Anything new about the $1trillion coin?

[lumberjack_jeff]

Krugman wrote that Obama could strike a $1 trillion platinum coin and deposit it at the Fed. I haven't heard any recent discussion about this, but if the house adjourns after voting on their unpassable plan, Obama should do it.

[Buddaman]

1. Problem is

that coin and a dollar might buy a cup of coffee at McDonalds......

[lumberjack_jeff]

6. As legal tender, the coin and a dollar should purchase about 1,000,000,000,001 cups

I get that it's a suboptimal solution to a problem of Republicans creation. The question is whether it's better than default.

And I get that there are good reasons for the president to dismiss it as a viable solution while keeping pressure on congress to do its job.

Default will be catastrophic to the global economy. The risk of being questioned by the supreme court or ridiculed by teabaggers is relatively trivial.

[BumRushDaShow]

7. In the long term, it completely breaks the trust of the U.S.

amongst the rest of the world. Because if/when it happens again in the future, you "mint" another coin... and another... and another. And soon the dollar is worthless.

[lumberjack_jeff]

9. As opposed to doing nothing which breaks trust in the US immediately. n/t

[BumRushDaShow]

36. There have been many discussions of this

and the long term risk outweighs the short term "fix".

[lumberjack_jeff]

37. In the long term, we're all dead.

Is actual default preferable to a perceived risk of default? I find it odd to be the only one who thinks not.

[BumRushDaShow]

43. Rachael did a little historical recap last night on past debt ceiling fights

including the 1979 one where we did technically "default".

The problem with any of this going on right now is the (corrupt) credit raters downgrading our credit rating (again).

[Chathamization]

20. That's only a problem if it leads to too much inflation...and inflation is too low

at the moment. No trust would be broken.

[BumRushDaShow]

39. In the short term yes

but because of all the QE instances since 2008, the problem in the long term is that countries may start selling dollars and flee to other currencies (last I heard, they were talking about the Yen), flooding the market with those dollars. Flood the market and the interest rates will need to start going up to encourage folks (other than the Fed) to buy our debt, and eventually that can cascade into an inflationary trend.

[Chathamization]

70. Again...we need MORE inflation right now, not less

and a lower dollar would be good for the US right now. Any inflationary problems that occurs some years from now (and it most likely will be years before we have such a problem) can be handled by the Fed raising interest rates. That's how we stopped 13% inflation in the 80's. Our inflation now? 1.76%. Crying fire in during the great deluge.

[alcibiades_mystery]

2. It's a stupid fucking idea that doesn't solve the problem

The problem of default is that nobody has confidence in your paying your debts anymore. The problem of the trillion dollar coin is the same. It's dumb. It was dumb before and it's still dumb.

[lumberjack_jeff]

10. What good is a unitary executive if he has the power to arbitrarily kill, but not to pay the bills?

[former9thward]

3. This is why Krugman is a columnist and not anyone in a responsible position.

Its a gimmick that would be worse than a default.

[trumad]

11. uh...he's a Nobel Prize winning economist

And you are?

[former9thward]

14. Someone who is not full of himself.

Kissinger won the Nobel for Peace. So what. Do you see Obama making that trillion dollar coin? That's because he has people with some common sense in authority.

[trumad]

21. Someone who is not full of himself.

You telling me you know better than Professor Krugman tells me you're plenty full of yourself.

[former9thward]

23. I said President Obama and his staff knows better than Krugman.

Where is that trillion dollar coin? Obama put it in a safe and hid it?

[trumad]

24. Yeah---and you're smarter than this guy to.

I am the former US Mint director who in 1996, with Rep. Mike Castle (R-Del.), wrote the law authorizing production of the platinum coin you wrote about on December 5th. I can provide background on the legislative intent of the bill, but I write now to clarify confusion related to how the law might be used in the context of the debt limit.

Contrary to some media reports, minting a trillion dollar platinum coin would not raise the debt limit. Rather, it would add a trillion dollars to the general fund of the treasury without requiring additional borrowing, effectively delaying the date when the debt limit is reached.

The law enables this course by authorizing Treasury to produce the coin in whatever denominations the Secretary chooses. When we passed this law in 1996, it was with full knowledge that it was unprecedented in the history of US coinage. Congress had always specified coin denominations by law.

