrementally, because the opposition to incremental initiatives would be too fierce, and the benefits from those initiatives too little, to justify the political conflicts that would ensue. Also, there’s the question of opportunity.

Right now, the President has the opportunity to make High Value $60 T PCS a fait accompli, and to eliminate fiscal austerity politics forever. How long that opportunity will exist I don’t know. But it is much more risky to give the opposition a chance to mobilize against PCS, than it is to just mint that $60 T coin, get the electronic credits into the public purse (the TGA), and the begin to pay off huge chunks of the national debt quickly.

That is what will get “issuing currency” accepted. But incremental “small ball” PCS that will be fought with propaganda, money, law suits, mass media opposition, and constant ridicule, before it has had a chance to be effective, won’t work, and we shouldn’t advocate it.

The right kind of answer to Heidi Moore, Matt O’Brien, and others who ridicule HVPCS, isn’t PCS incrementalism. It’s an answer like the ones here and here. It is, more directly, #mintthe60Tcoin

(Cross-posted from New Economic Perspectives.)

The Great Austerity Swindle!

9:45 pm in Uncategorized by letsgetitdone

Our Congresspeople, corporate CEOs, tea partiers, most economists, Pete Peterson’s minions, and even our President, tell us that we’re running out of money; and that we can’t keep running huge deficits, and increasing our national debt forever, because eventually, our creditors will just cease lending us our dollars back.

They also tell us that the Government can only raise money by either taxing or borrowing, and that when it comes to taxing, we can’t tax “the job creators” very much or they’ll go on strike and won’t create any jobs because we’ll have killed their incentive. So, here we are, we have to reduce our borrowing, and we can have hardly any tax increases on “the job creators,” so what’s a fiscally responsible nation to do?

Well, they say, clearly “we” have to lower taxes on “the job creators” even more, raise them on the “unproductive” 47% or is it the 99%? And also, cut spending substantially on programs that provide benefits for the poor, the middle class, and even the 99%, so we can “. . . live within our means,” and remove the burden of excessive public debt on our grandchildren.

But, what if we say to these people, well, “the job creators” aren’t making any jobs? That’s a fact! They give all kinds of excuses, but the truth is that they have no sales, so they have no incentive to create any more jobs.

On the other hand, the more we lower their taxes, the more money they have sitting idle, and the more they have an incentive to use that money to invest in financial manipulation schemes rather than jobs. So, why not tax them at extremely high rates on net profits and provide them an incentive to lower their net profits by spending more of their gross profits on tax-deductible business expenses like employees and business expansion? Why won’t high taxes on them do more to create jobs than lower taxes? Didn’t we have far lower unemployment rates when marginal tax rates were sky-high, than we have now when they are a pittance on the wealthy?

And what if we say to them, well, Congress can always reorganize the Federal Reserve so that the regional Fed Banks are nationalized and both they and the Board of Governors are placed under the authority of the Secretary of the Treasury, so that the Secretary is empowered to create reserves out of thin air to fill the Treasury’s spending account, and keep it filled with sufficient funds to repay the national debt and cover the deficit without borrowing? And what if we tell them further, that we know that Congress has the Constitutional authority to do this? And what if we ask them, why doesn’t it do this, and get the national debt that you, our leaders, are so worried about, paid off, and keep us debt free? And what if we ask them still further, and if you do this then why would we have to have any spending cuts or tax increases, at all?

And what if we say to them, we also know that to pay off the national debt and cover the deficits for years to come; it isn’t even necessary for Congress to reorganize the Fed, because the Treasury can use the Fed to create money in Treasury’s account from seigniorage? What if we say to them that all that’s necessary is for the President to mint a High Value Platinum Coin (HVPC) with a face value of $60 Trillion dollars, deposit it at the Fed, and then begin to pay off the national debt and implement deficit spending using the electronic credits created in the process of seigniorage?

And what if we say to them, we also know that it is a myth that the Federal Government can only get money for spending from taxing or borrowing because Congress can modify the laws, as just described, so Treasury can generate US money out of thin air, just as the Fed does today, that Treasury can use to pay down the debt and cover deficit spending?

And what if we say to them, we know that you’ll say that this is “printing money” and will cause inflation? But what if we then say, sorry, but we know very well that it will not cause inflation; because reserves issued unaccompanied by debt are no more inflationary than reserves issued along with debt and, most importantly, we also know that if you legislate the ability for Treasury to do this, then you won’t have to worry about the deficit and debt or our grand children anymore; and we won’t have to worry about your cutting safety net and other necessary programs anymore?

And what if we say to them, we also know that it is a myth that the Federal Government can only get money for spending from taxing or borrowing, because the President can use Platinum Coin Seigniorage (PCS) to harness the power of the Fed to generate reserves that end up in the Treasury General Account (TGA), and Treasury can then use the reserves to pay down the debt and cover deficit spending?

And what if we say to them, we also know that this won’t cause inflation for reasons stated above, and, most importantly, we also know that if Treasury does this on orders of the President, then you won’t have to worry about the deficit and debt or our grand children anymore; and we won’t have to worry about your cutting safety net and other necessary programs anymore either?

And what if we tell them that, for all the reasons indicated in these questions, we also know that all your reasons for wanting to reduce the deficit and impose austerity on the 99% are bogus? We don’t know which of you believe in these reasons and which of you do not. But this isn’t as important as it seems, because we know that the debt commissions, the debt ceiling crises, the fiscal cliff, the sequestration, the continuing resolution, budgetary crises, and the constant propaganda campaign from all of you directed at all of us, is a grand “shock doctrine” process attempting to swindle us out of a government that works for 99% of us rather than the 1%. We know that “the Grand Bargain” is “the Great Betrayal”! And we won’t have it!

(Cross-posted from New Economic Perspectives.)

Disconnect: High Value Platinum Coin Vs. Austerity!

1:38 pm in Uncategorized by letsgetitdone

A little disconnect: what President Obama, through Treasury and the Federal Reserve, really said last Saturday:

“We’re running out of money because the Republican House may not allow us to float any more debt; so I took the Platinum Coin off the table just to ensure that we would!

Next month, I’ll give you the gift of austerity, because, naturally, we’re now really gonna run out of money!”

