THE PLATINUM COIN IDEA GOES MAINSTREAM

CNN is running a story on the various ways the White House could circumvent the debt ceiling issue.  One of the options they mention is the platinum coin idea started by Beowulf:

“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.”

Of course, none of this matters because the President has already stated publicly that he won’t even use the 14th Amendment.  In my opinion, that makes it highly unlikely that he would even consider another option.  That means the Republicans are almost guaranteed to get something for nothing here….

 

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. TPC, I will start off with I know nothing about MMT and the way it works. So this is a question. For every action there is a reaction. The action to solve the debt crisis is to print a 1-5-14 trillion dollar coin and we are now out of debt, from what I am getting from this. What is the reaction from printing a 1-5-14 trillion dollar coin?

    To me, it is the exact same thing as printing that amount of money out of thin air and just paying the debt, just in a way that is within our constitutional laws. Si I would believe minting a 1-5-14 trillion coin is going to have the same reaction as just printing that money.

    The dollar will get crushed and most likely free fall through the all time lows. Oil and every commodity will sky rocket once again and we will still not see inflation because of how they are measuring inflation.

    Real Estate will not budge (just a numbers game with supply/demand)-wages will not increase because businesses will be fighting lower margins because of the higher commodity prices and unemployment will remain at high levels. To me, it sounds like we would be on the same path we have been in, which is stagflation.

    Basically, by minting a 2 trillion dollar coin, we have just created another credit card to pay off the interest we are paying on all of the other credit cards we have maxed out. I guess I just don’t understand the point, as the reaction should be the same as just printing the money out of thin air. It will be a band aid to pay the bills now, but we are in the same situation as we were. Not enough money coming in and too much money going out.

    If I am 100% off base on this, please excuse my ignorance about the MMT thing. G-

    • What you are missing, if I understand correctly, is that US currency and US Treasury Bonds are both forms of money with the only difference being that one pays interest and the other does not. So to swap US currency for US Treasury Bonds does nothing except to save the US interest payments and to circumvent the debt ceiling.

    • “We know that QE2 did not boost aggregate demand, but we do know that it caused major portfolio adjustments”

      No matter how large the reserve when banks do not lend money there is no boost in aggregate demand but what is stopping banks from investing excess reserve and distorting the markets and commodity prices?

  2. As JWG post mentioned above” “without a productive economy and capital investment money is just an artifact and aggregate demand is a meaningless concept”

    We learn that Government contractor overcharged Pentagon for supplies, including $900 for a $7 switch,” The same goes on big time every single day in the health care sector. Billions and Billions in ridiculous over-billing. Every one who is a doctor or works in the medical industry and works in an hospital is aware of this.

    Thats is the where there need to be a stop to this scandalous miscalculation of funds so that prices are negotiated to a real market standards and that Government can refocus this waste in to real investments and productivity.

  3. Good discussions on this board. But so far all seem to miss the underlying causative factors of this crisis.

    Special Interests (Financial Elite) have this nation by the balls. They have formed a very powerful aristocracy that is continuing to concentrate all wealth.

    Those here who blame any one party completely miss the point of this power struggle.

    But careful the Elite must be. If they don’t funnel sufficient funds to the masses then look out.

    Lobbying by ANYONE must be stopped – completely. I don’t care if it is by unions, bankers or charitable organizations. It has totally undermined the democratic process.

  4. TPC, your brief analysis above of QE2 indicates that your view with respect to asset swaps of QE not being inflationary has been modified, because of marketplace reaction to QE2; i.e., the psychology of investors. This reaction to QE2 was a herding into hard assets such as petroleum, metals and other commodities, which you referred to as a “portfolio adjustment” that produced cost push inflation, pressured manufacturing margins and consumer spending, and harmed the real economy.

    If MMT incorporates an equation to reflect the impact of monetary operations on market psychology, then the madness of crowds will get its due from MMT and MMT’s predictive capacity will become even better than it already is. I hope you do an article on this, because knowing if and when a loss of faith will trigger high velocity and a market stampede into hard assets will be worth its weight in gold (literally as well as figuratively).

