LET’S END THIS DEBT CEILING DEBATE WITH A $1 OZ. $1T COIN

A reader points out a very interesting loophole in the debt ceiling debate that would give the US Treasury the ability to tell the US Congress to take their fearmongering and shove it you know where.  Reader “Beowulf” notes:

“No, Tsy isn’t authorized to just “print” money, the Federal Reserve Act gives that power to the Fed, However, the Coinage Act grants the Secretary of the Treasury rather broad coin seigniorage authority. Geithner could sidestep the debt ceiling this afternoon by ordering the West Point Mint to coin a 1 oz. $ 1 trillion coin. Tsy can then present the jumbo coins at the NY Fed to buy back $1 trillion in Fed-held debt (the Fed has to accept it, a creditor can’t refuse legal tender paid in to settle a debt):

(h) The coins issued under this title shall be legal tender… (k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

The simple threat of doing this would end this debate right here and right now.   It’s time for Congress to stop playing Russian roulette with the US economy.  If you want to take a stand on spending then do so before you pass legislation that causes us to run up into the debt ceiling.  Don’t use some phony law to try to scare people into thinking that we are Greece (something that’s entirely impossible anyhow).

Update 1: I also think Beowulf’s presentation of the coin would be excellent (although I personally think a long and slow presentation on horse drawn carriage escorted by a marching band and a dozen or so M1 Abrams tanks would be the only thing sufficient enough to match the theater that is the Paul Ryan show):

“Dear Mary, congratulations on your nomination to Under Secretary. Platinum coinage is your license to print money. The West Point Mint has plenty of it in stock, though an ounce should be enough to stamp the words “$1 trillion” on. If you ask nicely, the Army will even fly it (and you if you wish, Blackhawks are pretty awesome) down the Hudson Valley to Manhattan to buy back as much debt as you wish… hmm, to make this as foolproof as possible, anyone know the closest helipad to the New York Fed?”

Update 2: See these pieces at the Montary Realism site for more info about the coin idea first created by MR’s Carlos Mucha:

http://monetaryrealism.com/platinum-arrow-in-quiver-now-take-aim/

http://monetaryrealism.com/why-hitting-debt-ceiling-is-totally-insane-and-why-platinum-coin-easing-is-reasonable/

Source: Cornell Law,
§ 5112. Denominations, specifications, and design of coins

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. This is genius. Can we present it to Paul Ryan personally with a sign that says “can Greece do this?”

  2. lawyers… I knew I should’ve been one. way to find a loophole, not that Timmy G. hasn’t had his people looking for them

  3. Brilliant idea! It would just swap one asset on the Fed’s balance sheet with another, right? FRNs would continue to be backed, right?

    I wonder what Karl Denninger will say?

    Cullen, I like the M1 Abrams idea. After all, a trillion dollars is a lot of money. It should be well guarded. :)

  4. This is really not too far fetched and has some precedence. When JFK faced debt troubles in 1963 he issued executive order 11110 (as you probably know an executive order does not need the approval of congress). The executive order gave the treasury the power to issue currency (silver certificates) based on the silver that was held in inventory (at that time the US was on a gold standard). The silver backed issued certificates allowed the US to issue and spend “new currency” and avoid interest charged by the Federal Reserve. The silver certificates were not widely adopted because JFK was assassinated a few months later and his predecessor did not purse them further.

    I do wonder if anyone in politics have the courage to do something like this? The issuing of currency and government debt provides great profits and livelihood for may financial institutions.

  5. I do wonder if anyone in politics have the courage to do something like this? jeffc

    It will be a lot easier when the precedent of paying off the Fed with a few legal tender coins has been established.

    As for silver certificates that would just confuse the issue (unintentional pun). The debt-free money created should be pure fiat.

    As for making those trillion dollars coins out of platinum, I suppose the additional cost is justified. But we should not adopt a “Free-coinage of Platinum Act” that’s for sure. :)

  6. For congress and the President they are not in your mind-frame. They do not even know they can choose not to default. If so, no one had mentioned it publicly so in the present environment forget choosing.

  7. It seems US politicians were more creative in the 60s and 70s with JFK’s executive order and Nixon taking the US off the gold standard.

    And in JFK’s time, silver backed currency was needed because “fiat” would not be accepted (given the USD was gold backed). Today I think the trillion dollar coin could be made out scrap metal or heck uranium because the half life of it is about the time the debt will be paid off :-)

    So has Obama surrounded himself with ignorant advisers or those who have agenda of sustaining the status quo?

  8. @whitehouse THIRD OPTION @joefirestonephd #jumbocoins Obama can Direct TreasuryDept MINT to create platinum coin of $500 Billion. Direct the mint to deposit the coin in its account at the New York Federal Reserve. Direct the Treasury to “sweep” the mint’s account to collect profits from coinage (this would result in marking up Treasury’s account at the New York Fed by $500 Billion). Inform Congress and the public that the previous actions were taken to head off any possibility of default http://www.ourfuture.org/blog-entry/2011041405/use-coin-seigniorage-now

  9. I feel so hopeless when I watch the evening news. The divide between Cullen’s thinking and the thinking of the average American (and even most “experts) is stratospheric. How can we do more to get an accurate portrayal of our monetary system out to the general public?

  10. So has Obama surrounded himself with ignorant advisers or those who have agenda of sustaining the status quo? jeffc

    Both is my guess. The banking and money system is deliberately mysterious and convoluted. But to be fair, money is a mind boggling topic fraught with snares and pitfalls.

  11. If your goal is preventing the trainwreck, “wouldn’t change anything at all” is a good day’s work.

    The anomaly it addresses is that the US Govt has a debt limit yet an agency of the US Govt (the Federal Reserve) does not have a debt limit. Clearly this is a structural defect. If Thomas Edison designed our system of government, the Fed would be part of Tsy and there’d be no debt limit. Of course, Edison preferred his debt in the former of bearer bonds that are green and accepted by Coke machines, (“If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.”). But I digress.
    http://prosperityuk.com/2000/09/thomas-edison-on-government-created-debt-free-money/

    All the jumbo coin does is offload debt from Tsy’s books to Fed. Which doesn’t sound like much, but it would keep world financial markets from crashing simply because we are governed by morons who don’t know any better and gutless cowards who do.