Despite Saturday’s announcements by the Treasury and the Fed the Platinum Coin Seigniorage (PCS) legislation is still on the books. For the President not to use it to fill the public purse with enough funds to banish the fiscal conditions that underlie austerity politics — the national debt, and the ability to cover the deficit for a long time to come — is inexcusably corrupt, fiscally and economically irresponsible, and completely opposed to the public purpose that the President is supposed to serve.

So, I want to tell the President that for as long as PCS is on the books, and he and others are claiming that we need austerity because we are “running out of money,” he has the duty and the obligation to mint a game-changing High Value Platinum Coin, for example, a $60 T platinum coin. After this legal tender coin is credited by the Fed, the presence of $60 T in the Treasury General Account (TGA), and its immediate use to begin paying off the national debt, will make it very plain that there is no need for austerity; no need to cut SS, Medicare, and Medicaid; no need to cut Head Start, no need to cut anything that’s working.

Yesterday, the White House line was that temporary fixes to the debt ceiling problem like the platinum coin would not solve the budgetary and political problems faced by the Government. Our mainstream media people did their thing by failing to call out the President on that – probably because they, themselves, have never dared think about any other PC option apart from the Trillion Dollar Coin. It’s easy to see, however, that a $60 T coin wouldn’t be a “temporary fix,” spawning crises every few months, even if it wouldn’t last forever. The fact that a $1 Trillion Dollar Coin would not solve our debt ceiling problem for very long, isn’t an argument for taking High Value PCS (HVPCS) off the table at all.

So, I call on the President to mint that $60 T coin now! I call on him to abandon austerity and to create financial plenty in Federal fiscal policy by using game-changing HVPCS. Austerity and “grand bargains” are “the great betrayal!” We don’t need such “greed bargains.” We need a full public purse, and then we need to get Congress to open the purse for programs that fulfill public purpose.

I call on others to join me in beginning again to blog, comment, facebook, and tweet about PCS; but this time to forget about the TDC, which was always the wrong coin, and focus on #minttheHVPC instead.

Up the ante! Make this about ending austerity, and using the right platinum coin to create the political space needed for doing it! Forget about them taking PCS off the table! As long as it’s legal it’s still on the Table! Mint that HVPC! End Austerity!

(Cross-posted from Correntewire.com.)

Make ‘Em Do It! I Still Choose Using High Value Platinum Coin Seigniorage To End Austerity!

7:50 am in Uncategorized by letsgetitdone

Yesterday, Ezra Klein reported in the Washington Post that:

The Treasury Department will not mint a trillion-dollar platinum coin to get around the debt ceiling. If they did, the Federal Reserve would not accept it.

That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today.

“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,”

he said.

The inclusion of the Federal Reserve is significant. For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency. If they don’t believe it’s legal and would not credit the Treasury Department’s deposit, the platinum coin would be worthless.

This statement from Ezra Klein would have us believe that the Federal Reserve is an independent agent in this matter, and that it can refuse to credit the deposit of a newly minted high face value proof platinum coin, if the Treasury makes such a deposit. It also assumes that if the Treasury insisted on the deposit of the coin, that the Fed would be in a position to go Court to contest that; that it has a choice in the matter.

I don’t believe that either of these things are true. I also think they are just a rationalization, so the President, who most probably decided this can pretend that this decision isn’t on him; or at least can be partially blamed on the Fed. Let’s review some critical aspects of the relationship between the Fed and the Treasury.

Fed Independence?

First, here are a some quotes from the US Code and comments.

“…banks, when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks, and disbursements may be made by checks drawn against such deposits.”12 USC 391

The coins are legal tender, and disbursements can’t be made unless a deposit is credited. So, both imply that all banks that receive such deposits must credit them, and that the Bank officers at the New York Fed cannot refuse to credit the face values of a deposit of coins by the US Mint in its Public Enterprise Fund (PEF) Account. As for the Board of Governors, including the Fed Chair, forbidding the New York Fed from crediting the deposit, there is this part of the USC:

“. . . wherever any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.” 12 USC 246

The US code says that the Secretary has supervision and control, not the Fed Chair, or the bank officers at any of the banks, however exalted, within the Fed system. So, if anyone in the Fed system wants to go to Court about this; it’s hard to see that they could get standing even to file an injunction. In fact, if they attempted to get an injunction and to sue after a Treasury order prohibiting them from doing that, apparently the Treasury Secretary could fire the offending parties if “supervision and control” means what it usually means.

In short, the Platinum coin is still on the books. The legal rationalizations of the Treasury and the Fed are a smoke screen to obscure the President’s deciding not to use the authority he is granted by the Platinum Coin Seigniorage (PCS) legislation. And finally the coin certainly would work if the President decided to use it, provided he ordered the Secretary to mint and have a platinum coin deposited in the Mint’s PEF at the New York Fed; and provided the Secretary sent instructions to the New York Fed and the Board of Governors ordering that the coin be credited and no attempts be made to contest the Secretary’s action in a Court of Law.

The Wrong Kind of Coin

After a hiatus of 16 months the Trillion Dollar Coin (TDC) surfaced again in the mainstream blogging and MSM World at the beginning of December. The outbreak of posts and discussions was fairly intense as people began looking beyond the “fiscal cliff “crisis and started looking ahead to the debt ceiling fight to come. During the second half of December however, posts and commentary slowed as we got closer and closer to the “cliff,” and most commentary focused on that.

But at the beginning of the New Year, after the ‘cliff” was partially deflated, new posts from mainstream bloggers on the possibility of minting a Trillion Dollar Coin (TDC) to avoid the debt ceiling appeared, including a post from Paul Krugman. In addition, Jerrold Nadler (D-NY) became the first Congressman to advocate for the TDC to get around the debt ceiling, the TDC was suddenly ubiquitous on MSNBC, and began appearing on other networks as well.

The ground swell for the TDC continued through the first week of January and kept growing larger and larger facilitated by the #minthecoin twitter campaign. The hashtag #mintthecoin was originated By Stephanie Kelton of the Economics Department of the University of Missouri at Kansas City. Joe Wiesenthal, blogging at Business Insider, picked it up, used it to name a White House petition, and marketed a viral petition drive urging the President to mint a TDC and use it to pay down debt so the debt ceiling could be avoided.

The twitter campaign became a phenomenon and a trending topic, accompanied by more and more blog posts across the political spectrum, both pro and con, about using the TDC. Signatures on the petition grew fast, finally resulting in questions at White House news conferences about the TDC, asking whether the President was going to use it or had considered it.

