My stupid question: Can't Obama just print money to keep paying the bills?

[MannyGoldstein]

We'll have some inflation - possibly - but how bad could it be compared to defaulting?

Assuming that some deal gets worked out in the next few weeks, I wouldn't think it would cause too much trouble.

[msanthrope]

1. You are correct. That is a stupid question. n/t

[MannyGoldstein]

2. Thanks! Can you explain why? nt

[msanthrope]

5. What, precisely, needs explication? nt

[MannyGoldstein]

17. Why my question is stupid.

It probably is - help me understand why, if you know.

[girl gone mad]

3. Basically, yes.

It's not really printing money, just trading USD credits for legal tender money. I don't see where inflationary pressure would enter the picture.

ETA link: http://neweconomicperspectives.blogspot.com/2011/07/coin-seigniorage-legal-alternative-and.html

[MannyGoldstein]

10. I've started reading The 7 Deadly Innocent Frauds

Very interesting. Thanks for the recommendation.

[dkf]

15. So why do we need to pay taxes at all if we can just print money?

[girl gone mad]

26. Taxes are what give fiat money value.

[dkf]

29. So you are lowering the value by printing fiat money.

[mmonk]

4. The federal reserve issues money for that type of fix

but not for fixing the economy or paying bills but to save those that wreck it.

[nsd]

6. Actually, they can.

Only rather than printing the money, they'd have to mint coins.

http://www.tnr.com/blog/jonathan-chait/92867/the-coin-will-save-the-world

The Coin That Will Save The World

Somehow, I've missed out on a discussion of the coolest (and apparently legitimate) way to avoid a debt ceiling crisis:

"Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time.

Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds."

Trillion dollar coins! It's the Montgomery Burns Solution

[Gabi Hayes]

19. can I get some change:

[metalbot]

24. Why stop there?

Print another one to ensure that college is free for all Americans.

Print another one to pay for health insurance for all Americans.

Print another one to properly fund every homeless shelter in America.

Print one more for the home foreclosure crisis.

If you can print two, you can print 3, or 4, or 5.

There's clearly a consequence to this, but the "print trillion dollar coin" people tend to want to sweep those under the table...

[girl gone mad]

28. If we did the things you list..

that would be adding a lot of new money to the system and it would actually be inflationary.

The platinum coin idea involves minting a coin that will then sit in a vault at the Fed, not get spent. Treasury's profits would be used to pay off existing debts. It's an asset swap with no new or unexpected money flooding into the economy and would be no more inflationary than simply raising the debt ceiling.

[fadedrose]

7. That's easy; they haven't paid for the last rolls of money paper they used and

the manufacturer won't extend more credit till they get a payment.

[Gman]

8. Printing more money would compound the problem tremendously

It would be very inflationary on top of interest rates going up. THink about it like this. The more of something that is available, the less it is worth. For example, there's not an unlimited amount or even a large amount of gold in the world. Therefore, gold is expensive. But there is a lot of zinc and it is therefore much less expensive than gold. The more dollars there are in circulation, the less they are worth compared to other currencies or even commodities.

[MannyGoldstein]

13. Didn't we just print trillions recently?

And, according to the government, prices went up barely at all. In face there's been no Social Security COLA increases for two years.

[rdking647]

16. it wouldnt have to be inflationary

the fed printed money during QE1 and 2 and that didnt cause inflation

[Amonester]

18. So, if Saint-Dollar goes down, at least it could create 'some' jobs

in the US, right? And to prevent falling wages, DOUBLING the minimal wage should take care of that little consequence, right? (+CAP the CEO parachutes, right? I mean, for National Security reasons, right?)

mmmmm

[phasma ex machina]

9. .

[nadinbrzezinski]

11. We have tried the easing... it has a limit and we

have almost reached it.

It is called quantitative easing.

It would also, if done to a large extent, throw the dollar into a less valuable than bathroom paper.

[lapfog_1]

12. he can't print money,

he CAN mint coins... of any denomination that we want, like say, 1 Trillion dollars.

or he can ask the Fed to give the treasury (not borrow) any amount that he wants.

or he can invoke the 14th amendment and declare that the debt ceiling is an artificial and unconstitutional law that encroaches on Presidential power granted to him by the 14th amendment. And then just borrow the money. Screw congress.