  12. Geithner has publicly mentioned the 14th Amendment’s forbidding American default. That’s something.

  13. To quote Thomas Edison from the link below (and every instinct says Tesla would agree). “Look at it another way. If the Government issues bonds, the brokers will sell them. The bonds will be negotiable; they will be considered as gilt edged paper. Why? Because the government is behind them, but who is behind the Government? The people. Therefore it is the people who constitute the basis of Government credit.”

    As long as people get up and go to work (and yes, pay taxes), the USD will never be worthless. Coin seigniorage is simply a workaround to the senseless debt ceiling. If Congress wants to go on a diet, that decision should be made they sit down to eat. I know some will disagree, but stiffing the restaurant isn’t really a solution.

  14. I can’t say the idea is original with me. I read something in the WSJ that got me digging into the US Code.

    Miles for Nothing: How the Government Helped Frequent Fliers Make a Mint
    Free Shipping of Coins, Put on Credit Cards, Funds Trip to Tahiti; ‘Mr. Pickles’ Cleans Up…
    At least several hundred mile-junkies discovered that a free shipping offer on presidential and Native American $1 coins, sold at face value by the U.S. Mint, amounted to printing free frequent-flier miles… Coin buyers charged the purchases, sold in boxes of 250 coins, to a credit card that offers frequent-flier mile awards, then took the shipments straight to the bank. They then used the coins they deposited to pay their credit-card bills. Their only cost: the car trip to make the deposit.

    http://online.wsj.com/article/SB126014168569179245.html

    The damned thing is, Tsy STILL made money off the deal (dollar coins only cost 12 cents to mint) Its the miracle of coin seigniorage.

  15. I should note that it was Letsgetitdone who pointed out this was a, umm, silver bullet to deal with the debt ceiling issue. Wigwam had the idea of simply buying back existing Fed-held debt. (using coin seigniorage to fund spending directly is messier since it’d require changing Tsy accounting procedures). Wigwam’s coin for debt swap is simple to explain and works under current Tsy rules.

  16. i think this line of thought is very impressive.

    i wonder, however, if it does not confuse the notion of debt, as a liability, with coinage, which is an asset. the statutory language refers to platinum coinage authority. does the statute not assume that the coinage power under its authority would be limited in scope to the value of the platinum that serves as the coinage material?

    beowolf’s idea seeks to substitute coinage for debt issuance, but i don’t think they have been historically viewed as fungible, and i fear that a judicial examination of the scope of this coinage power by the treasury would not go as far as beowolf’s analysis would go.

    full marks for creativity, however!

  17. to be a little more focused in my comment, statutes are read by courts in light of the circumstances under which they were drafted.

    if there has ever been a situation in the past (and a court would likely find that the congress did not contemplate when this statute was drafted) where the seigniorage profit was $1T, why would a court decide that congress intended that treasury and its mint have this power to have unlimited ability to create seigniorage profit?

    just because you can shoehorn a scenario within statutory language doesn’t mean that it will be enforced by a court.

  18. incorrect, the platinum coins produced would be debt free deposited on the FED’s account..

  19. NOP its the responsible thing to do…we need to pay the debt regardless
    of republican opposition this is the responsbile thing to do bypass the
    hostage taking conservatives and take their weapon away!

  20. 31 USC 5112(k) as passed already by Congress wrote: (k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time. My understanding goes something like this: •Treasury orders the US Mint to produce Platinum coins with a very large face value. •Treasury also tells the US Mint to deposit these coins with the US Mint’s account at the Fed. •The Fed must accept these coins and credit their face value because they’re legal tender produced by the US Mint. •The Fed is “technically” in the private sector the above markup is recorded as a sale to the private sector. •The sale, minus the cost of minting the coins, is essentially the US Mint’s profit. •The US Mint’s profits can be moved into the Treasury General Account under Misc. Receipts. •These receipts at the Treasury effectively raise the Treasury’s revenue, and their statutory categorization as Misc. Receipts means they can be used as general funds. This is effectively a means of providing reserves to the Fed through coin seigniorage rather than bond auctions. The end result is essentially the same. Except the “debt” incurred is only the cost of the minting process, rather than a future guarantee to pay a yield on a bond. Thanks to Congress, it looks like Treasury already has the authority to do this, so no additional Congressional action would be necessary. It’s just up to Treasury (the White House) whether or not it wants to make this relatively politically bold move to push this situation to a head without disrupting financing and operations by not letting the debt-limit be taken hostage simply by circumventing it. If Congress has a problem with it, then they can either specifically repeal the authority they’ve already given to Treasury (though that’s going to have to be able to override a Presidential veto), or a more fundamental challenge to the debt-limit idiocy can take place

  21. The Debt Limit can be BYPASSED!! (I. Rendered Unconstitutional, II. Have US Treasury produce 500 billion platinum coins (debt free) which can pay the entire debt, render the limit useless and then we can all put Republicans in a plane to China i.e., kick them in their rear!

    First note that The National Debt Is a Republican Congress measure passed in 1971 by eliminating the Gold Standard http://t.co/H8Ppd5N this could be reversed.

