Me Versus Congressman Greg Walden on the Platinum Coin

Okay, I am totally burned out on this coin idea and I think most of you are also, but this was a good interview that touched on some important points.  Congressman Greg Walden also joined CBC Radio to give his side of the debate.  Here are the key points:

  • The coin is just a temporary workaround that would allow the Treasury to continue spending.
  • The choice is relatively simple in my opinion.  Should we have to choose between default and issuing the coin we should issue the coin because the alternative would be catastrophic.
  • Contrary to popular belief, the coin is not inflationary.  It would just continue government spending at a pace that was already allotted.  In other words, not issuing the coin would result in $100B or so of govt spending that comes out of the economy immediately.  So it’s inflationary only to the extent that it’s NOT deflationary.
  • I say eliminate the debt ceiling AND the coin loophole.  Seems fair to me.
  • Greg Walden says the coin is “dangerous” because it’s inflationary.  This is not accurate.  As I said before, it only spends to the extent that money was ALREADY in place to be spent.
  • Greg Walden says we have a serious debt problem in Washington.  I think this is confused.  Government spending and borrowing is a problem to the degree that it causes inflation and erodes living standards.  There is no such thing as the government “running out of money” so the idea of the government having a solvency constraint like a household or a business is inapplicable.  Obviously, if the government can just mint up a coin to spend then it doesn’t have a solvency problem.  BUT, even Congressman Walden understands it could be inflationary.  But people have been saying this endlessly for years regarding government spending, TARP and QE.  If they’re right then why is inflation still so low?  Why do we look more like Japan than Weimar?
  • Finally, he says we’re “spending money we don’t have”.  This is just patently false.  The US government deficit spends by harnessing its private banking system and selling bonds to the public.  If we didn’t have the money the bonds wouldn’t get sold.  But bond auctions continually go off without a hitch as expected….
  • He says the threat of default is legitimate.  The Congressman should understand that it’s illegal for him to willingly choose to default.   It’s not illegal to mint the coin.  He’s just playing a game of chicken with the US economy.

Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

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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  1. I can’t believe how incredibly wrong he was about so much stuff. Pretty cool that you were the one on the other side! Congrats.

  2. Loved when Walden says “I was a journalism major not an economic major..”

    His response to the non-inflationary due to lack of circulation point is that “someone’s getting the money”, which is de facto agreement that the coin is no more inflationary than raising the debt ceiling. So at least he agrees on that point :)

  3. Nice. CBC radio is very highly respected in Canada and reaches a large audience. Too bad I can’t listen to it on my f-ing flashless iPad.

  4. Government spending is NOT just about inflation. The deficit for any year is identically the net uninvested profits of the private sector for that year. If capital assets in the private sector were more equitably distributed and the wage/capital share was not biased so heavily in favour of capital then this would be far less of a constraint (but by the same token inflation would be more of a risk).

    To my mind the simple argument to be made against deficit approaches to demand deficiency in the curent circumstances is that the beneficiaries will always ultimately be the holders of capital and real estate, whether the deficit is invested in benefits, medicare, infrastructure projects or whatever.

    We have had decades of rampant deficits and its no co-incidence that this has been accompanied by rising inequality. That said, deflation with rising real rates is equally is bad. Which must be why banks in switzerland are sending new terms and conditions to their retail depositors which make a provision for negative nominal interest rates.

  5. Ha! would love to hear that one. Cullen, you probably blew the poor congressman’s mind! After all, he’s only a congressman, you need to explain it slowly and not use any big words. Sorry, that was a cheap shot… getting elected really is an accomplishment of sorts I guess.

    Wow, I can only imagine though… you probably really did blow his mind… all that stuff coming at him that it’s taken me months and months to absorb. To anybody used to thinking of the government as just a big household with a checkbook that needs to be balanced… that must have been uncomfortable!

  6. Sounds like a lose lose. You say deficits cause money to funnel towards the capitalist class. But the proponents of the labor class tend to favor more govt spending. So, what’s your cure?

  7. There is no ‘cure’ IMO, I think that gives the wrong impression. There are a narow range of paths which remain open at this point, and one could argue that where we find ourselves now and what happens next was determined quite a long time ago. Maybe by Nixon, or in 1933 or something.

    I also don’t agree that the labour class favour more deficit spending – not in the UK they don’t and not in most of northern europe either.

    Talking about theoretical possibilities then I see four, probably only some of which could actually happen:

    * Standard issue deflation and high real rates leading to guns and beans.

    * Standard issue deficit spending with no other material changes leading to rising inequality, asset inflation and eventually to guns and beans.