The accounting treatment of the platinum coin is identical to all other coins. When the Mint ships a coin from its vaults to those of the Fed, it books as profit (or “seigniorage”) an amount equal to the difference between the coin’s face value and its cost of production. This amount is subsequently transferred to the general fund of the treasury where it is available to finance government operations in the same way that tax revenue does. When the Fed returns the coin to the Mint due to damage or wear, the accounting treatment is reversed and the coin is melted. Thus, seigniorage “earned” from the coin is like an interest-free loan over the life of the coin.

So, in the case of a platinum coin, if the coin dies were manufactured ahead of time, the Mint could strike a single trillion dollar coin, ship it to the Fed, immediately book a trillion dollars and transfer that amount to the general fund. This would take a day, maybe two. The coin never has to leave the Fed’s vaults for the general fund to receive this new spending capability.

The law provides Treasury all necessary authority to pursue this course. I know this because I wrote the law and produced the nation’s first platinum coin. I’ve been through the entire process.

Unlike the tenuous case for using the 14th Amendment to circumvent congressional approval of an increase in the debt limit, the legal basis for this alternative is rock solid. Moreover, it is not a means of circumventing congressional authority over the debt limit, at all, but rather a way of delaying the date at which that limit is reached, in the same way a sudden surge of tax revenue flowing into the treasury would do. So GOP claims that the president is circumventing the law would be unfounded. Besides, the law was passed by a GOP Congress.

All the best,

Philip N. Diehl

35th Director

United States Mint
http://www.aei-ideas.org/2013/01/what-the-guy-who-helped-write-the-trillion-dollar-platinum-coin-law-told-me/

[lumberjack_jeff]

27. +1 n/t

[joeglow3]

41. How about the guy who wrote all abortion laws in redneck states the last few years?

I bet he would say that those laws were rock solid. I have seen enough people craft laws that were unconstitutional to know this guys opinion is shit.

[trumad]

44. Your stawman's are weak...very weak...

keep trying though

[joeglow3]

45. And your bar for believing shit is low.....very low

Don't stop believing, though.

[former9thward]

50. You keep putting it on me.

I said President Obama was smarter.

[mockmonkey]

4. The President

dismissed the idea last week.

"And I know there's been some discussion, for example, about my powers under the 14th Amendment to go ahead and ignore the debt ceiling law. Setting aside the legal analysis, what matters is -- is that if you start having a situation in which there -- there's legal controversy about the U.S. Treasury's authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn't be sure. It'd be tied up in litigation for a long time. That's going to make people nervous."

"So -- so a lot of the strategies that people have talked about -- well, the president can roll out a big coin and -- or, you know, he can -- he can resort to some other constitutional measure -- what people ignore is that ultimately what matters is, what do the people who are buying Treasury bills think?"

http://articles.washingtonpost.com/2013-10-08/politics/42817397_1_house-republicans-government-shutdown-speaker-boehner/6

[lumberjack_jeff]

8. "ultimately what matters is, what do the people who are buying Treasury bills think?"

Next week they'll think one of two things:
a) the US government doesn't pay its bills
b) the US government does pay its bills

Admittedly, there are better and worse ways to get to "B" but ultimately its a choice of default or don't.

[SamYeager]

12. The people who buy Treasury Bills would consider it a gimmick.

Short Term Treasury Securities are already being rejected as collateral by lending institutions.

[lumberjack_jeff]

13. Maybe. But they'll consider it bad faith if the government will not redeem their bonds.

Given the choice between bad faith and gimmick...

Short term securities rejection is based on a belief that they'll default.

[BlueCheese]

18. I hope that's just gamesmanship.

If he said he was going to mint the coin or argue the 14th amendment, then they'll never make any progress. If it really comes to possibly defaulting, I hope the president would do something by executive action.

[Salviati]

54. This is what I'm hoping.

That of course he's going to put the onus on the congress to get it done, but come the 11th hour, I hope he will take action and prevent a default.

I think that minting the damn trillion dollar coin is preferable to just ignoring the debt ceiling. As the president said, just flat out ignoring the ceiling may cause the validity of the newly issued bonds to be questioned, as the president really doesn't explicitly have the authority to do that. But the trillion dollar coin idea, though it is completely absurd, is completely within his defined authority. It's a silly way around a ridiculous manufactured crisis. Once the teabaggers are exposed for the frauds and grifters that they are and run out town on a rail, we can sensibly raise the debt limit (or better yet, just eliminate it!) sell bonds to replace the coin, withdraw it, and melt it down.