    A commentator on another site said that MMT did not consider real world factors related to modern “currency valuation”, and I think he meant that MMT was purely mechanistic in its analysis and did not consider market psychology and human reactions to monetary operations. This critique reflects my own concern as to the madness of crowds, and “portfolio adjustment” could be a euphemism for “stampede”.

    There is sentiment in this thread (and on almost all non-MMT sites) that the platinum coin concept if actually executed might trigger a stampede into hard assets and high velocity (even though from a pure MMT perspective, it shouldn’t). That is well worth its own discussion.

  5. Ultimately, printing to pay off the debt is just an act of desperation. It would be an admission by the governement that the government has a habit of flushing money down the toilet. The money it “initially borrowed or spent into existence” wasn’t spent wisely, and, as a result, productivity didn’t grow to the point that the government could take in enough revenue to keep the debt under control. Printing just proves that the government flushes money down the toilet. As I said in my comment on the other post, there isn’t anything new about the idea that the government could print (or mint coins) to pay off the debt. Schiff has been talking about this happening for years. This is the exact reason he buys gold and foreign equities and gets out of US dollars.

    • Ultimately, printing to pay off the debt is just an act of desperation. Jay

      1) The US Government should have never borrowed in the first place.

      2) Since our money supply IS debt (currently) then if taxes were used to pay off the debt we would have NO money supply.

      3) Since all new debt ultimately had to be bought with new money from previous debt then the population has already paid an inflation tax when the new money was created.

      4) How else then should a debt-based money supply be paid off except with debt-free money?

      Paying off debt with seigniorage is not an act of desperation but an act of logical moral necessity.

    • Jay: Schiff buys foreign equities because of his belief in “decoupling” that he announced several years ago and has turned out to be a bad prediction. Thus he buys foreign equities simply because he’s a bad investor. US dollars have been doing very well. His recommendation to buy gold has been a good prediction, but he’s one of hundreds of thousands of voices that have been saying the same thing for years. But for Schiff, the recommendation is based on his misunderstanding of monetary policy and he of course won’t know when to sell because he holds if for doctrinaire reasons, not good investment reasons.

  6. “if taxes were used to pay off the debt we would have NO money supply.”
    So. if you have Government saving bonds are you saying that the money would not be return to you and would it not be part of the money new supply?

    • So. if you have Government saving bonds are you saying that the money would not be return to you and would it not be part of the money new supply? first

      Good point. However, in the case of US debt to the Fed the money would disappear. In the case of US debt to the banks, the money would move to excess reserves and effectively out of circulation. And as you point out, in the case of non-bank debt holders, some of the population including foreigners would have all the remaining money.

      So technically, you are correct; some people would still have money.

      Still, I would like the MMT folks, as a hypothetical, to outline step-by-step the consequences of paying off the US national debt with taxation by running continual US budget surpluses. It would be very ugly, imo.

  7. F. Beard

    “in the case of US debt to the Fed the money would disappear”
    Agreed on that its a liability to them self.
    May as well simply print 3% of the the damn money instead of all this circus where so much get diluted and mis-allocated.

    Note: I did not suggest taxation it was just a observation.

  8. F.B., you know that I respectfully disagree with you on the private money economy. We know from the past, particularly from England, that p rivate money systems get co-opted by money manipulators.

    The following is the best scenario for a politicial structure. And the assumptions are that money=law, which is a truism:

    1) There are Four branches of government: Treasury, Judicial, Executive,Legislative.

    The new Treasury is surrounded by Consititutional law. That way populism cannot pervert it over time. Additionally the Senate should have the 17′th ammendment repealed, so it cannot try to pervert the new treasury withh populism. The Law will govern the behavior of the new Treasury. In this way debt free U.S. dollars can be issued in accordance with the needs of the economy.

    2) The private bankers become 100 percent reserve. The money supply has become lawful, and thefore doesn’t need counterparties and insurance, like derivitives and AIG and other gamesmen. No more leverage, and no more balloning and busting of the money supply. Also, credit masters loose their money creation privledges, so the pressure for the isms goes away. Communism, Feudalism, and Statism all grow out of the credit money defect. Allowing private control of the money supply will perpetuate the isms. This cannot be allowed.