[leveymg]

21. Aside from $ trillion platinum coins, there is a very realistic option - borrow it from the Fed.

QE3.

3 ways Obama could bypass Congress

(snip)
Are there other ways for the president to raise money besides borrowing?

Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time.

Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

(snip)
http://us.cnn.com/2011/OPINION/07/28/balkin.obama.optio...

The third way is the Fourteenth Amendment. The article is well worth reading. The author is a Yale Professor of Constitutional Law.

[LuvNewcastle]

14. I'm no economist, but I've wondered the same thing.

Have they thought about it, or is it just out of the question?

[unkachuck]

20. "Can't Obama just print money to keep paying the bills?"

....sounds good to me....when inflation rises and the wealthys' assets devalue to the point that paying taxes becomes a cheaper alternative, we'll have their attention....

....we can print as much money as we want, as often as we want, and the world will have no choice but to tag along....

[LuvNewcastle]

22. Funny you mention that.

I have a friend who hob-nobs with wealthy people regularly and he says that most of them don't understand why raising their taxes is such a big deal. If they don't pay more taxes and the country goes down the tubes, they will lose a lot, a lot more than if they had just paid the damn taxes already. Even many of them don't seem to understand that we are dealing with an out of control, corpora-fascist ideology that only cares about its own survival.

[johnd83]

23. China will just hoard the printed mony anyway

Their economy depends on having a strong dollar. That is why QE2 had no effect on the US; it caused huge inflation in China.

[ProgressiveEconomist]

25. Obama can't, but Bernanke almost can. It's called "monetizing the debt", aka QE3

The Fed's balance sheet is not subject to any debt ceiling or other constraint except the vote of its Board of Governors. "Quantitative easing" "one" and "two" (which just ended last month) entailed buying hundreds of billions in assets including Treasury bonds for CASH.

There was a flurry of bullish Wall St. enthusiasm last month on rumors the Fed might respond to job growth running out of steam with a QE3. One of the reasons QE3 hasn't happened must be that Bernanke feared partially spoiling the Republicans' debt ceiling extortion, and bringing upon himself more wrath from anti-Fed Republicans such as Ron Paul.

After the debt ceiling has been raised through 2013, a QE3 of another $600 billion or so might be in the works, to help prevent the economiy from falling into a "double dip" recession in response to credit rating agency downgrades and resulting upward pressure on interest rates. Of course, any debt issued by Treasury--including debt sold to the Fed--is subject to the debt ceiling. But the Fed must return any interest payments on that debt to the Treasury!

Dean Baker, a brilliant progressive economist, is a notable advocate of monetizing a hefty chunk of US debt. See, for example, Baker's HuffPost column from a year ago at http://www.huffingtonpost.com/dean-baker/overcoming-the-debt-trap_b_603682.html :

"... There is a simple way to avoid a sharp rise in the interest burden associated with a higher debt. The Federal Reserve Board can buy and hold the debt that is currently being issued by the Treasury to finance the deficit. The logic of this is straightforward. If the Fed holds the debt, then the interest on the debt is paid to the Fed. The Fed then returns the interest to the Treasury each year, meaning the net cost to the government is zero.

This is not slight of hand. The point is that the economy has a huge amount of idle resources in the form of unemployed workers and excess capacity. In this situation, the increased demand created by government spending does not have to come at the expense of existing demand. The economy can simply expand to fill the additional demand created by larger deficits. While that may not be true in five or ten years, assuming the economy is again near full employment, right now deficits need not lead to either higher interest rates or higher inflation...."

[banned from Kos]

31. Good post! I rarely pipe in just to say "good post" but fully agree.

Help the rationalists combat that ridiculous "Fed gave $16 trillion away" bullshit too, please.

[Justitia]

27. No. Monetary policy is an entirely different animal from fiscal policy, don't confuse them.

There is a days long economic explanation behind this, but I suggest reading up on terms related to monetary policy.

It has nothing to do with fiscal policy - it's like mixing apples & oranges.

[AngryOldDem]

30. Do we really want to go down that road?

And possibly make our currency totally worthless?

I can't fathom any worst-case scenario where that could be even considered as an option.