    * A moderate regime of negative interest rates until such time that sufficient idle capital and the associated fixed costs are abandonded thus reducing inequaity and reducing social fixed costs, at the cost of reduced consumption and output.

    * Deficit spending with initiatives to forcibly redistributed physical assets more equably. Taking history as a guide, this is the guns and tanks scenario. If the tanks are avoided, and the above actually works, then there is a big inflation risk

  8. OK, just listened to it. Cullen, you did a great job! I’m sorry I bad-mouthed the congressman w/o hearing him… he may be misguided, but he sounds like an intelligent man.

    I had the impression that you two were on at the same time … that would have been great!

  9. Ive always found it amazing how politicians, who generally have first rate education and work experience, can be so mind boggling stupid despite all that.

  10. Darren, It may not be so wise to reference this politician as stupid. Ignorant perhaps is the word you may have meant to use?

  11. “If we were to self finance the govt like this forever, then you could potentially talk about something that could be inflationary.”

    Is that because coin minting is in effect monetizing the debt?

  12. I didn’t really have the time to elaborate on that. But govt self financing is basically the realization that the govt doesn’t have to procure funds from the pvt sector. In essence, the govt has a money tree. I like to think of the current system as a system where money undergoes at least SOME approval process because most money is created by banks who undergo some risk management in issuing loans whereas a system of govt self financing just creates money based on how much the govt wants to spend. I’m not saying that would definitely be inflationary, but it’s certainly a big change from the system we currently have…..

  13. Aight, got it, I was just curious because of what JKH has been posting about QE, being essentially the same as QE, however QE is a transmission vehicle driving through the “Private Sector” and Coin Minting is a vehicle “Walking Over” to the treasury.

    So I am trying to understand if both really are one in the same or not.

  14. MRists are being very clear. The coin as QE is a temporary thing to circumvent the debt ceiling. If we used the coin to permanently finance the govt we would literally be changing the way our govt operates within the monetary system. The govt would no longer be a user of pvt bank money, but a pure issuer of money. That’s very different from the current design. That’s why I keep saying this idea is very very valuable to MMT type concepts. It is essentially full blown MMT with the govt self financing.

  15. “MRists are being very clear. The coin as QE is a temporary thing to circumvent the debt ceiling.”

    Great Point Cullen, and one that I am glad I RE-READ because I deleted the post because I desire to stay on the DESCRIPTIVE path.

    Thanks, I just realized this whole coin crap is a “PRESCRIPTIVE” point of operational function.

    Dang it was right in front of my face..

  16. You’ve noticed the same long run trends as I have. Indeed when it comes the distribution of profits from deficit spening I have often wondered would credit expansion have really worked out the way it did if people had required credit less?

  17. It may not be inflationary per se, but it does affect monetary policy. In fact, IF a trillion dollars of coin seigniorage is not inflationary right now, interest rates should crash through the floor to negative levels. Think about it this way – demand for US treasuries is not going to go down because people want safe places to store huge piles of cash. Banks are not safe if your cash hoard is well above the FDIC limit, and this is true for all corporations and all rich people – on a global basis. The Euro is not safe if there is political risk of a breakup, and individual EU States can and do default. So where do you put your money? Interest rates are determined by supply and demand, and the auction price for all US Treasuries should go to unheard of highs if the supply is permanently capped at the current debt limit. No wonder Bill Gross is a supporter of coin seigniorage. He is talking his book, isn’t he?

  18. Hmmm. Seigniorage with trillion dollar coins could drive interest rates sharply negative, especially if the Fed is slow to unload its QE bond hoard. I doubt that negative rates would reduce inequality, though. The globetrotting rich will have access to means of getting positive rates, while the poor schmuck savers will have no other options and be crushed, and their pensions will be destroyed.

  19. The big risk is if the TDC was done and it worked fine with no inflation and minimal bad effects to monetary policy. Congress would be tempted to increase spending, funded by more painless seigniorage of course. Eventually, the level of government spending would rise to levels that were very inflationary. Congressmen are elected to spend money on their constituents. This is what Conservative members really dread – the ultimate free lunch mentality taking hold.

  20. If it is used successfully there is a high likelihood that the TDC becomes permanent. Debt has negative political connotations because interest must be paid. Seigniorage is invisible.

    There is also a possibility that isn’t mentioned much. If the Supreme Court has to rule on how the Administration can reconcile a legislated debt limit and a legal requirement to spend all appropriations, the court could rule that the Treasury must simply spend new money into existence to meet appropriations if it can’t borrow. It could rule that seigniorage is mandated by the web of conflicting laws.