    I. Rendered Debt Ceiling unconstitutional – President can have the power to do it wihout congress approval as described in these articles:

    DEBT LIMIT IS STATUTORY LAW TRUMPED BY the Constitution Section 4 of the 14th Amendment says, “The validity of the public debt of the United States…shall not be questioned.” http://t.co/3KvvnQJ

    Dear GOP, default is unconstitutional
    The tea party usurpation would destroy the original point of the Constitution. The Founders would be shocked — though I suppose they long ago stopped rolling in their graves. http://dyn.politico.com/printstory.cfm?uuid=39242262-48A0-45C3-A605-3A9DD53D8EDC

    The Speech Obama Could Give: ‘The Constitution Forbids Default’ http://t.co/jhjRhCd

    Geithner Reads Directly From Constitution: Debt ‘Shall Not Be Questioned’ http://huff.to/l4DdDv

    Thomas Edison on Government Created Debt-Free Money http://prosperityuk.com/2000/09/thomas-edison-on-government-created-debt-free-money/

    II. Debt can be eliminated by having the Treasury produce coins (has the power to do it) and deposit such for paying the debt with the Federal Reserve

    “Seigniorage” ANOTHER WAY TO GO AROUND DEBT CEILING AND CONGRESS http://www.correntewire.com/will_he_say_he_has_no_choice_or_will_he_use_seigniorage

    Obama can Direct TreasuryDept MINT to create platinum coin of $500 Brillion. Direct the mint to deposit the coin in its account at the New York Federal Reserve. Direct the Treasury to “sweep” the mint’s account to collect profits from coinage (this would result in marking up Treasury’s account at the New York Fed by $500 Billion). Inform Congress and the public that the previous actions were taken to head off any possibility of default http://www.ourfuture.org/blog-entry/2011041405/use-coin-seigniorage-now

    US GOVERNMENT DOES NOT NEED TO BORROW MORE TO PAY DEBT Debt Limit IS IRRELEVANT “Coin Seigniorage” = US Government is the monopoly supplier of US dollars and yet our politicians go through life thinking the government will run out of money unless it can borrow more READ MORE:
    Coin Seigniorage and the Irrelevance of the Debt Limit http://fdl.me/fhbbIb

  22. Its easy to LOL or ridicule things which a conservative mind has not
    grasped because of the conservative mental state of living in a closed world..new things are always ridiculed
    however this is a very valid thing to do…

  23. NO, it means that the US can never run out of money and that our government leaders do not even understand the powers within the constitution much less possible policy actions…the whole notion of the Debt is a total fiction!

  24. “just because you can shoehorn a scenario within statutory language doesn’t mean that it will be enforced by a court.”

    Good Lord man! What is it you think we lawyers do all day? :o)
    “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues…” 31 USC 5103

    Is it legal tender? yes. Are T-bonds debt? yes. Case dismissed. Of course it wouldn’t even get that far because its a transaction between Tsy and the Fed. No one else has standing to sue and the Fed knows that saying “sorry daddy” only ends with Tsy playing the Wayne Brady card.
    http://youtu.be/gJgrE0sZg3A

    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.
    http://www.federalreserve.gov/aboutthefed/section%2010.htm

  25. @joefirestonephd Seven Deadly Innocent Frauds of Economic Policy AND FALLACIES OF CONSERVATIVE PHILOSOPHY BY Warren Mosler
    -“Warren Mosler is one of the most original and clear-eyed
    participants in today’s debates over economic policy.”
    JAMES GALBRAITH, FORMER EXECUTIVE DIRECTOR, JOINT ECONOMIC
    COMMITTEE AND PROFESSOR, THE UNIVERSITY OF TEXAS – AUSTIN

    1. The government must raise funds through taxation or
    borrowing in order to spend. In other words, government
    spending is limited by its ability to tax or borrow.
    2. With government deficits, we are leaving our debt burden
    to our children.
    3. Government budget deficits take away savings.
    4. Social Security is broken.
    5. The trade deficit is an unsustainable imbalance that takes
    away jobs and output.
    6. We need savings to provide the funds for investment.
    7. It’s a bad thing that higher deficits today mean higher
    taxes tomorrow.
    http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

  26. Even if this measure (or others like it) allowed the executive branch to defy the wishes of congress by avoiding the debt ceiling limit, nothing would be gained in terms of the market’s perception of the debt.

    By “market” I mean all people and companies, local and foreign, from which the US government wishes to purchase goods and services using US dollars.

    If the Fed commits never to circulate the trillion dollar coin (e.g. by purchasing bonds), the market will perceive the coin as worthless, and will act as if the Fed now has negative capital. The amount by which Fed liabilities exceed assets will be treated by the market in the same way as government debt.

    If the Fed is not prevented from circulating the trillion dollar coin, the market will act in the same way as if the coin were government debt.

    The market determines the exchange rate of US dollars for other currencies, and hence the purchasing power of the US government for all goods and services produced by non-US residents, including companies that are notionally US-based but are free to use other currencies.

    This purchasing power will decline whenever the US government attempts to procure goods and services using finance capital it accesses at 0% interest, or any rate lower than that available to private corporations and individuals. This applies to the trillion dollar coin in the same way as it does to QE – that is, bonds held by the Fed (which are effectively at 0% because all interest payments are remitted back to Treasury).

  27. Funny how the us is not like greece…

    actually the situation in the us is way worse, the only difference is that greece cant create money out of thin air, like the usa does to postpone there situation on to others…

    soon! tik tok, tik tok

  28. Give me one of those coins!!! The debt ceiling limit should just go away so Dems and Repubs will stop grandstanding and using fear as a tool to scare most people. I tried to explain to my mother and almost got slapped, when I was explaining to her the USA could not go broke. Of course she is 85.

    Geitner probably already knows this but perfers to fearmonger as well. This debate is all about presidential platforms for the 2012 election. The debt ceiling is going to be raised, but you have to feed the media so they can scare the uneducated and those too lazy to even check their facts.

  29. I full heartedly disagree with you Joe. Well-intended policymakers are only as good as their economic advisors. Mainstream economists are using the wrong models, drawing the wrong conclusions, and giving the wrong advice.

    The root of our economic problems is operational rather than political. Economic advisors are simply giving the wrong advice to policymakers because they misunderstand monetary operations and as a result are operating under false assumptions. The objective is never to balance the budget. The objective is always to optimize the budget. Fiscal optimization at any level of public spending requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate. In order to balance spending with tax revenues, government must destroy money through taxes before it creates money to spend in the marketplace. Recognizing that some users choose not to spend, government deficits must correspond to the users savings rate in order to maintain a given level of output. The challenge of the issuer is to spend enough money to displace the saving rate but not enough to exceed it.

    DollarMonopoly.com – People i would like to announce my candidacy for president here and now on Cullen’s blog.

    “What unites us is stronger than our differences” – Sweet Jesus, where have i heard that before.