[BumRushDaShow]

5. No. nt

[MineralMan]

15. No, and there won't be. It was a hare-brained idea from the beginning.

It ain't happening.

[lumberjack_jeff]

16. Unfortunate.

It's a bit like putting out a fire with a seltzer bottle. It's such a silly idea that it doesn't even bear contemplating. No serious person would ever do such a thing.

Better to sit back and watch the fire burn.

[BlueCheese]

17. How does the idea work?

Is the idea that because we now have an extra $1 trillion, the government can then start paying people "real" dollars and not go over the debt limit? It's a silly idea, but as Krugman says, no sillier than the whole concept of the debt limit.

If I were president, I would not allow the U.S. government to default no matter what. If that means a constitutional showdown, then so be it. The crazy-train Republicans can go pound sand.

[lumberjack_jeff]

19. The idea is that instead of selling debt, print money instead.

Except, since this coin isn't going into circulation, it has no net effect beyond the effect that raising the debt ceiling would have had.

I agree. Default is a bad thing that should be avoided at all costs. If the worst that can be said about this idea is that it sounds silly, I'm unconvinced that it's the wrong thing to do in event of default.

The peculiar exception is that clause allowing the Treasury to mint platinum coins in any denomination it chooses. Of course this was intended as a way to issue commemorative coins and stuff, not as a fiscal measure; but at least as I understand it, the letter of the law would allow Treasury to stamp out a platinum coin, say it’s worth a trillion dollars, and deposit it at the Fed — thereby avoiding the need to issue debt.

In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. So this is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand.

But leaving the debt ceiling on one side, isn’t it true that since spending can currently be financed by Fed money printing, we shouldn’t care at all about the notional debt owed to the Fed? Alas, no.

It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.

[grantcart]

22. Your missing the essential point

The people who are loaning the money are not interested in some clever 'trick' to pay the bills.

If they perceive that the government and people of the US are turning away from a policy of promptly paying their bills then the markets will continue to buy bonds, but only at higher rates.

What is needed is a clean and clear signal that the people and the government still support the policy, not some coin trick.

Even at this point we should expect that even if it passes at the 11th hour bond rates will climb, question now is by how much.

[lumberjack_jeff]

26. I think they are more concerned with "if" we pay the bills.

I'm not suggesting that this should be considered a viable alternative for raising the debt limit, but a disaster mitigation method if we do not.

[grantcart]

31. Simply not the case. The market makes judgement about future willingness to pay the bill.

Any deterioration that is perceived in the willingness to pay in the future will cost us more money.


Part of the problem is that with the general situation in Europe being as poor as it is it may be that next month rates don't go up, but that when Europe has recovered and the bond market moves from a sellers market to a buyers market we will have to pay more.

Look at it this way, we are cheapening the quality of our product brand and eventually you will pay for it. To try and trick your way out of it will only further undermine your brand, much the same way that Coke tried to trick their way out with 'Classic Coke'. Tricks are not going to solve the fundamental question of confidence in the product.

[lumberjack_jeff]

32. Nothing says "future unwillingness" louder than "present unwillingness"

Sometimes you don't get choices between good and bad. Sometimes, the choice is between bad and worse.

I'm unconvinced that this shouldn't be on the table come Friday.

[grantcart]

33. nothing shouts "present unwillingness" than to by pass the legislature and get

an adding an invisible trillion dollars to a balance sheet by coining a new coin for that purpose.

[lumberjack_jeff]

35. The window for legislative action closes in about 36 hours.

At that point, the choices are executive action or collective inaction.

[grantcart]

38. in reality the first window closed last week.

Regardless of what action has been taken our perception in the bond market has been undermined.

Everyday another window and another bar is closed and lowered.

It actually would be better to pass the 'deadline' (which isn't as absolute as you apparently think it is) on Thursday and end up with a clean CR bill that would fund through 2014 with a year long debt ceiling increase.

That is why the Democrats are playing it so cool.

That is why the President isn't going to fool around with any 'trick' solutions.

That is why this thread is only getting one rec, its not a question of having some paper solution by the end of business on Thursday, it is about projecting to sovereign fund investors that we have our shit together.

[lumberjack_jeff]

42. "it is about projecting to sovereign fund investors that we have our shit together"

So, it's your argument that we're doing okay in that regard?

Current events only make sense if the "Benny Hill Show" theme is playing in the background. I fail to see how legal executive action makes the situation worse.