    3) To further put the money power privledge in its box, then Georgist ideas like the rent value of property taxation need to happen. We know that plutocrats get their power by vectoring usury back into land. Today our new neo feudalism is bankers creating ever more credit money, thus inflating housing, thus making more credit,etc. This is false economics which shows up as numbers on a banker ledger that is constantly increasing, but it is not real goods and services. It is empty calories that do nothing for the real economy. Over time, a higher and higher percentage of your output goes to servicing debt. Fiscal policy and monetary policy are flip sides of the same coin, they are both based in the LAW.

    Stop taxing productive labor, and start taxing the rent value of the land. Even in a 100 reserve world, this would be required.

    Our government belongs to us. This is the promis of our founding. That we got it slightly wrong is because Jefferson wasn’t at the constitutional convention in the final weeks, when they discussed money. Franklin was too old, and Thomas Paine was in France. Therefore, the remainder of the founders were confused and left a back door for Statism to sneak in. The credit money power given to our private economy has created a new Feudal Statism that is on the march.

    Even if we have a full private money system, it still needs to come under full control of some law. Who makes those laws? Money at its root gets its authority under law and consent of the people. Money solves contracts and settles debts. It is the law, and once that is understood then it is clear that the private sector would have to make a new government to control the private creation of money.

    If private monies are backed by something other than the law, like gold. Then that is a perversion of the truth. We tried that in the past, and it didn’t work out so well. A fully advanced society with an advanced legal system can have an advanced fiat money system that serves our needs. Going back to full private monies is a step backward.

    • Going back to full private monies is a step backward. REN

      I have never advocated that.

      What I do advocate is the allowance of private money supplies IN ADDITION to fiat. Then, if the government did not properly manage its fiat, the population could escape the resulting inflation OR DEFLATION by using private currencies for private debts.

      Fiat is the ONLY ethical money form for government debts but requiring it for private debts is UNETHICAL.

      In practice, even if private monies were allowed, most people would choose to use fiat for private debts too so long that fiat was properly managed. So what is the harm in allowing private monies?

      As for fractional reserve banking, an outright ban might be too severe but certainly ALL government privilege for it such as a lender of last resort should be abolished and all illiquidity immediately punished with bankruptcy.

  9. We’ve discussed the inefficiency you add to the economy. When government spends it’s fiat, it has to be converted. Remember, in a true Federal system, we own the government. We, in effect, would be saddling ourselves with inefficiency.

    Government wants to consume from the private sector, and the private sector wants its credit backed up by the government. It is a recipe for disaster, but the fix is not private money supplies. It is law, and advanced law at that. It requires an understanding of what money is, and that in turn predicates a certain output.

    An example: Nixon goes off of the gold standard in 1971 or so. Then U.S. government deficit spends into its foreign bases and war machines. Those dollars it deficit spent, seem to come bouncing back as T-Bills. This was unexpected. But, in effect, the deficit spent money pays for free military bases and foreign influence. Some foreigners want those dollars to buy oil, especially after the 1973 deal with the Saudi’s. What a deal, now we have 80 overseas bases and a military industrial complex, paid for with debased fiat.

    So, here is a case, where the government itself spends its own fiat extra-legally. Rather than properly funding the war through Congress, it manipulates the money supply instead. Both the Government AND the private sector need to come under control of the Law.

    Competing monies; gold standards; separate currency paths for government/private, are all flawed theories to my mind, and history and reality support this contention.

    The selfish beast that is a human will find a way to pervert any system for his rent seeking. It has to be understood that money at its root is Law, and good laws better be in place. This is a central condition of mankind, which led to marxism, fascism and all the rest. We need to get it right, and we have an advanced enough legal system now for money to evolve.

    Private monies will end up becoming credit based, and that would be a serious problem. We would revert backwards toward feudalism. Private unelected individuals cannot be given the money power. Although, we are marching toward feudalism with our current bankster economies, it makes my case. Our current reality is credit money has perverted our government.

    Credit money, or the ability of private individuals to create credit is the central problem, and then improperly constrained government is the next problem. Separate private monies that some how magically constrain the government won’t happen. Instead private money power will grow illegally and gain improper influence.

    • Here is another major reason to allow private monies. Your solution eliminates fractional reserves but does nothing about usury. The allowance of non-usury based private currencies such as common stock would allow us to leave usury behind forever.