  30. JFK – “at that time the US was on a gold standard”

    Correction, the US was off the gold std domestically since 1933. We went partially back on the gold std after the (1951?) Breton Woods agreement, and then only for Fx returns of $US for gold. It’s when France wanted to exchange all their $US holdings for gold that Nixon closed the final gold window in 1971.

    The whole world had it right by 1933, but then got nervous over their newfound responsibility, and just blinked for ~20 years, and has now been furiously denying that they’re blinking, for another 40 years.

    It’s like changing the card game rules in a dementia ward. Half of those few that do catch on that the rules changed either don’t think the rest will ever get it, or don’t want them to anyway.

  31. Don’t worry- I am in your camp. I was just laughing at the thought of asking Paul “Can Greece do this?”

  32. beowulf, you certainly know more about the law and lore of treasury operations that i do, but let me ask you a question, if you were counsel for the treasury and timmie g asked you for a legal opinion to the effect that the treasuries bought bac by that really big coin were retired and no longer outstanding for purposes of the debt ceiling limitation, would you be able to give an unqualified opinion?

  33. How can interest back a currency? Suppose I receive 10% interest on a worthless currency. What is 10% of 0? Thus interest by itself cannot back a currency. What ultimately backs US currency is that US taxes are required to be paid with it.

    Government debt is ultimately a privilege for the rich at the expense of the poor. It harnesses the government’s taxing power for the benefit of private interests. But the US government is supposed to promote the “general welfare” not the welfare of a few.

  34. My original post didn’t show up, so I am reposting.

    This explains why the Treasury launched a public relations campaign last week designed to result in the repeal of the $1 presidential coin act due to lack of interest in the coins. Most folks don’t realize that the same act that created the $1 failed coins also created the first-ever duplicitous currency of $50 gold buffalo coins.

    These $50 coins are perfectly suited to empower the proposal by Bank of England Governor Mervyn King for a new “divorced” currency. Here’s a link to some background. You can search the website with the word “buffalo” to see the rest of the articles. All this explains the Sorcha Fail disinformation campaign that launched in association with the arrest of Dominique Strauss-Kahn.

    http://tradewithdave.com/?p=6640

    Dave Harrison

  35. The Bank of England went private in 1694. It was bought by “gold men” who lied and didn’t deliver all the gold they said they would. Most of the gold was sourced from Holland, and had links to the east/west trade mechanism (Jewish/Arab and later Portugese and then English trade routes). Just prior to this the Kings of England were not British, and were installed as puppets. The biggest stock in the BOE was bought with a Tally Stick, (stick = stock) thus fully converting English sovereign government money into credit money.

    The BOE immediately got the English hooked on credit debt money. Once the population was in debt, then the bank had rent-seeking rights to service its share holders. It is difficult to dislodge a bank when the population is in debt to said bank. After the French War, the BOE immediately set it eyes on the Colonies. Franklin said that having to use BOE paper and pay debts in Gold, is the main reason for the Revolution. Also, the BOE and British counterfeited colonial script by the millions in order to bust out the Colonies.

    The First American Bank was promoted by Hamilton and was based on the BOE model. Hamilton and his Federalist (really merchants and traders) sneakily bought up war bonds at pennies on the dollar. They then used those bonds at face value to start the bank. The money power in effect was held by the people, but was usurped for private banker gain.

    At the end of Jefferson’s presidency, his greatest desire was a do-over. That would be that the government should not have to borrow its own credit. We should listen to Jefferson’s greatest insight after a lifetime of learning. This is why Jefferson bought the Louisiana purchase in Gold; he wanted the first bank’s charter to lapse. If the people were not holding debt, the bank could be killed off. It was revealed later after shutting down the bank, that the stockholders were mostly English, including Rothschild interests.

    The American’s were warned that there would be trouble if the bank was shut down. Less than a year later the war of 1812 broke out.

    It is clear, that there is an element of humanity that would use money power for rent seeking. Typically, it is CREDIT money systems, e.g. debt based money that is used to hook populations. The game: Government wants to consume from the private sector, and The private sector (credit banks) wants credit money backed up by government power. The private sector need not be governed by credit money -this is a lie of recent history. Private credit money power should not control sovereigns nor Federal Republics.

    Our entire existence as a country has been battles over who owns the money power. In reality, it should be the people who own it by way of the law. It is pretenders who gain money power for themselves (via credit), and shroud everything in mystery. They are our new priesthood.

    Personally, I would chunk the whole system and go for something like house bill HR6550, where all money is law based fiat. Credit money disappears and all liabilities are covered. Only in this way can money serve humanity as a means of exchange and a store of value.

    HR6550 provisions remove debt and fixes the credit money problem. The coin idea is an interesting go around. But, the coin idea also proves Jefferson’s point; the country should not have to borrow its own credit.

  36. You do not actually believe all that. You are living in a fantasy world and one contrary to our constitution. Economics must live within the political world, not the other way around. Our system, unless you want to deconstruct and start over, is about the political power. MMT is only for operational insight. Just as religion or any other believe system guides our elected officials.

    I am with beowulf.

  37. What ultimately backs US currency is that US taxes are required to be paid with it.

    Then how is it that it held it valuation prior to the Revenue Act of 1913 and it as depreciated almost every year since then since?

  38. This is not absurd…there is a lot here…the absurd thing would be to close our minds and accept whatever our politicians want to feed us…think progressive i.e., open mind and explore, recombine and adjust ideas to comeup with new ideas and new world views

  39. Our entire existence as a country has been battles over who owns the money power. In reality, it should be the people who own it by way of the law. It is pretenders who gain money power for themselves (via credit), and shroud everything in mystery. They are our new priesthood. REN

    Actually, if Matthew 22:16-22 (“Render to Caesar …”) is a guide then we should have separate government and private money supplies. That should satisfy everyone worth satisfying. That way, if government overspent relative to taxation then only government and its payees would suffer.

    Great comment btw, it is a very good historical summary. Thanks.

  40. Lets keep spending it works well.
    Employers added the fewest jobs in nine months and the unemployment rate rises to 9.2 percent

  41. Then how is it that it held it valuation prior to the Revenue Act of 1913 and it as depreciated almost every year since then since? first

    That is not the fault of fiat money but of government backing for the banking system (lender of last resort, legal tender laws for private debts, the capital gains tax, etc.)