Increasingly, after January 5th, the platinum coin was everywhere even getting covered by the Colbert show. Finally, on June 12, as the web frenzy continued to grow and after a very notable panel discussion of Platinum Coin Seigniorage on Chris Hayes’s Up show, including both Wiesenthal and Kelton, among others, this past Saturday morning at MSNBC, the Treasury and the Fed tried to put an end to speculation by announcing that the Administration would not mint the coin.

So, now the web echos with cries that the platinum coin is dead, some of the cries are joyful. Some of them are angry. Perhaps they’re right. Perhaps the coin is dead. But perhaps also it will come back again, in a new guise, when conditions are right. How can that be?

Well first, we need to recognize that the TDC, with its intense and frenzied web-based campaign was based on the wrong coin and the wrong cause. The cause or the problem it was addressed to was getting past the debt ceiling by creating some head room below it with the seigniorage proceeds. After that, the TDC bloggers envisioned that deficit spending would continue to require issuing debt instruments, and that there would be no further “disruption” in the normal way of doing things, and also that the President would cope with the coming sequester, and continuing resolution (CR) conflicts separately.

So, the TDC, even if used, would really change very little. It wouldn’t stop the Republicans from pursuing spending cuts in entitlements and important discretionary programs. It wouldn’t change the fundamental drive for austerity in both parties, fueled as it is by the view that “national debt” is both frighteningly large, and also unsustainable. So, at best, the TDC was a tactic to put off the day of reckoning with the Republicans, and perhaps to use the law authorizing it as the basis for a swap with the Republicans of the PCS legislation for the debt ceiling law, a very silly and odious idea proposed by a mainstream blogger, wanting to return the system to “normal” but not change it.

Considering this background, it is easy for the President to say that we won’t use PCS. Maybe not as easy he would have liked. But still the TDC was only a tactic. The President can abandon it and talk about other tactics, or his apologists can talk about his desire to avoid default by having a government shutdown that will break Republican resistance, as President Clinton was able to do. If they and he can do that for long enough, then the President can keep Democratic Congresspeople in line for as long as it takes for him to make his “grand bargain” for austerity with enough Republicans to join with the supine Democrats to pass it.

Even though I have blogged more frequently about PCS than anyone, I have never been for minting one TDC and returning to normal Treasury/Fed procedures for deficit spending. I have always proposed substantial and significant change in the financial system, change that would end with paying off the national debt, and with destroying the underlying political rationale for austerity based on the debt and the related idea of fiscal unsustainability.

During the whole current TDC campaign I have blogged constantly about High Value Platinum Coin Seigniorage (HVPCS) and its potential for changing the fiscal and political landscape and destroying the basis for austerity politics, while changing the game radically for progressive attempts to create greater economic and social justice. I referred to HVPCS as the big story the mainstream was missing, and also as game-changing PCS that would change the context of politics.

I believe that if the MSM bloggers hadn’t set up one of their usual “only talk to fellow villagers” echo chambers, but instead had embarked on an honest discussion of PCS options, they would have ended with a groundswell of support for HVPCS to fight austerity and that idea, since it is more strategic than tactical, would have been much harder for the President, Geithner, and Bernanke to dismiss, after a campaign that had identified it as the way out of austerity for the United States.

The President must, if he’s going to be successful in making the “grand bargain” continue to present himself as preferring not to make serious cuts to entitlement and other valued domestic programs, unless the Republicans “make him do it.” To the extent possible, the Democrats who will support him, also want to deny responsibility for the actions they will take. For the President and his Democrats to be seen as forced into the “grand bargain,” the President cannot be seen as acting to take an important way out of the austerity trap “off the table.” And that is what he would have had to do if the TDC campaign had been replaced with an HVPCS campaign sold as an answer to austerity.

The MSM and the blogosphere generally have missed the chance to generate such a campaign with the really heavy pressure it would have placed on the President and the Democratic Party. That is its failure; yet another disservice to the American people by the MSM Press.

The Right Kind of Coin

I’ve been blogging about the right kind of coin for a long time now, and very frequently since the latest wave of PCS began in December. That kind of coin is a platinum coin with a face value of $60 T. Why $60 T? Because that’s the face value needed to pay off the national debt, and to cover deficit spending for 15 – 25 years, enough time to educate people about the nature of fiat money and the desirability of changing the current financial system so that the Federal Reserve is reorganized as part of the Treasury Department, and the Treasury’s authority to create reserves as it spends, without either debt financing or seigniorage, is recognized as the way things ought to be done.

The idea that after Congress appropriates money for Federal deficit spending, that spending can only occur if and when the Treasury can raise the money, is a hangover from gold standard days and ridiculous for a fiat sovereign government like the United States. The authority to spend should be delegated by Congress to the Treasury at the point appropriations are approved.

Appropriations are a mandate on the Executive; that mandate, in a sane nation, would be accompanied by the delegation of the authority to fulfill the mandate. That is the system we should eventually have because it is the only one that makes any sense and that can keep both the Executive and Congress accountable for their actions.

But until Congress passes legislation creating that system, it ought to be recognized by all that the PCS legislation is on the books, and that for the President not to use it to fill the public purse with enough funds to banish the underlying fiscal conditions that underlie austerity politics, the national debt, and the ability to cover the deficit for a long time to come, is inexcusably corrupt, fiscally and economically irresponsible, and completely opposed to the public public purpose that the President is supposed to serve.

So, I want to tell the President that for as long as the PCS law is on the books, and austerity is impending, he has the duty and the obligation to reject it and to mint a game-changing PCS solution using a very high value platinum coin, that after it is credited by the Fed, will make it very plain that there is no need for austerity, but that there is a need for whatever deficit spending Congress needs to appropriate, and he needs to implement, to put America back on the road to the economic and social justice we ought to be pursuing as part of a Green New Deal.

I call on him to mint that $60 T coin now. And if he fails to do that; and instead, along with the Democrats, goes ahead with his plans to impose unnecessary austerity and sacrifice on most Americans other than the wealthy, in the face of his ability to create financial plenty, then I, and others who I am able to persuade about game-changing HVPCS, will do all we can to place the blame where it belongs for “the great betrayal,” and to see that Congresspeople who join in the “grand bargain” travesty of justice pay for it at the polls!

