Tweet
The debt limit is a fucking farce, cover to allow the Dems to do what their sponsors want and blame it on the GOP.
The debt limit is a gun that is not loaded. Tomorrow, Geithner could mint two trillion-dollar coins, swap them for $2T of Treasury bonds that the Fed holds, burn those bonds, and thus shrink the national debt by $2T without putting another penny into circulation.
Beowulf and letsgetitdone have been pointing out that the debt limit is a farce for months and have been paid no more heed than the fabled boy who noted the emperor’s nakedness.
Firepups, the fates of the New Deal and the Great Society are at stake! It’s time that we spread that the debt limit is a farce. We cannot yet again let Obama say “Those devils made me do it.” His bullshit has got to be stopped this time.
============= slightly wonkish answers to objections ==============
Some insist that this coins-for-bonds swap repudiates debt and/or debases the dollar. It does neither!
The Fed has already exchanged $2T of liquidity (produced out of thin air by incrementing account balances on Fed’s computers) for those $2T of Treasury bonds. So, in fact, the Fed has paid off (monetized) $2T of national debt with newly printed virtual money. But all of that is past history. These coins would not go into circulation unless the Fed choses to circulate them. But, the Fed has prime responsibility for preventing inflations and already has the power to print is own money (banknotes). Whether or not they put more dollars into circulation has absolutely nothing to do with what money they have on hand.
Bonds held by the Fed are considered to be “publicly held,” even though the Fed is essentially an arm of the government. So, in a value-for-value transaction, the Treasury would give the Fed specially minted coins, which are legal tender under law, in exchange for those bonds — there’s no repudiation of debt, since the Fed gets paid.
Here are the relevant laws (h/t Beowulf):
* TITLE 31, SUBTITLE IV, CHAPTER 51, SUBCHAPTER I, § 5103. — see (h) and (k).
* TITLE 31, SUBTITLE IV, CHAPTER 51, SUBCHAPTER II, § 5112.
,,
9 Comments
rec’ed and tweeted – thanks wigwam!
……..
(p.s. not so sure about the first ‘graph of explanations though).
Hi Selise. Thanks.
Regarding that first paragraph, the whole point of quantitative easing is to put dollars into circulation. In fact, they call him “Helicopter Ben” because of his 2004 speech to the Fed where he suggested fighting deflation by printing loads of dollar and dropping them from a helicopter. Buying something from the Fed has no effect on their ability to do that. By definition they have an infinite supply of dollars, and infinity + 2,000,000,000,000 = infinity. ;-)
My plan (a slight variant on that of beowulf and letsgetitdone) is a one-time proposal that treats QE1 and QE2 as a fait accompli. So, those who think that quantitative easing debases the currency have no reason to oppose this plan.
My only quarrel with Bernanke’s quantitative easing is that his helicopter dropped that those loads of money on bankers. We’re in a “liquidity trap,” so giving money to banks doesn’t help as much as it should. But, Bernanke knows this and noted that “fiscal policy should play a bigger role,” i.e., we need more federal spending, which puts money in the hands of people who spend it.
it’s that i don’t buy that QE2 put dollars into circulation.
http://bilbo.economicoutlook.net/blog/?p=661
http://moslereconomics.com/2008/12/17/quantitative-easing-for-dummies/
doesn’t detract though from your important message: the debt limit is a fucking farce
amen!
more fed govt spending and/or less taxes.
must read diary! thanks again!
This is from your first reference:
“Printing money” is a common nonderogatory metaphor among many economists, including Bernanke, Krugman, and all the economists with whom I drink beer and/or coffee. I invoked it and underscored it with the phrase “out of thin air” to emphasize the fact that, while my plan takes advantage of the fact that Bernanke has done this (for better or worse), my plan does not do more of it. My plan merely swaps assets between two government agencies, one of which print money and the other mints money.
My favorite perspective is that all government spending is paid for with freshly printed money and that all money the government takes in through taxation and borrowing is immediately incinerated. Since money is fungible that view is a valid as any other. (I’m told that view makes me a “chartalist.”)
Per 2008 written testimony to congress by Mark Zandi of Moody Analytics, the multiplier for Bush’s tax cuts is .3 and the multiplier for spending on social services is 1.5, so I’d go with the spending. ;-)
bush tax cuts are not the same thing as a payroll tax holiday. and the obama administration’s spending priorities are the banksters — not social services.
Here’s Zandi’s “bang for the buck” table.
http://www.econbrowser.com/archives/2008/10/zandi.gif
What’s kind of astonishing about this 2008 chart is if payroll taxes (1.29 multiplier) had been cut dollar for dollar while phasing out Bush income tax cuts (-.29), it’d more stimulative than just about any other tax policy change but would be revenue-neutral.
You could go down the list and pair off bad tax breaks with good spending programs. For example, expanding food stamps (1.73) dollar for dollar with eliminating accelerated corporate depreciation (-.27) is revenue-neutral while providing $1.46 in stimulus.
Hi Beowulf. Thanks for that link. Before now, I had to dig through the pdf of his congressional testimony. This is very convenient.