      Think about it. The elimination of fractional reserves might easily cause interest rates to soar and hinder economic growth. That’s where private currencies could fill the gap. And why would anyone accept a private currency unless it was backed by genuine goods and services OR was an equity share of the corporation that issued it?

      Thus private currencies are a way to allow optimum economic growth while at the same time broadening the base of capitalism.

      Fractional reserves are crooked but nonetheless a brilliant invention – asset backed money. Common stock as money is also asset back but is completely ethical since every money recipient is by definition a co-owner of the corporation that issued the money.

  10. If Dems honestly believe that they represent the will of the majority of Americans, WHY OH WHY don’t they want to debate the debt ceiling issue again just BEFORE the November election? The Repubs aren’t afraid to use this as a election issue. Think about it, Dems.. you campaign on doing the RIGHT THING for most Americans, and you win the House, Senate, and the Presidency.. AGAIN! This seems like a no-brainer..unless Dems know Americans won’t support a policy of spend, duck, and cover. Dems.. I beg you.. use this as a 2012 campaign issue and take back the government like you did in 2008 :)

  11. F.B. Yes, I agree the usury is a problem. It is based on an original fiction at the beginning of money. We used to trade a chicken or some wheat, or something organic, and expect to get paid back with some of the offspring. For example, if I loaned you a chicken, I expected eggs back. But, money is not organic, it cannot really grow. To make something inorganic grow, like money, is a central problem. To add insult to injury, the usury curve is an exponential function.

    But, there is no reason why a 100 percent reserve system has to have exponential monies at its base. The differential in pay back is between the creditor and the saver. The private banker in this system is simply a go between, who earns a fee for their service. The creditor and saver can have some sort of deal for the extra monies paid back. I would recommend a simple interest that does not compound exponentially. The fatal flaw need to be accounted for.

    In the end, the extra money that enters the supply to cover the interest is something any system will have to contend with. If not, other people are going bankrupt to supply the usury the system needs.

    Therefore some small rate of inflation is inevitable. And the only way to control that properly is through law based money.

    The tax code will tax away the improper accumulation of rents. Monetary policy and fiscal policy are not independent.

    • Nice comment about the problem of usury. But whereas you would seek to regulate it, I have the sneaky suspicion that usury requires government privilege to even survive to any significant extent.

      The usurers and government have a long historical association but why should that continue today when money is better understood? The government certainly has no need to borrow money since it can create money itself debt-free. As for the private sector, why should only usury based forms of money be allowed? Is that not government privilege for usury?

  12. FB, Yes, the private sector merely needs some sort of mechanism to exchange their output. But, if I loan you my money, I have some expectation of something in return. So, the notion of usury, and the pressure to make inorganic money grow, is at the root of the idea of money. Even private monies, like stocks or bonds will demand something more in payment.

    Hitler’s MEFO bills were targeted at industry, but they ended up circulating like money. They promised payment in interest when they were turned in. Interestingly, they were just issued into the economy and people used them. In large measure, they were why the German miracle happened. So, this both supports your ideas for bills/bonds circulating as money, and supports my contention that you can issue fiat that the people will use.

    Eventually, you always default back to the notion that money is something that people need to trade their output, and it needs to have legal backing. The question then is “who performs that function?” If it is private money, usury will certainly still be part of the equation.

    The only time we don’t get inflation and money seems stable, is when real goods and output are expanding. More goods and output are matched by increasing money supply, so it seems as if the money is stable. Even credit money can appear to be good in the right circumstances. The best way to have the virtuous position of increasing goods and services with the same labor, is to let money serve as a store of value and allow the economy to properly prices things. All the shenanigans of government, and of private credit masters, mean that our current system is gamed to the max. Labor gets screwed, and that is something we both agree on, I’m sure.

    My issue is that the private sector cannot hold the money power, and the government can only hold the money power if it is closely watched by the private sector and the law. There needs to be balance of forces and legal penalties, so the people and their output are protected.