  42. 1. The government must raise funds through taxation or
    borrowing in order to spend. In other words, government
    spending is limited by its ability to tax or borrow.
    2. With government deficits, we are leaving our debt burden
    to our children.
    3. Government budget deficits take away savings.
    4. Social Security is broken.
    5. The trade deficit is an unsustainable imbalance that takes
    away jobs and output.
    6. We need savings to provide the funds for investment.
    7. It’s a bad thing that higher deficits today mean higher
    taxes tomorrow.
    _____________

    Well said sir, I agree with you on all of these issues. Only when the US starts to live within its means will its citizens wake up to reality. Chop government spending to the bone, reduce taxes, let the private sector step in.

    Let’s get back to sound money,three cheers for mahilena!

  43. This Depression could be ended very quickly if further credit creation was banned (to preclude an inflationary spiral) and if equal bailout checks were sent to every US adult every month equal in total to the amount of credit paid off the previous month.

    No one has refuted that this idea would work.

  44. I would recommend you spend some time understanding how our monetary system works, you will then learn…

    1. The government must raise funds through taxation or
    borrowing in order to spend. In other words, government
    spending is limited by its ability to tax or borrow.
    – That this is false by the nature of how a free floating fiat currency works.

    2. With government deficits, we are leaving our debt burden
    to our children.
    3. Government budget deficits take away savings.
    – That by accounting identity the debt we leave our children is EQUAL to the excess savings we leave out children

    4. Social Security is broken.
    – This is just your opinion.

    5. The trade deficit is an unsustainable imbalance that takes
    away jobs and output.
    – Some people may agree, but specifically that by accounting identity this is in part why we have such large federal budget deficits.

    6. We need savings to provide the funds for investment.
    – That this is a false theory. Savings/Deposits do not provide a means for investment. It is investment that provides a means for savings.

    7. It’s a bad thing that higher deficits today mean higher
    taxes tomorrow.
    – Taxes do not pay for ANYTHING, including higher debt levels.

  45. “would you be able to give an unqualified opinion?”
    OF course, that would be the easiest call all month.

  46. You may think you understand MMT, But if you think this is about “funding” spending, then you’re mistaken. According to MMT, the Government creates money in the non-Government sector when it spends, and destroys money in that sector when it taxes or borrows. The jumbo coin seigniorage idea doesn’t change this at all. When the Treasury creates the coins it doesn’t put them into circulation in the non-Government sector. It places them in its own account at the Mint, and then when the Fed, a Government agency, with the direct and unlimited power to create money out of thin air, credits the Mint’s account, the Treasury sweeps the Mint’s account for profits, and places these profits into its Treasury General Account. So far, in this process no money is created in the non-Government sector. The Treasury then spends by marking up non-Government, including private sector accounts, and in doing so, creates reserves (high-powered money) in those accounts.

    So, looking at this process we see that there is no “funding” of Government spending by non-Government parties going on. There is only a convoluted process of different agencies within the Government spending/creating new net financial assets in the form of reserves in the private sector. The convoluted process is necessary because Congress is in denial about the realities of fiat currencies and keeps trying to maintain arrangements it had made under the gold standard. It still believes that new deficit spending must be backed by debt to prevent inflation, and it still believes that the Fed is entirely independent of Treasury and that both aren’t combining to eventually convert federal debt instruments into an expanding money supply.

  47. The objective is not to balance the budget, it is to optimize the budget. Fiscal optimization at any level of public spending requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate. Government debt of a currency issuer is the currency user’s savings as a matter of double entry accounting. It is a digital resource – a digital account corresponding to all the savings of currency users’ in banknotes, deposits, and treasuries. Suboptimal fiscal policies lead to excess capacity, reduced throughput, poor labor utilization, and opportunity costs. The opportunity cost is the missed opportunity to spend on R&D that can subsidize next generation technology for the private sector.

  48. “What would happen is that people who received government money (the military, government workers, government contractors, SS recipients, etc.) would sell that money for private sector goods and services or for private monies. The government would only spend and tax its own fiat and recognise no other monies.”

    I wish I could go back in time and see how the English Tally’s were traded out in the population. I understand they had great fairs, where bankers would settle debts and credits. They also had mayhem and merryment, but I digress.

    In other words, the Tally’s had to be bartered, then circulated, and the fairs were the method of final settlements. The tally would move far from the original holder as it circulated as money in the economy.

    Real money, however, allows Debt and Credit to be extinguished instantly. It doesn’t have a time element that requires settlment later. Real money also should not carry usury debt around with it. But, that is beyond my scope at the moment. Credit and Debt are inverses of each other, while real money is of a higher order.

    Only LAW based money is real money of the highest order, allowing credit and debt to extinguish instantly. Even Gissel’s money, which existed in a Credit world, served the function of instant Credit/Debit cancelation. However, it became of less value overtime (you had to add stamps every month as the money lost value). Gissel’s system does not serve as a good store to allow labor to save and trade their output at maximum efficiency with minimum distortion.

    So, after viewing all the systems, I still maintain that 100% reserve is of the highest order and will best serve mankind. I came originally from Libertarian thought to this position after finally accepting that money is a fiat of the Law. The rule is iron-clad, just like Gravity makes you fall down. It cannot be avoided.

    The coin idea of this article is good, in that it gets people thinking about our system. Othewise, we are headed down a Statist freedom loosing path.

  49. For the precise mechanics it is well worth reading some Antal Fekete papers, specifically: “opening the mint to gold and silver” MadNumismatist

    Opening the mint for people to coin their gold and silver into legal tender is equivalent to allowing private counterfeiting of government money.

    When will the PM bugs admit that it was government that backed PMs as money and not PMs that backed government money?

  50. Create $1 trillion? Why not creat $14t, and get rid of the deficit.

    MMT-ers, living in their fantasy world, will be so surprised when the US becomes Zimbabwe.

    Mr Roche refuses to accept it’s even a possibility. Maybe in MMT-land. But back in the real world, it’s just a matter of time before the US Dollar becomes worthless.