  21. Has QE ever been stopped once started, in any major nation? Japan has been doing it since their bust, and are now moving to outright monetization (the equivalent of the TDC without the coin). Is there any historical example of QE being temporary?

  22. There is nothing stupid about the Congressman. He sounds really worried as to where either trillion dollar coins or abolition of the debt limit would lead in the future – to uncontrolled spending. Spending that would go mostly to constituents of the other party and produce ruinous inflation.

  23. Pork barrel spending has been around forever. Bridges to nowhere. The Big Dig. Airports with nobody using them. Lots of Golden Fleece stuff. (Bailing out Wall St.) This is what elections every two years are supposed to prevent. The system is tipped towards the .1% at present. Our job as an electorate is to get the right representatives to appropriate appropriately. We are not doing a very good job these days.

  24. The GOP HATES the $1T coin idea because it circumvents there power. That’s why I think it’s most effective as a threat. Obama should have a press conference and say:

    “I’m introducing legislation to close the $1T coin loophole AND repeal the 1914 debt ceiling vote requirement. Congress should either pass this NOW or approve the debt ceiling or I’ll be forced to use other measures to meet our obligations.”

    Congress would probably just go ahead and pass the debt ceiling. They wouldn’t want to pass a bill that took their power away… even if it simultaneously closed the coin loophole. Or perhaps they would pass that bill! … They’d still have the ultimate power over spending (just not a redundant vote on it). Either case would be better than the admin just bypassing them completely and minting the coin.

  25. What i see in most of these posts is not about money it is about centralizing power in one party, then one person. csreful folks!

  26. Can someone explain me how is this coin idea different from what John
    Law did under King Luis XV?

    How fast do we forget history?

    This is serious stuff. People work hard and die over money matters.
    Eventually faith in the currency will break and it will be so sudden and unexpected with huge runaway inflation.
    Maybe that is the desired end game from our illuminati.
    Until then, charlatans will keep convincing us how the government has a money tree and we can get a free lunch.

  27. No, we’re very specific that that’s not what we’re in favor of. I’ve been very clear that I don’t think the coin should be used on a permanent basis for govt self financing.

  28. Wife and I are daily listeners to CBC radio. We were about to leave the house this am when I heard this somewhat familiar voice coming from the radio which is usually on as background noise.
    Hey, that sounds like Cullen.
    Great job and a nice fair presentation by CBC. Also nice calm discussion from Cullen. A debate may have been more informative or at least some defense of each others view but overall a quality presentation. Glad to hear about the pro mic!!!!!!!

  29. Don’t know if anyone noticed, but Stephanie Kelton was on Up with Chris Hayes yesterday discussing the coin. Thought she and Joe Wiesenthal did a good job initially hammering the solvency issue. At the very least MMT is getting some airtime, and forcing intelligent guys like Hayes to contemplate and consider the concept of money creation and debt.

    Unfortunately she then went full MMT and must have sounded crazy for people who have not been exposed to these concepts before. Absolutely convinced Cullen would have done a much better job armed with MR in his pocket…

  30. It must have been terrifying for the Congressman to hear that federal government spending is not debt constrained.

  31. Cullen,

    Perhaps I didn’t interpret your statements correctly in one of last week’s articles about the debt ceiling:

    ” Do we need the debt ceiling and its current debate? You bet. In my opinion the argument over the debt ceiling does several things:

    1.It raises public awareness to the fiscal issues surrounding our economy;
    2.It exposes many of the elected officials to public scrutiny and may force them act more responsibly if they want to be re-elected.
    3.It at least ensures that there will be a discussion, although not necessarily fruitful, over the issues of spending, revenues and debt.”

    I understand how silly it is for Congress to argue about raising the debt ceiling to allow for spending they already approved. I also grasp the basics of MR.

    Help me understand your position on the debt ceiling. Keep it, or ditch it?

  32. Steve – I believe that was an article written by Lance Roberts, posted on There is a byline near the title of each article with the author’s name.

    Cullen – This phrasing was a little unclear to me (specifically, the second sentence):

    “Obviously, if the government can just mint up a coin to spend then it doesn’t have a solvency problem. BUT, even Congressman Walden understands it could be inflationary. But people have been saying this endlessly for years regarding government spending, TARP and QE. If they’re right then why is inflation still so low? Why do we look more like Japan than Weimar?

  33. Thanks. You’re right. I made the mistake of thinking that Cullen was adding his comments after Lance’s article.