[JVS]

55. That was the same argument that "austerity hawks" used against quantitative easing and it didn't...

hold true.

The coin is just a different way of doing the same thing. Quantitative easing was one way to increase the money supply, minting a coin would just increase the money supply directly.

[grantcart]

56. The issue isn't about money supply or technical fixes.

Its about political cohesion and legislative support for some kind of fiscal policy.

Hitting the debt ceiling at the same time the government is shut down is not even in the same universe as quantitative easing.

[JVS]

57. Your complaint that some types of money are better with creditors than other types is...

entirely about money supply. The objection to the coin boils down to "Nobody will trust us if we just print/mint money". The answer to that objection is that we've already been printing money. Minting it will just be another way of increasing the money supply. The only unorthodox part of this is that usually we rely on the fractional reserve banking system to increase the money supply by creating debt contracts between various parties. The creditors will take it, as money is money and is not concerned with pedigree.

[grantcart]

60. Nothing to do with 'types of money'

Its about public support for responsible fiscal policy.

The review and it's perception as a damaged brand has already begun

http://www.democraticunderground.com/10023856199

In the bond market investors make their buying decisions based on a wide range of variables. One of the variables is political stability and the discipline that the body politic has. Bookkeeping tricks like printing a coin are not going to fix that problem.

The damage has already had an impact and even if they pass the legislation and no actual default occurs there will be lasting damage in the bond market until they start to see consensus and stability on long range financial policy.

In that sense, if the blow back is so severe that a clean CR and debt ceiling through 2014 then we will be in a better position than we are today.

[JVS]

61. Like I said before, you're repeating the austerity hawks' song. We've been there before.

Your argument was wrong then and it is wrong now.

[grantcart]

63. When you talk of quantative easing and money supply in this context you aren't

even coherent and that is why no one is taking the coin trick as a serious policy alternative.

I will let you have the last word on this silly subject.

[JVS]

68. Was the purpose of quantitative easing not to increase the money supply?

That happened and the result was not massive inflation. '

Minting a coin isn't some kind of new trick. It's one of the oldest practices in governing. And since the coin would be deposited in the treasury's account and only gradually disbursed from there, it isn't even as though it will have much of an effect on money in circulation. It isn't any different than when banks lend out money greater than their reserves or when the government just borrows more after raising the debt ceiling, which also increases money supply.

[Chathamization]

71. Death to fiat currency! Ron Paul 2016!

Yep, the "fiat currency is a trick" meme comes right from the goldbugs.

[Egalitarian Thug]

73. "no sillier than the whole concept of the debt limit" and that's the real point.

This whole issue is a farcical sideshow to let them pretend they are relevant. The republicans created the "debt limit" for the sole purpose of stopping future legislators from paying for the republican's spending sprees and cleaning up their messes.

The coin just makes the illusion of the "ceiling" appear to be a trillion dollars away. The net effect is insignificant in reality, but as you see all over this thread, it is pretty effective at bunching the panties of economically ignorant authoritarians into a tight wad. ( )

[Demo_Chris]

25. Measures like that, even if they worked, serve also to minimize the destruction the GOP is causing..

It is strategically better to continue feeding them rope so they can turn their current noose into a Gordian knot.

And while it is true that some Americans will be hurt by this, others will be hurt by intercession or compromise. Someone gets hurt no matter what -- that's the price of bad government -- but intercession saves the GOP from the full consequences of that damage while putting President Obama in the position of being responsible (or blamed at any rate) for any failures in the cleanup.

[lumberjack_jeff]

28. a valid argument

The question becomes an analysis of how much pain do americans need to assure that they kick Republicans to the curb.

The other, related, question is whether engaging in such analysis harms Democrats.

[jeff47]

29. I don't think you quite understand the scale of the problem.

In 1979, we defaulted. Software glitches coupled with a Congressional delay resulted in us not paying about $100M worth of treasuries on time. Entitles that bought large quantities got paid on time, but we were late on paying small investors. That was about 0.0001% of our debt at the time. And everyone involved understood that it was a confluence of unusual events.

How much did it cost us? $12 billion. Because interest rates on treasuries shot up in response to defaulting on 0.0001%.

Now, imagine we do what the Republicans want and pay only 85% of our bills. In other words, default on 15%. 0.0001% cost $12 billion. How much will 15% cost?