But before we get to that point, I call on others who want to see an end to austerity join me in beginning again to blog, comment, facebook, and tweet about PCS; but this time to forget about the TDC, which was always the wrong coin, and to focus on #minttheHVPC instead. That is up the ante! Make this about ending austerity, and using the right platinum coin to create the political space needed for doing it!

Forget about them taking PCS off the table! We’re putting it back on the Table! Make ‘Em Mint the HVPC! Make ‘Em Do It!

(Cross-posted from Correntewire.com.)

Ezra Klein Chooses Fear Mongering the Big Coin, I Choose Ending Austerity!

4:40 pm in Uncategorized by letsgetitdone

Ezra Klein

(H/T to Lambert Strether for the title!)

Here’s a commentary on Ezra Klein’s recent diatribe against Platinum Coin Seigniorage (PCS).

But there’s nothing benign about the platinum coin. It is a breakdown in the American system of governance, a symbol that we have become a banana republic. And perhaps we have. But the platinum coin is not the first cousin of cleanly raising the debt ceiling. It is the first cousin of defaulting on our debts. As with true default, it proves to the financial markets that we can no longer be trusted to manage our economic affairs predictably and rationally. It’s evidence that American politics has transitioned from dysfunctional to broken and that all manner of once-ludicrous outcomes have muscled their way into the realm of possibility. As with default, it will mean our borrowing costs rise and financial markets gradually lose trust in our system, though perhaps not with the disruptive panic that default would bring.

Name calling, labeling, and fear mongering aside, does Ezra understand the first thing about PCS? Does he know that if a $60 T coin were minted, and the Treasury General Account (TGA) filled with $60 T in electronic credits, the US would be able to just say goodbye to the international markets? If we were paying off the national debt as it fell due, we would not only not be defaulting, but would be paying all our creditors on time and in full, and without benefit of further debt instrument issuance. Nor would we care whether the markets trusted us or not; since we would not be borrowing money from them for the foreseeable future. So, how could our borrowing costs rise?

And, as far as predictability is concerned, what would then be predictable is that we would be paying all our obligations to everyone whether Wall Streeters, denizens of the global markets, pensioners, Medicare, and Medicaid recipients, and everyone else we have obligations too without anyone getting the short end of the stick. Now, I’d like to see that kind of predictability from this Government, without any drama, histrionics, deficit terrorism, or whining about how our moral character is too weak to endure the Washington Post’s favorite meme, “shared sacrifice.”

The argument against minting the platinum coin is simply this: It makes it harder to solve the actual problem facing our country. That problem is not the debt ceiling, per se, though it manifests itself most dangerously through the debt ceiling. It’s a Republican Party that has grown extreme enough to persuade itself that stratagems like threatening default are reasonable. It’s that our two-party political system breaks down when one of the two parties comes unmoored. Minting the coin doesn’t so much solve that problem as surrender to it.

Well, Ezra, that’s your notion of the worst problem we face. My notion of a problem is that our national debt is hopelessly misconstrued by people, and that its existence is being used by radical “free market” extremists who want to sharply cut the social safety net, and who also want to block the passage of other Government programs that would benefit most Americans. So, I want to get rid of “the national debt” as a political issue. The best way to do that is to get rid of that national debt. That can be done by using PCS, and in a way that will not drive the economy into depression, or working people into even deeper poverty.

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP’s reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch. It is of no solace that many of the intuitive arguments against the platinum coin can be calmly rebutted. It’s the wrong debate to be having.

Only your version of the platinum coin. You clearly have in mind the Trillion Dollar Coin (TDC) PCS option. I agree that it would only delay a reckoning, and that a debate over its legality is not the debate to have. But a $60 T coin, would eliminate the debt ceiling as a factor, make the debate about getting rid of austerity irrelevant, and also make it impossible to use any of following to oppose progressive legislation:

– “The Government is running out of money.” (Not with a $60 T coin in the bank.)

– “The Government can only raise money to spend by taxing and borrowing” (Not with PCS)

– “We can’t keep adding debt to our national credit card.” (We won’t be using any of the money on the credit card.)

– “We need to cut Government spending and make do with no more money.” (Only if more spending would definitely cause inflation.)

– “if the Government borrows more money, then the bond markets will raise our interest rates.” (The Government won’t be borrowing anymore.)

– “If we continue to issue more debt, our main creditors: the Chinese, the Japanese, and our oil suppliers, may cease to buy our debt, making it impossible for us to raise money through borrowing which, in turn, would force us into radical austerity, or perhaps even into insolvency, which would then be followed by radical austerity and repudiation of our national obligations.” (Again, the Government won’t be borrowing anymore, so who cares if they no longer want to buy our debt)

– “Our grandchildren must have the burden of repaying our national debt.” (There won’t be any debt or any burden.)

– “Now, the final step – a critical step – in winning the future is to make sure we aren’t buried under a mountain of debt.” (Again, no debt; either mountain or molehill.)

– “Our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.” (But it is sustainable. If we use PCS, then we can have gaps between taxes and spending every year.)

– “We need to cut entitlements like Social Security and Medicare, because we are running out of money and they are not fiscally sustainable.” (But they are with PCS, because we won’t be running out of money!)

– “If we make the hard choices now to rein in our deficits, we can make the investments we need to win the future.” (Given PCS, what we do now about deficits has nothing to do with our capability to make the investments we will need)

– “We need to reduce our deficits to be fiscally sustainable.” (Deficits have nothing to do with fiscal sustainability in the sense of continued capability to spend, which will be very plain to people if $60 Trillion is sitting in the TGA.)

– “We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.“ (Can’t say that if most of the debt is about to be paid off.)

– “Our debt is out of control. What was a fiscal challenge is now a fiscal crisis. We cannot deny it; instead we must, as Americans, confront it responsibly.” (PCS can confront it responsibly, but the bipartisan horror just enacted can’t.)

– “We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.” (Right! So let’s stop borrowing and use PCS.)

– “Everyone knows that the U.S. budget is being devoured by entitlements. Everyone also knows that of the Big Three – Medicare, Medicaid and Social Security – Social Security is the most solvable. . . . “ (The budget can be as big as we need it to be with PCS.)

– “The Social Security Trust fund is a fiction, a mere bookkeeping device.. . . There is no free lunch. There is nothing in the lockbox.” (There will be if we pay back the trust fund through PPCS.)