    In fact, I propose Cullen to be the new Fed Chairman, he’ll get the job done quicker than Ben will.

    I love this blog, love MMT, but live in the real world.

  51. Check out the value of the dollar over the past $100 years. Great store of wealth eh?

  52. The real world shows that Zimbabwe had 85% unemployment, 1 major export, GDP 1/5th the size of VERMONT, a corrupt regime, etc etc.

    How can anyone justify comparing Zimbabwe to the USA and then claim to be living in the “real world”?

  53. Has your standard of living declined in the last 100 years? What you’re saying is as silly as saying that NYC is worse than Biloxi because it costs more to buy a cheeseburger there. Think about that for a second. Price rises must be measured in terms of wage increases and standard of living.

  54. How about for a new meme:

    “Currency’s role as a medium of exchange should always and everywhere trump its role as a store of value”.

  55. The dollar has been clobbered because it has been used to support the “private” banking system and to pay for messes like the Great Depression and WW II which the government backed banking system is also responsible for. An excessive need for socialism can also be laid at the feet of the government backed banking system.

    Fiat is not the problem. PMs will just act to prevent the government from ameliorating the damage the banking cartel causes.

  56. your confused. issuer debt is equal to user savings. It is a digital resource – a digital account corresponding to all the savings of currency users’ in banknotes, deposits, and treasuries. the goal is not to balance the budget but to optimize the budget. Fiscal optimization at any level of public spending requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate.

  57. “Paper money eventually returns to its intrinsic value —- zero.” Voltaire (1694-1778)

    The way it works now is not very different than the way irredeemable paper money economy have always operated and managed to deffer the inevitable by constantly growing into new territories. I am no Gold bug and I think a fixed-supply Gold money system is an arithmetic impossibility but the facts are that through out history fiat money economies have been one’s of corruption, wars, mis-allocations of resources.

    Being one of the richest areas in the country but that has no industry or creative enterprises relative to other parts of the country economically is Rome now in Washington D.C.? Rome forestalled its problem by looting.
    The US is engaged in Trillion dollar wars and at one point even managed to lose a plane with 6.6 billion cash in 100.00 bills,the Baghdad embassy is the world’s largest embassy, on land the size of the Vatican at a cost of $736 millions or more. Follow the Fiat money around the world and with in the crony health industrial and military complex.

    Nobody has ever “solved” the fiat money problem but rest assure that the few that have benefited from it are always the first to know when to exit from it. Irredeemable money could work if government creates the extra money, not via debt but as fiat money and somehow through a mechanism that would makes it available to everyone to compensate and supplement their earned incomes for GDP increase.

  58. Irredeemable money could work if government creates the extra money, not via debt but as fiat money and somehow through a mechanism that would makes it available to everyone to compensate and supplement their earned incomes for GDP increase. first

    Now you’re talking “Social Credit” or a guaranteed minimum income. That could work. But at the very least the government should bailout the population from under its debt to the counterfeiting cartel. Savers should receive an equal amount too.

  59. F. Beard
    You used the words Social Credit.

    Did you know that there was such a political party in Western Canada that grew out of disaffection with the status quo during the Great Depression?

    A Western protest movement: 1935–1961 “The Canadian social credit movement”

    “The Social Credit party believed the reason for the depression was that people did not have enough money to spend, so the government should give everyone $25/month to stimulate the economy.” $25.00 in 1935 is $400.00 in to days money.

    “William Aberhart, who formed the Alberta Social Credit League based on Douglas’ ideology and conservative Christian social values.” “He was elected Premier of Alberta in the 1935 provincial election. His government was probably the only one in the world that adhered to the social credit ideology.”

  60. There is no reason that Social Credit could not work. Just because a man can eat every day does not necessarily mean he won’t work. There are quite a few reasons to work besides money.

  61. F. Beard
    You mentioned Social Credit.

    Did you know that there was a Social Credit Party of western Canada formed in 1935,” “The party grew out of disaffection with the status quo during the Great Depression”. “William Aberhart elected Premier of Alberta in the 1935 provincial election”. “His government was probably the only one in the world that adhered to the social credit ideology”. “The Social Credit party believed the reason for the depression was that people did not have enough money to spend, so the government should give everyone $25/month to stimulate the economy.” (Take note that $25.00 in 1935 is like $400.00 in to days money) “Aberhart also campaigned for and instituted several anti-poverty and debt relief programs during his premiership”.

  62. Well put sir – The depreciation of the dollar has been more than offset by the productivity improvements that make for a better standard of living. Price rises must be measured in terms of wage increases and standard of living.

  63. Scott – i’m a big fan of your work but i sure wish the KC folks would not only find short-term solutions like your 6pt steps for averting the crisis above but also reframe the language to suit their needs. I’ve raised this multiple times on your UMKC blog to no avail outside of “we have discussed it elsewhere”. Some specific examples i use within DollarMonopoly.com is:

    1) The national debt is simply a digital resource – a digital savings account of currency users’ in banknotes, deposits, and treasuries. Issuer debt = user savings.

    2) Optimized budgets are the goal of policymakers not balanced budgets. Fiscal optimization at any level of public spending requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate.

    MMT can further it’s cause by adopting a language frame that suits their cause…rather than harm it.

  64. The currency at any point in time is defined by all characteristics of all current agreements, notes and laws that reference the currency, (including credit contracts, bank notes, labor contracts, taxation laws, legal tender laws), as well as the political considerations of those agents with authority to create new agreements and laws outside of the private market.

    The requirement to pay taxes in the currency is only a part of this. The interest rates on existent credit contracts are another part of this, and the extent to which government is willing or able to access resources at 0% is another.

    “How can interest back a currency? Suppose I receive 10% interest on a worthless currency.”

    Seen in the above light, the idea that interest backs a currency is only part of the story. All of the above define, and “back” the currency. In addition, the currency is not currently worthless, so your question is not relevant,

  65. I was not suggesting the private issue of money, although that is where we are heading. The paper by Fekete simply explains the ancient role of the mint which has been usurped by the central banks.