[Demo_Chris]

47. I am no economist but I do understand the problem...

You say this as though I believe this were something Democrats cooked up, and for which there were an easy painless solution. This is not the case. Saying that this will be bad is unnecessary, the questions are: bad for whom, is there a solution that will potentially eliminate the problem from cropping up again, and is the short term cost of that solution worth the long term gain it offers?

[jeff47]

48. No, I'm saying this as if you believe that we should see what would happen

Because that was the thrust of your previous post.

bad for whom

Everyone.

An instantaneous 15% budget cut would be devastating to the economy. And that would cause revenue to fall, which would then cause further cuts.

There is literally no one in the US that would not be harmed by this. Including people like the Romneys.

is there a solution that will potentially eliminate the problem from cropping up again

No.

The only solution that could eliminate the problem would be to eliminate the debt limit altogether. It doesn't make much sense to have a limit, since Congress votes on appropriations every year. But Congress wants to have that lever, and they are the only people who can eliminate it.

is the short term cost of that solution worth the long term gain it offers?

See answer to #1.

There's a whole lot of short term costs that are worth it because the scale of the disaster would be that large. That's not to say any short term cost is worth it - for example, having extortion be successful is probably not worth it. But if the Republicans get stuff in the negotiations after the government re-opens, it's probably worth it.

[Demo_Chris]

51. If so, I wrote poorly. I am very concerned about all this...

It will be devistating for both individuals and our country overall. Even setting aside short term issues like businesses collapsing and all that, the long term consequences are possibly worse.

I am simply unconvinced that there is anything the President can do about it, and if he could I am not convinced he SHOULD. He has experts to weight all that and advise him, I do not.

[backscatter712]

30. I'd expect Obama would either let the country default, or he'd go the 14th route, or CIC route.

My bet is that he'd go the Commander in Chief route. He'd declare, that as Commander in Chief, and the executive head traditionally in charge of protecting the security of the United States, that a debt default is a clear and present danger to national security, and that as President, he is ordering the Executive Branch to ignore the debt ceiling and continue operating and paying debts as if last year's budget was still in place.

Impeachment is the Constitutional remedy if Congress doesn't like it. The teafuckers in the House will vote to impeach, because the House is infested with complete batshit, but I doubt the Senate would have a 2/3 vote to convict and remove him from office.

[lumberjack_jeff]

34. So the choice is between legal and unorthodox, or illegal but probably politically survivable.

Don't disagree with your analysis, but I think it says something bad about our "system of laws, not men."

[backscatter712]

46. If I were him, I'd go CIC or 14th, and dare the right wing to impeach.

Like I said, I think Obama would survive an impeachment attempt, especially when his defense is "I did it to protect the nation from a second Great Depression." and the GOP would destroy what's left of their popular support with the impeachment circus.

[Taverner]

40. I loved that suggestion, and it shows the underlying Ponzi scheme that is our economy

[ChairmanAgnostic]

49. It was minted out of anti-matter, and is held in a vacuum tank by hyper-magnetic coils.

It has a really neat image, though.

[lumberjack_jeff]

52. It should have Reagan's face on the front and an elephant's ass on the back. n/t

[ChairmanAgnostic]

72. so basically, you want the same image on both sides. OK.

Although I would hate to flip a coin like that.

[Motown_Johnny]

53. If that were done, why would the (R)s ever raise the debt ceiling again?

Wouldn't they just refuse every time that trillion runs out? Then you need to do it again.. and again.. and again...


Each time reducing the value of the US dollar.


It is something that is legal to do, but it is not practical in any way, shape or form.

[lumberjack_jeff]

65. Wonderful point. I'm quite certain that if he does this, Republicans will behave irresponsibly.

... much like they will behave if he doesn't.

[Chathamization]

69. The debt ceiling makes no sense

If congress votes to spend money they shouldn't turn around and then vote that the money can't be allocated. It's like your boss having your order equipment and then telling you he won't pay for it. The time to battle over the budget is when the budget is being passed, not months later.

[Glassunion]

58. If be fine with that

Only if the coin weighs in at about 45.512 million pounds.

[Initech]

59. It didn't work on the Simpsons. What's going to make people think it will work in real life?

[JVS]

62. This time we won't hand the coin to Fidel Castro.

[Initech]

64. Or the Koch roaches (Mr. Burns) will find a way to take it.

[lumberjack_jeff]

66. Is that what's going on?

I missed a Simpsons episode and now I'm completely out of synch with prevailing DU sentiment.