– “There is a deficit/debt reduction problem for the Federal Government that is not self-imposed.” (What’s the problem? We can’t run out of money with PCS!)

– “The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too.” (What nonsense! As PPCS shows very well; the Government is not like a household. Households can’t create unlimited funds through PCS; but the Federal Government can.)

– “The only way to tackle our deficit is to cut excessive spending wherever we find it.” (It’s always good to cut spending that’s not in the public interest. But if spending is having good results, and we’re using PCS, then there’s no reason to cut it, whether taxes cover the spending or not.)

– “We should also find a bipartisan solution to strengthen Social Security for future generations.” (With PCS, we can easily strengthen SS by extending benefits, and we don’t need to do it through a bipartisan Rube Goldberg contraption.

– “The United States is in danger of becoming the next Greece or Ireland.” (Even without PCS it can’t become Greece or Ireland, only the next Japan. But with PCS it can become the United States again.)

– “Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus” (With PCS, the debt-to-GDP ratio will be stabilized and reduced, but no “surplus,” in the sense of more tax revenue than spending, will ever be necessary for revenue purposes.)

Ezra goes on to say that using the Platinum Coin will trigger a debate within the Republican Party, that will strengthen its worst factions, because its extremists will be able to argue against:

. . . a wild, unprecedented, inflationary power grab by an overreaching president. Making matters more difficult, it will become impossible for more cautious Republicans to break ranks. It’s one thing to argue, as many are already doing, that inducing default risks destroying the Republican Party for a generation. It’s another to abet such a blatantly unconstitutional, dangerous move from the executive branch.

Well, it’s not blatantly unconstitutional at all Harvard Law Professor Laurence Tribe thinks it’s legal. Yale Law Professor Jack Balkin thinks it’s legal. The lawyer who came up with the idea, beowulf (Carlos Mucha), thinks it’s legal. Philip Diehl, former Director of the US Mint thinks it’s legal. And, I, a Ph.D. political scientist with some background in Constitutional Law, also think it’s legal.

Even Ezra says it’s legal earlier in this very column. So, who are the Republicans to label it “blatantly unconstitutional”? What evidence would they have that it’s “blatantly illegal? If the President uses it he will have legal opinions supporting its legality. In addition, the plain language of the law says it’s legal. Arguments that it’s not are more complex and detailed than the plain language of the law. So, how will this play in the court of public opinion?

Ezra goes on to suggest that using the coin won’t end the conflict; but will cause the Republicans to work even harder and in a united fashion to get what they want. Well, isn’t that too bad, they’re just going to work harder at being even more nasty, so the rest of us shouldn’t do anything that will get them really ticked off. What kind of advice is that, the advice of a columnist who works for a newspaper with a deficit hawk editorial director, and a financial deal with the world’s most prominent deficit hawk: Peter G. Peterson?

Can’t you just picture it? Ezra gets called into a meeting with Fred Hiatt who asks him whether he can’t do anything to dampen this platinum coin wave that everyone is riding, and Ezra replying says: well, maybe I can write something that will make people very, very afraid of the tea partiers fomenting a new American Revolution.

Of course, Ezra may be right about a big coin making Republicans even more determined to destroy the US economy than they are now. Things could happen that way; but if a very high face value coin, like a $60 T coin, is minted; then the mere presence of the $60 T in the Treasury General Account (TGA), and its use to pay down debt, will change the political context, and make Republican propaganda look much more fanciful, than it does in an imagination that assumes the political context and the future won’t be changed by minting a big enough coin and using it to fill the public purse.

So, Ezra, notice what happens to the memes Iisted above. They’re just not going to work anymore, if a $60 T coin gets used. If the Republicans remain stiff-necked, what justification would they then have for austerity? Now, they have the debt, and no apparent means of paying it off except lowering spending and raising taxes. But what would they have after that coined filled the public purse? The answer is ZIP!

It is likelier that the platinum coin would drive the Republican Party towards a much more dangerous and enduring standoff. If Republicans never permitted another debt increase, would we just keep minting platinum coins? Would the Federal Reserve abet the strategy and work to hold down inflation, effectively putting itself in the middle of a titanic political fight? Would the market eventually begin to panic because American governance has entered into unknown territory?

If the Administration minted a $60 T coin, then it would probably never have to mint one again, since the first one would lead people to understand that the world won’t come to an end if Treasury can print money to fill the public purse to spend Congressional appropriations. Would the Fed help hold down inflation? Of course, it’s their mandate. It’s not about politics. They’d have to act that way. If they didn’t; there’d be immediate talk of folding them into Treasury! Finally, minting and using a $60 T coin to pay for debt and deficit spending won’t be inflationary.

There are two ways to truly resolve the debt-ceiling standoff. One is that the Republican Party needs to break, proving to itself and to the country that the adults remain in charge. The other is that America is pushed into default and voters — and the world — reckon with what we’ve become, and what needs to be done about it. Sadly, there’s no easy way out. It’s heads America wins, tails America loses.

Well, rule out the platinum coin, and sure, these may be one’s only two choices. But Ezra hasn’t shown that using a really BIG coin would elicit real problems, other than getting the Republicans and the right wing really, really, mad (maybe they won’t have lunch with him anymore), and there are compelling arguments suggesting the contrary. So, I think that Ezra’s gone off the deep end in this column, especially when you consider the cost of default to people, and also the cost of the austerity alternative. Both default-induced austerity; and major party-induced austerity by compromise are both utterly unacceptable.

We must find a third way! Ezra can’t just assume that there is no way out of his Hobson’s choice. He and we need to consider game-changing PCS before condemning the nation to default.

(Cross-posted from New Economic Perspectives.)

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Wake Up Progressives: The Trillion Dollar Coin Can Be Game-Changing!

4:25 pm in Uncategorized by letsgetitdone

Well, not really. But if you view the Trillion Dollar Coin (TDC) meme, as I do, as a short-hand for the more general idea of using Platinum Coin Seigniorage (PCS), then yes, it can change the whole political game for progressives if President Obama dares to use it.

Literal TDC proposals would solve the debt-ceiling, but they won’t solve the larger problem of defeating the austerity politics that is so close to getting the cuts to social safety net and important discretionary government programs that austerians have long sought. PCS game-changer proposals are the ones calling for, or analyzing the impact of, PCS options aimed at paying off the national debt and covering anticipated federal deficit spending for some years.