  13. Hmmm. My last post didn’t make it. So, I’ll make another quick comment.

    Even with a pure private sector money system, there will be expectations of inorganic growth. The person doing the loaning, will want something back in return for his money. The debtor doing the borrowing will have to agree to terms with the creditor. In a law based system, those terms are already spelled out in advance, so all money contracts can be more easily enforced. Usury is a function of money unfortunately.

    In a virtuous cycle of ever inccreasing output for a given amount of labor, even credit money looks good. Under these conditions where output is constantly increasing, the money supply can constantly increase and mask the ill effects of usury.

    The best thing we can do is make sure that money is a store of value and a means of exchange, and that it doesn’t get manipulated to the detriment of the people. The manipulation is usually by miss defining what money is, and by adjusting the law to rent seek. The FIRE sector is a good example of that mechanism in action.

    • Under these conditions where output is constantly increasing, the money supply can constantly increase and mask the ill effects of usury. REN

      According to Karl Denninger, the debt will normally compound faster than the real economy grows thus necessitating recurrent recessions, the so-called “business cycle”.

      But suppose that usury was completely outlawed. Could we still have a modern economy? The answer is yes – by using common stock as money:

      1. Common stock as money requires no borrowing or lending; assets and labor are simply bought with new stock issue. The commandment against usury between countrymen (Deuteronomy 23:19-20) is thus obeyed.
      2. Wealth is shared at the same time it is consolidated for purposes of economies of scale. This broadens the base of those with a stake in free market capitalism.
      3. All price inflation is born by the owners of the corporation since by definition they become owners upon accepting the corporation’s money, common stock. There are thus no innocent bystanders, an important moral and social stability feature.
      4. Common stock as money requires no gold but could easily accommodate it for dealing with primitives. However, as today, much of the assets of the corporation would be performing assets not non-performing ones such as gold is.
      5. The holders of the money are by definition owners of the corporation and may vote on new money (stock) issues. On one hand, the money holders might not wish to risk deflating the value of their stock. OTOH, perhaps they see an investment opportunity that justifies the risk. Notice the issue of new money is not artificially constrained as the case is with gold as money yet price inflation is not likely either.
      6. Fractional reserves are not needed as is almost always the case with gold based monies. Common stock is thus a non-fraudulent form of money.
      7. Without lending or fractional reserves, deflation is not a risk.
      8. Common stock is a true store of wealth since a healthy corporation is always adopting to the needs of society.

  14. Hitler issued MEFO bills, which were also called Federer money. They were based on the Greenbacks, since Federer followed that movement in the latter half of the 19′th century.

    When the MEFO bills were issued they were targeted at industry. The central government wanted X amount of labor for each bill. This is how they built out the autobahn and built out industry without gold. Germany went from being debt slaves to being the richest country in Europe by 1938.

    MEFO bills did promise to pay some interest when they were turned in. I’m not sure of the mechanism, but the bank’s did not hoard them. Therefore they circulated as money.

    So, it was fairly low inflation. I think we will need to experiment with new forms of money in order to keep the usury problem in check.

    Common stock is an interesting idea. People can still trade it as a form of money. This could exist simultaneously in a 100% reserve world. The idea is to not disenfranchise people from their labor and output.

    Usury is usally defined as excess interest. I define it as growth of something that should not grow. Money should be inorganic, but people will demand something for their savings in return, usually more money. Very low rates of inflation could be tolerated, and still have money serve as a store of value.

    The common stock idea has the company growth as the return, but that is “off the book” so to speak, and doesn’t demand that the money grow. Once simply owns the growth of the company as a ledger entry.

    When the stock is traded, it might get converted to money at that point, and then more money may be demanded.

    • The common stock idea has the company growth as the return, but that is “off the book” so to speak, and doesn’t demand that the money grow. Once simply owns the growth of the company as a ledger entry. REN

      You got it. There is no requirement that the money supply (quantity of common stock) grow but nonetheless the money holders (stock owners) could vote to increase it if they saw a good investment opportunity.

      When the stock is traded, it might get converted to money at that point, and then more money may be demanded. REN

      If the common stock was directly exchangeable for goods and services provided by the corporation that issued it then there would be no need at all for conventional money for private debts. Of course tax money would still be needed but it could be bought on the open market from those who had it – government workers, government contractors, the military, SS recipients, etc but not, for ethical reasons, directly from the government.