    The other paper I mentioned has been uploaded to my web site (didn’t know how to attach a PDF and could not find it on the original site.) Here is the PDF http://scoinsandbullion.com/en/blog/304-seigniorage.html and here is the original author. http://www.conallboyle.com/index.html

    The paper calculates how a mint- owned by the government- makes money from creating coins which is government revenue. If this concept was added to the creation of all money: i.e. M4 not just M0, it would completely cover the annual UK budget. And I presume with a few more zero’s the US budget too.

  66. “Opening the Mint to gold has a technical meaning, namely, opening it to the free and unlimited coinage of gold on private account.” Antal Fekete

    That sounds exactly like allowing private counterfeiting of government money.

  67. Like so many on the lunatic left, the author completely misunderstands the role that money plays in society, namely as A.) a medium of exchange and B.) store of value. Instead, the author believes that money is some kind of mysterious, magically thing that the government can simple conjure up to cure any and all ills.

    The sad fact is that most of our problems are directly related to the fact that the government has been able to create fiat money at will and force us all to accept it. The result? Booms, busts, inflation, debt.

    No thanks, been there, done that.

  68. @jwpegler

    Fiat money is the only type of currency that makes sense in a modern economy. Our current problems have nothing to do with ideology (capitalism/socialism/communism) but rather poor monetary management. Fiscal optimization at any level of public spending by a currency issuer requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate.

    Mainstream economists misunderstand monetary operations. MMT fills in the blanks. I think the authors approach is somewhat counterproductive because it fails to explain how the system works. Technically it may work but my be counterproductive in the sense that people like yourself gets the impression that is all a big game.

    I just started this site but I am trying to clear up some common misunderstanding. Consider it a rough work in progress but the feedback thus far has been positive – http://dollarmonopoly.blogspot.com/p/issuer-user-paradigm.html

  69. I think you live in a fact free zone. Until the 1930s the US was on the gold standard domestically money was convertible to gold on demand. Then FDR prohibited simple convertibility, while maintaining the gold standard for exchanges between nations. Richard Nixon ended that in 1971 leaving us with a non-convertible, freely floating fiat currency, and with no external debt in any currency not our own. That is, Nixon left us sovereign in our own currency.

    Now, you say:

    “The sad fact is that most of our problems are directly related to the fact that the government has been able to create fiat money at will and force us all to accept it. The result? Booms, busts, inflation, debt”.

    My question is: since the beginning of the Republic, have we had more or less booms, busts, and inflation, since we converted to a fiat currency domestically in the 1930s, and also since we completely converted to one in the 1970s, or have we had more more of these things before these changes?

    On “debt” we have to distinguish public debt from private debt. In the area of private debt, is the ratio of private debt to national wealth higher under the fiat currency system, than it was prior to Roosevelt’s conversion, and especially since Nixon’s or is it higher now.

    Finally, on the “national debt?” Since the Government can make as much money as it needs at will under our fiat currency system, why does it matter whether the “national debt” is high or low? And further, what’s “high” and “what’s low” in a system where the Government can always pay off its debts as they come due by simply creating money.

    Please don’t waste everyone’s time by replying to this with some statement reflecting the quantity theory of money. Keynes showed that is was false back in the ’30s as long as one has less than full employment

  70. The underlying cause of the boom/bust cycle is the poor structure of our banking system. Our banking sector needs to be structured for transparency and stability to remove systemic risk. Letting private banks sell off their loans introduces a moral hazard. Requiring real assets as collateral is another starting place. The currency issuer is the monopoly producer, lender, and price setter of money. The issuer can provide private banks as much money to lend as they could ever need. The function of private banks is credit analyses, lending and taking deposits and all the shit there doing today. Securitization of loans is a moral hazard. If I’m a bank who gives a shit if my loans suck i’ll just past the risk on to the private sector. Separation of commercial and investment banks? Who gives a shit if i give a private company a loan it can’t service i’ll just take it public and pass the risk on to the private sector. This basic stuff but gets lost in all the financial speak. Design a system people understand and trust and your on your way to economic prosperity. said my friend dollarmonopoly.com

  71. Craig, I know you’re trying to promote your site, but bear in mind that these all go straight to my admin page and clog it up. If you post stories on your site and want to link to them then do so, but there’s no need to write comments just so you can add your link at the end….Not trying to be rude, but it clogs up my admin filter in the comments page. Thanks.

    Also, if you ever write stuff that you want to guest post then feel free to email it to me. If you want to promote a site, content is the end all. Linking through other sites will get you nowhere fast. Content is king and I am all for helping you grow your site if that’s your goal.

    Enjoy your weekend.

  72. we could put all my fantastic diagrams on your site hell i don’t care. well, i am about to update everything so maybe its best to wait.

  73. The opening paragraphs of section 5112:

    (a) The Secretary of the Treasury may mint and issue only the following coins:
    (1) a dollar coin that is 1.043 inches in diameter.
    (2) a half dollar coin that is 1.205 inches in diameter and weighs 11.34 grams.
    (3) a quarter dollar coin that is 0.955 inch in diameter and weighs 5.67 grams.
    (4) a dime coin that is 0.705 inch in diameter and weighs 2.268 grams.
    (5) a 5-cent coin that is 0.835 inch in diameter and weighs 5 grams.
    (6) except as provided under subsection (c) of this section, a one-cent coin that is 0.75 inch in diameter and weighs 3.11 grams.
    (7) A fifty dollar gold coin that is 32.7 millimeters in diameter, weighs 33.931 grams, and contains one troy ounce of fine gold.
    (8) A twenty-five dollar gold coin that is 27.0 millimeters in diameter, weighs 16.966 grams, and contains one-half troy ounce of fine gold.
    (9) A ten dollar gold coin that is 22.0 millimeters in diameter, weighs 8.483 grams, and contains one-fourth troy ounce of fine gold.
    (10) A five dollar gold coin that is 16.5 millimeters in diameter, weighs 3.393 grams, and contains one-tenth troy ounce of fine gold.
    (11) A $50 gold coin that is of an appropriate size and thickness, as determined by the Secretary, weighs 1 ounce, and contains 99.99 percent pure gold.

  74. Scott, here’s another thought I’ve been wondering about:

    Could treasury just keep spending? The spending has been authorized, indeed mandated, by Congress.