PCS options of that kind change the game of fiscal politics by removing the issue of austerity from fiscal policy considerations. With this kind of PCS the national debt and the debt-to-GDP ratio go away as matters of concern. The focus of fiscal policy then becomes the impact of specific policies rather than some overall deficit or debt reducing target. The issue in fiscal policy then becomes public purpose. It becomes what specific impacts, including inflation, and full employment, are anticipated from passing specific legislation, and whether or not those impacts are in line with public purpose. But, when the national debt and the debt-to-GDP ration go away as matters of concern; then the issue of the deficit viewed as something that is draining a limited supply of financial resources goes away, also, because people will understand that using PCS to cover deficits ensures that the US Treasury can never run short of its own fiat currency.

I’m sorry to say that there are few posts of this kind, relatively speaking. I’ll list and link to some of those posts later. But first I want to point to what some in the MSM blogosphere are saying right now.

A popular position in the MSM blogosphere

In response to a tweet from the National Republican Congressional Committee (NRCC) yesterday, Jason Linkins at HuffPo repeats Joe Wiesenthal’s earlier contention that the platinum coin has nothing to do with additional spending, but only with solving the debt ceiling problem. And Linkins says:

The only role the platinum coin plays, in the scenario described by those who promote the idea, is an emergency measure that protects the United States taxpayer and the global economy from the catastrophic effects of a debt ceiling breach.

Linkins is just wrong about this, some, like myself have been advocating game-changing platinum coin seigniorage since July 2011 to get rid of austerity politics and enable the United States to handle its various problems without progressives having to constantly struggle against memes like “we can’t afford it,” “we’re running out of money,” “we’re going to leave huge financial debts to our grandchildren,” and other nonsense memes along these lines from austerians. Linkins accuses the NRCC of lying about this and says that the idea that some people are advocating using the coin to provide the means for spending is “a myth.”

Well, I don’t know whether the NRCC knows the PCS literature well enough to know about game-changing proposals, so they may have been lying about it out of ignorance. But, nevertheless, even though they may have misrepresented the position taken by many in the MSM “liberal” blogosphere, they haven’t told an untruth about people like myself who aren’t part of the MSM echo chamber, and who think more broadly about the possibility and potential of PCS applications. The real issue here isn’t whether the NRCC is lying. It’s why people like Wiesenthal, Linkins, Krugman, and Matthew O’Brien of the Atlantic aren’t focusing on game-changing PCS. In an earlier post, I pointed out that Wiesenthal was concerned about inflation; and surprise, surprise, it turns out that O’Brien is too. He says;

So why not just mint 16 of these $1 trillion coins and retire the entire national debt, smart guy? Or, even better, create a single $16 trillion coin — scratch that, make it $100 trillion!

Now that’s just crazy talk. Let me be clear: Nobody wants to use platinum coins to eliminate the debt. As http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/ Paul Krugman points out, there’s a limit to how much seigniorage a government can extract before hyperinflation sets in, and that’s certainly far less than $1 trillion, let alone $16 trillion. . . . .

Can we cut this short? I need to run out and buy some canned food and gold bars to prep for the coming hyperinflation. A trillion dollar coin is only two orders of magnitude away from us matching Zimbabwe for monetary ignominy.

OK. So, it’s really about the fear of hyperinflation from a guy who tweets under the name @obsoletedogma, and the reference to Krugman indicates that O’Brien, like Krugman, still goes along with the Quantity Theory of Money (QTOM), which Keynes put to a well-deserved rest during the 1930s. Talk about obsolete dogma, IS-LM and loanable funds models aren’t exactly examples of up-to-date economic models.

Here’s a good blogosphere refutation for Matt to read to understand that the QTOM dog won’t hunt! And that he and the others need a specific analysis of why a $100 T coin would cause inflation including specifying causal transmission mechanisms for causing inflation when the seigniorage profits, including the debt repayment money would be paid out over a period of years, and the immediate money to be paid out, would go only to pay intragovernmental and Fed-held debt.

Before O’Brien, Wiesenthal, Linkins, and others start chanting: Zimbabwe! Weimar! I think they ought to do such an analysis and put off going out for some canned food and gold bars. I’ve done a fairly detailed analysis of PCS impact showing why it wouldn’t be inflationary, whatever the denomination of the coin(s) involved. So has Scott Fullwiler. With so much at stake in the debate over the TDC, I think they should at least read these Posts and tell us why they disagree, before they go off half-cocked about using PCS and getting hyperinflation or even inflation!

Wiesenthal, and Linkins, agree that the Platinum “. . . . coin debate coin could be the most important fiscal policy debate you’ll ever see in your life.” I agree but, if that’s truly the case, then let’s see them expand the debate to a serious consideration of game-changing PCS, and get off the shtick of talking only about the TDC as a solution to the debt ceiling problem.

Game-changing Platinum Coin Seigniorage Options and Posts

So, again, PCS game-changer proposals are those calling for, or analyzing, the impact of, PCS options aimed at paying off the national debt and covering anticipated federal deficit spending for some years. They probably start at no less than $30 Trillion, because you need $16. 4 T to set aside for paying off the national debt, and then another 14T, which may cover the next 10 years of needed deficit spending if we can get the economy recovered again and get a better balance of trade than we have now. A $60 T option would cover the debt and deficits for 15 – 25 years, and $100 T would probably work for 40 – 45 years.

The further you go out, the more nominal money value you have to have in the public purse to cover deficit spending. The reason for that is that an economy like the US, which imports more than it exports, needs Government deficit support of full employment of roughly the size of the trade deficit plus the size of the demand leakage to private sector savings per year. Assuming the private sector will want to save 6% of GDP per year and that our trade deficit is likely to continue at 4% per year, we can see that we’ll need a Government deficit of about 10% of GDP per year to sustain full employment. This follows from the well-known sectoral financial balances model of macroeconomics. It’s an accounting identity and always holds.

Once the savings and trade balances are determined, then the deficit will be the sum of those. The only question is whether the deficit spending will be done well, that is, in such a way that full employment is facilitated along with investments that guarantee a bright economic future, or whether the deficit spending will be ad hoc and strictly dictated by the automatic stabilizers like unemployment insurance payments, food stamps and the like. So, since GDP will be growing throughout this period, the deficit spending we’ll need per year also will be growing along with the size of the economy.

Some bloggers have advocated minting a $quadrillion coin, and that is another option for how to proceed with game-changing PCS. I’m not really opposed to that. But I’ve proposed the $60 T coin, because I think a game-changing PCS solution is a transitional stage preceding the reorganization of the Federal Reserve and its placement under the supervision of the Treasury Department. Since the $60 T coin will cover debt repayment and debt-free deficit spending for 15 – 25 years; it provides enough time to educate people politically about the desirability of such a change, while providing the Executive Branch with the power to fill the public purse while retaining Congressional control over the purse things themselves, as the Constitution requires.

Why do I call options like the ones above game-changing options in contrast to using the $1 T coin? The reason is that they, unlike the $1 T coin option, not only solve the debt ceiling; but also change the way the Treasury gets the credits into its spending account to deficit spend. The Treasury doesn’t create those credits directly with the platinum coin; but it does mandate the Fed to use its power to create them in response to depositing the very high value coin. Once the credits are swapped for the very high value coin involved, the national debt subject to the limit can be paid down and eventually off, without severely contracting the economy, and also deficit spending can then proceed using the credits already in the Treasury’s spending account. In short, the very high value PCS options fill the public purse with enough credits to take the debt off the table as an issue, and also to make the question of how we’re going to pay for the deficit spending we may need to adjust to the sectoral balances irrelevant, because the money will already be there to support that needed deficit spending.

With the debt ceiling, and the “how you gonna pay for it” issues gone from political debate; the foundation for austerity politics is also gone. We can forget about the Washington think tank industry talking about 50 year budget projections, fixing the debt, debating the debt, agonizing over the debt, calling for cuts to the safety net, saying we cannot afford Medicare for All, or programs for facilitating full employment, etc. This would be a new day for progressive and American politics. It would mean goodby to Bowles-Simpson, Maya McGuineas, Pete Peterson, Alice Rivlin, and all their cohorts.And it would mean hello to a new generation of progressives who could aggressively push a movement for social and economic justice for the 99%.

Moving to PCS game-changing posts, there are very few people blogging game-changing PCS until now. I began blogging it on July 21, 2011, during the first wave of mainstream posts on PCS, with a $30 T PCS post, including a speech the President could make announcing it and politically justifying it, and also a pretty detailed discussion of the inflation issue.

I concluded that inflation due to PCS per se wouldn’t be an issue, because the $6.4 T in intragovernmental and Fed-held debt wasn’t going to get into the economy. The repayment of other debt, gradually, and when it fell due, would have a similar impact on the economy as quantitative easing, already shown not to be inflationary. In addition, there was plenty of evidence to suggest that the reserves swapped for debt instruments when these are retired are less inflationary then the debt instruments, in any event. Finally, the use of PCS for deficit spending, in place of debt instrument sales, also would not be inflationary, because 1) the difference between these two is like QE; and also 2) the net financial assets produced by the deficit spending would be reserves rather than debt instruments, already shown to be less inflationary.

I followed that one on July 25, 2011, with an open letter to the President and Congress using the $30 T PCS proposal, and followed those posts with two more mentioning high value PCS on the 26th and 29th. At that point, on July 30, a popular blogger at DailyKos, Seneca Doane, wrote a blockbuster post on high value PCS that received 569 comments there, a large amount for DailyKos. It was a one-off thing for Seneca, but nevertheless did a lot to establish blogging about PCS at DailyKos, and also, Seneca was the first to mention the $quadrillion platinum coin in one his comments.

After Seneca’s post I kept blogging about high value PCS, routinely including it in my posts. Then on August 2nd, the day after the debt ceiling settlement Scott Fullwiler published his post on coinseigniorage and inflation. This was a comprehensive analysis of the types of payments that might be made using coin seigniorage funds. Scott, a top-level MMT economist showed that 5 different types of payments would not be inflationary, regardless of the face value of the coins that were minted.

After August 1, 2011, mainstream bloggers dropped PCS like a hot potato since the debt ceiling was no longer in the news. But I kept blogging about it because I knew the debt ceiling would be coming back, and also because I had become far more interested in game-changing PCS than in the Trillion Dollar Coin itself.

On August 3, 2011, I blogged “Proof Platinum Coin Seigiorage: A Political Game-Changer for Progressives,” along with the $30 T post, I consider this post to be one of my most important ones. For one thing it introduced the $60 T alternative for the first time. For another, it made very clear the idea that minting such a coin would change the political context and also the terms of political debate. I still think that post is the most compelling one I’ve done for high value PCS. On August 5th I followed with “Mint the Platinum Coin: End the Austerity War Against the People” which urged the President to implement high value PCS ($60 T) immediately. It outlined a scenario, in which the President minted a $60 T coin and then had to cope with the results of his action.

I continued blogging on the $60 T option bringing it up in the context of various issues throughout the rest of August and most of September 2011. Then on September 26, I posted “Filling the Public Purse and Getting the Public Spending We Need.” Another one, I consider very important. That post emphasized the distinction between filling the public purse and opening the purse strings. It made the point that while PCS gives power to the President to get the public purse filled; it doesn’t open the purse strings for deficit spending. It’s still up to Congress to do that, showing that PCS DOES NOT interfere with the constitutional power and duty of Congress to appropriate Government spending. Throughout the rest of 2011 and the first half of 2012, I blogged on PCS in the context of other issues. During the second half of 2012, I blogged about it in defending entitlements, on debt/deficit issues, and the debt ceiling and fiscal cliff issues. I also updated my $30 T post to a $60 T post and started a petition on $60 T PCS which has gotten very little support so far.

That pattern of blogging relating high value PCS to other issues like unemployment, the fiscal cliff, health care etc. continued until December of 2012, when the Second Wave of MSM posts about PCS broke on December 3. At that point I began a series of posts you can find at, among other places, New Economic Perspectives (NEP) and Correntewire. The posts at NEP will be found on my page there. The posts at Correntewire are related to one another through a handy link structure which forms “a book” over there. The book begins with a history post and then considers various aspects of PCS including reviews of posts in the current debate. One post in the series extends Scott Fullwiler’s analysis of PCS and inflation further. This post is part of the developing book on high value PCS.

Most recently, apart from from my own posts, other bloggers at DailyKos are starting to support High value PCS. These include: a post by priceman, one by bunnygirl60, and, a third by NBBooks.