    Would Bernanke bounce Geithner’s checks? Or would he just run an overdraft account for Treasury, and finance it by selling bonds (so net zero effect on money stock: treasury spends, fed mops it up)? I haven’t figured out how Bernanke could simply issue reserves (print money) and funnel it to Treasury’s account.

    Any enthusiastic researchers here interested in the statutory issues?

  75. Don’t get me wrong. I love the idea. But those who don’t will point to (a). They will also point out that the value of a “bullion coin,” by definition, is equal to the value of its metal content, hence cannot be issued with an arbitrary, fiat value.

  76. There are conflicting mandates. It’s true that the President is mandated to spend appropriations. But he’s also mandated not to exceed the debt limit, not to have an overdraft in the Treasury General Account at the Fed, and not to allow default on US “debts” (the 14th amendment section 4).

    These mandates make using Jumbo coin seigniorage not only the one viable option to get around the debt limit, but also the President’s duty in order to fulfill his oath of office. The President has sworn to uphold the Constitution which prohibits a default, and also the laws of the United States including the mandates just mentioned. There’s only one way to that and that’s to use jumbo coin seigniorage. So, if the President doesn’t use it, then it’s a violation of his oath and also grounds for impeachment.

  77. Yes, HR6550 is a well thought out bill based on the American Monetary Act that was developed in the 1930s by economists. The beauty of this bill is that it addresses the why and the how. You have to put the Fed under Treasury, but you must also spend money into the economy for the good of the people, the general welfare. It should be used for physical and Human (health and education) infrastructure.

    As you say, we need a monetary system that serves humanity not merchants and bankers.

  78. There isn’t a coin produced by the US mint that has a face value that corresponds to the open market value of the metal within the coin. 1oz of gold for $50? The value of the metal within the nickel is actually worth more than the designated 5¢. The current official value of the 1oz platinum bullion coin is $100. Doesn’t seem to be ‘equal to the value of its metal content’ to me, at this stage. We’d have to go back to 1972 to get to parity there. Modern $1 coins are only worth 7½¢ in terms of metallic content.

    The ‘fiat’ monetary value placed upon US coins, while perhaps not as arbitrary as those placed upon our fiat cotton rectangles, is still fairly arbitrary.

    For better or worse.

    http://www.coinflation.com/

  79. Promote away. I don’t care. Just try to post to real content rather than just your URL homepage. That’s all. I try to approve and read all the comments here so it’s just annoying when I see people trying to promote a website where the comment isn’t really contributing the conversation and is a smoke screen for an ad to their website instead. I know you don’t have malicious intentions. Just keep in mind that I do read everything in the comments and I prefer not to waste my time being a spam filter. That’s all.

    Thanks for your contributions. I really don’t mean this comment in a demeaning way whatsoever. When your website gets large and burdened by comments you’ll see it from my perspective. I hope you understand.

    Best,

    CR

  80. “The Treasury mints a $1 trillion coin”

    What, the Treasury hit the mother load? Maybe 15 newly discovered sunken (gold laden), Spanish galleons? Or is it that a new audit by Ron Paul has discovered that the Treasury has previously stockpiled one trillion dollars worth of some combination of silver, gold, & platinum, ready to be stamped into the proper coinage? Or is the gold content of the dollar just to be revalued by administrative fiat (like in 1933), far above current market rates?

  81. “The Treasury mints a $1 trillion coin”

    What, the Treasury hit the mother load? Maybe 15 newly discovered sunken (gold laden), Spanish galleons? Or is it that a new audit by Ron Paul has discovered that the Treasury has previously stockpiled one trillion dollars worth of some combination of silver, gold, & platinum, ready to be stamped into the proper coinage? Or is the gold content of the dollar just to be revalued by administrative fiat (like in 1933), far above current market rates?

  82. Why bother wasting precious metal on the fed make it a $15 trillion dollar coin and make it out of zinc or plastic. Tell Ben to shove it.

  83. This is brilliant, but the idea rings a bell, I have read about it earlier, somewhere.

    Possibly it was in Ellen Brown’s book “Web of Debt” where it was mentioned that the US tsy may lawfully “mint coins,” and thus pull off this very stunt.

    Sadly I have lent away that book and not gotten it back since. Can somebody who owns the book check if the idea is in there?

  84. A little knowledge is a dangerous thing – and this blog is yet another proof of it.
    The idea of minting coins to cover debt is idiotic because:
    1. “The Secretary shall annually sell to the public, directly and by mail, sets of uncirculated and proof coins”
    – Can’t “deposit” it at the FED. FED is under no obligation to buy anything from US Govt – especially coins.
    2. The monetary system was designed specifically for US Govt not to be able to “print” money at will. Only FED can do that. Hence it Govt HAS to borrow if its expenses exceed revenues and it’s up to the FED and other buyers to either extend US Gov credit or not. And limits on borrowing has to be approved by congress. There’s no loophole. Because otherwise the Govt would’ve created a hyper inflation long time ago.
    If your solution would even be theoretically possible – then we don’t need Taxes at all – Govt would just print money anytime it needs to spend.

    Do you all really think that while the law was constructed specifically so Treasury can’t issue neither paper nor metal nor electronic money at will, some idiot found loophole that was unexplored by all legal scholars and economists.

    Why do you think not a single economist endorsed this brain fart of an idea.

    Bottom line is: if Govt is able to create money in any way other then borrowing – then that DIRECTLY increases inflation – no matter what mental contortions you contrive to convince yourself otherwise. Simple example to help you all understand why that is: if all available material goods currently balanced by monetary supply of 14T dollars, and if you add 7T dollars to monetary supply without producing actual goods – then it means that goods’ price just increased 50%.

  85. Sam,

    No need to get hostile. This is more of a thought experiment that exposes the myths in the monetary system. The very fact that the USA can mint a coin and retire debt should make you think twice about why we issue debt in the first place. I don’t actually think this idea will ever happen, but it’s worth thinking about for educational purposes if nothing else.

    If you are familiar with my work you might read this before slamming it:

    http://pragcap.com/resources/understanding-modern-monetary-system