Conclusion

So, that’s it! What the mainstream blogs are missing in their discussions of PCS is game-changing PCS, because their posts are overwhelmingly focused on the TDC. They dismiss game-changing PCS, when they recognize it at all by saying, of course PCS isn’t about that; it’s only about getting around the debt ceiling, and anything beyond the TDC intended to do much more would be inflationary, and a great and unwelcome disturbance in the normal way of doing things of developed nations. However, when the likelihood of inflation and hyperinflation is analyzed as in posts written by myself, and Scott Fullwiler, it becomes clear that claims about hyperinflation and inflation are very stereotypical and are based on either no analysis or very primitive notions about the QTOM.

The importance of the high value PCS the MSM bloggers won’t talk about, meanwhile, is that if tried it promises to end austerity and usher in a new era of progressive, even Green New Deal Politics, because the ideological basis of austerity politics which is the growing national debt would be gone. There are very few people blogging about this so far. But I’ve completed many blogs on $30 T and $60 T PCS which have discussed the major issues involved in high value PCS, and which have certainly provided a better basis for more extended discussion of it than the mainstream has so attempted. Whether they will ever go beyond the TDC, I don’t know; but hopefully this and other posts I’ve completed in past weeks will challenge the more curious among mainstream bloggers to begin to write about game-changing PCS and leave the small-ball TDC behind.

(Cross-posted from New Economic Perspectives.)

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The Small Ball Trillion Dollar Coin Seigniorage Exception

12:07 pm in Uncategorized by letsgetitdone

The exception to the general pattern focusing on the Trillion Dollar Coin (TDC) as the solution to the debt ceiling problem I outlined and critiqued in my last post, is in Joe Wiesenthal ‘s posts here and here. Wiesenthal alone criticizes, rather than ignores, other options than the TDC, namely the $16 T and $100 T options, on grounds that they are no more effective at meeting the debt ceiling crisis than the TDC. He says that the issue is not a lack money but the debt ceiling law, and also that if a coin that large were minted and used to pay back the debt, then the result would be inflation or hyperinflation because of the flow of the large quantity of reserves into the economy, and the ensuing great expansion in the money supply.

I think that Joe Wiesenthal is both showing his bias towards solving the smaller, more immediate (debt ceiling), rather than the larger (austerity) problem, and also that he’s dead wrong about the impact of a $100 T coin on inflation. On his bias: I can only say, that I don’t agree that “we” are talking about a legal problem rather than a money problem.

If all “we” are concerned with is the debt ceiling, then Wiesenthal is right; we need only consider the TDC option, which the President can use either once, or until the House gets tired of his minting TDCs, and raises the debt ceiling. But I think that most Americans, if they understood Platinum Coin Seigniorage (PCS) and its possible meaning for fiscal politics would go beyond debt ceiling concerns to the issue of austerity. And they would also realize that the face value of the PCS option chosen by the Secretary of the Treasury is of enormous importance for removing any perceived need for austerity arising from the level of the national debt or the debt-to-GDP ratio.

Wiesenthal’s main additional stated objection to extremely high value PCS on the order of $50 – $100 Trillion is the inflationary impact he expects it to have. I’ve already analyzed the likely impact of a $60 T coin on inflation in a fair amount of detail in an earlier post, based on Scott Fullwiler’s comprehensive framework. My analysis shows that there would be no inflation due to the effect of $60 T PCS itself on the economy. I can summarize the argument this way.

The credits in the Treasury General Account (TGA) ultimately resulting from using $60 T PCS aren’t immediately spent. So, they don’t all enter the economy immediately, but over a very long period of time from 15 – 25 years in duration. So, to gauge the inflationary impact, you have to analyze when and how the credits would be entering the economy. At the end of the last fiscal year, $6.4 Trillion in debt subject to the limit was owed by the Treasury to other agencies and to the Fed itself. That debt could be redeemed in the same week after minting a $60 T coin. But the payments wouldn’t be inflationary because they would not enter the non-government economy. Nevertheless, these payments would cut back debt subject to the limit by close to 40%, because of the ridiculous quirk in the law that counts intra-governmental debt toward the debt ceiling.

Next, the 10 T or so of debt held by private corporations, individuals, and foreign governments would only be paid as it falls due. Much of it would be paid over the first three years. But as I’ve argued above, the additional reserves placed in the system by paying the debt, and not issuing new debt instruments would be less inflationary than bonds would be.

Also, their presence in the banking system, would clearly flood it with reserves and drive overnight interest rates down to zero, rather than raising them. For the Fed to hit any non-zero rate targets it would have to support them either paying IOR, or issuing debt instruments of its own to drain the excess reserves. In either case, there’s no inflationary impact from repaying debt instruments as they fall due by adding reserves to the banking system.

That leaves deficit spending. In the case of a $60 T coin, and a national debt of $16.4 Trillion, we’ll assume that $43.6 Trillion would be left in the TGA for future deficit spending. However, the fact that the credits are in the TGA doesn’t mean that the Treasury could spend them. In fact, it can only spend them if Congress appropriates deficit spending. So, the bottom line is that the $43.6 T doesn’t go into the economy until it’s appropriated. Then some portion of it can be inflationary if Congress deficit spends past the point of full employment; but if it doesn’t, then there won’t be demand-pull inflation. And, if it does, then the inflation will be due to unwise Congressional appropriations and not to using PCS.

In short, there’s no way that PCS in itself can have an inflationary impact, no matter how high the value of the platinum coin is. That’s because repayment of already held debt is less inflationary than continuous rollover of and gradual increase of debt, repayment of debt to government agencies including the Fed doesn’t enter the economy, and using PCS-generated funds to cover deficits is not in itself inflationary unless deficit spending is so large that it continues past full employment.

So, that’s the true narrative about PCS and inflation. Not, ZOMG “Weimar, Zimbabwe.” That’s nonsense! Let’s hope that Joe Wiesenthal, and other MSM bloggers who have jumped into the PCS pool in the past few weeks read it and cease to spread “the silly idea” that PCS, in whatever denomination greater than say a few Trillion Dollars may be used, is inherently inflationary. It is nothing of the kind! Inflation, due to Government spending, is always and everywhere, in the rare instances that it occurs, a Congressional phenomenon!

(Cross-posted from New Economic Perspectives.)

Photo in the public domain.