This Bill to Close the Trillion Dollar Platinum Coin Loophole Should be Passed…IF….

Congressman Greg Walden is getting ahead of the platinum coin idea first introduced to the world by Monetary Realism’s Carlos Mucha.  If you’re not up to snuff on this whole thing just see here.

Anyhow, in a new press release Congressman Walden says the coin loophole should be closed and says he will present a bill closing the loophole.  He further states how absurd it is to allow such a “dangerous” proposal:

“Some people are in denial about the need to reduce spending and balance the budget. This scheme to mint trillion dollar platinum coins is absurd and dangerous, and would be laughable if the proponents weren’t so serious about it as a solution. I’m introducing a bill to stop it in its tracks,” Rep. Walden said.

 Yes, the idea is absurd though it’s not really dangerous.   What’s not laughable about all of this is the idea that Congressmen like Greg Walden think it’s okay to threaten default using an equally absurd self imposed constraint.  The debt ceiling is even stupider than the coin idea.  If you want to propose a bill to cut spending then go for it.  But don’t use this fictitious constraint to cut spending when bills you’ve voted on in the past already implicitly approved the spending.

I am perfectly fine having the coin loophole closed. But let’s also eliminate the debt ceiling and begin having talks about government spending like adults. As opposed to using self imposed constraints to threaten something far more “absurd and dangerous” than an accounting gimmick. After all, there are few things more absurd and dangerous than willingly defaulting on ourselves….


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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  • Johnny Evers

    Proponents of balanced budgets are not saying, ‘Let’s default.’
    They are saying, ‘Let’s spend what we take in.’
    If you’re going to disagree with someone, at least argue against what they are proposing.

  • Cullen Roche

    Oh come on. They’re directly using the risk of default to cut spending. You’re not fooling anyone with that twisted rhetoric. Here’s McConnell on weekend TV explicitly admitting that he’s willing to use default as a scare tactic:

    Stephanopoulos asked McConnell — twice — if he was “prepared … to see the country default” and if that would be “acceptable.”
    “My answer is, hopefully we don’t need to get to that point,” McConnell said.

  • Cowpoke

    This Circus has been going on forever and always ends the same, here’s a nice read from Bllomberg:

    “A sanctimonious president refuses lawmakers the cuts they demand. The federalists in Congress grow cocky. They’d rather force a bond-market crisis than raise the debt ceiling or erode states’ rights.

    “I’m not worrying,” the firebrand Virginian leading the opposition to the president says, and charts his own version of the budget. “I’m sticking to my guns. We’ve got a prairie fire started among the people in favor of cutting the budget.”

    The president disapproves. The Virginian seems downright gleeful. The debt-ceiling fight is giving new life to his already lengthy career.

    This sounds like the story of the very Democratic President Barack Obama and the very Republican House Majority leader Eric Cantor battling in 2011. But it’s actually a description of the very Republican President Dwight D. Eisenhower and the very Democratic Finance Committee chairman, Harry F. Byrd, in 1957.”

  • Delta Financials

    So, if the people’s representatives don’t want the country to keep spending, the executive should get the power to override that decision because…? Look, it’s one thing to argue in favor or against something, but quite another to turn into a legal luminary and decide that structures that were developed to reinforce the separation of powers should be done away with because the other side is stupid. That’s a seriously dangerous argument.

  • Joe in Accounting

    If the people’s representatives don’t want the country to keep spending, they should pass legislation that reduces spending and hope the president signs it into law or have enough votes to override his veto. Holding the economy hostage and forcing the President and Treasury to not enforce spending and tax bills that have already passed in both houses and been signed into law is a seriously dangerous argument.

  • EconFan

    the congress passed the budgets which led to the debt- so the debt ceiling is meaningless. and unconstitutional (see the 14th amendment which was passed precisely because Lincoln was worried that the defeated confedracy sympathizers in Congress would use this tactic to undermine the Union and its war debt)

  • Boston Larry

    I concur with Cullen. “The debt ceiling is even stupider than the coin idea.” And: “there are few things more absurd and dangerous than willingly defaulting on ourselves….” I just signed the petition at calling for issuance of the one trillion platinum coin, but only if House Republicans are willing to let us default in order to force deeper spending cuts than make sense in this weak economy.

  • barbacoa

    To me, if you argue that this debt has already been purchased by an agent of the Federal Govt, but remains a Federal Govt liability that stands in the way of stimulus, then you retire it.

    Then provide stimulus in the form of:
    1. a one time tax refund, and/or
    2. Federal spending on infrastructure

  • dctodd27

    Maybe we as a country shouldn’t spend money like a debt ceiling raise is a given. Doesn’t that start by proposing and passing a budget?

  • Johnny Evers

    Still not fair.
    His goal is to balance the budget. He’s using default as a leverage to advance his case.
    No different than deficit spenders using the threat of another Great Depression as leverage to advance his case.

  • john

    The country has plenty of tax revenue to pay the debt without ever raising the debt ceiling. The debt ceiling is one of the most important aspects of our republic. It is not there because we are imposing a false belief of the monetary currency scam we operate under, but because the system is about checks and balances. At least it was supposed to be about that. You need something in place to keep the spending in check. If that means forcing an insane politician to beg for it to be raised every year, then so be it. Without it, politicians would spend until the the Keynsian nightmare reached its inevitable conclusion, which they will do anyways, just slower. The system is breaking down because fiat currency systems always break down, due to fraud and miss allocation of capital. No incentive to make money when making currency is easier. In the end you have a system devoid of enough money to operate due to the abundance of currency. Then without warning you get a crisis.

  • Johnny Evers

    Second that.
    In the meantime, we’ll deny, issue cockamanie ideas like the Trillion Dollar Coin, make pronouncements like ‘Borrowing money is really saving money’, count potential production as actual production.
    Pretty soon we’ll put a $50 trillion value on Mars and start issuing currency backed by the Red Planet.

  • Cullen Roche

    The debt is approved at the time of legislation. We’re one of two nations who approves spending and then has a rule that then discredits the spending later. It makes zero sense. If you want to cut spending then go through the normal legislative process. Don’t use this stupid gimmicky “rule” to fight it. Let’s start having some discussions like mature adults and stop falling back on self imposed fake default risks….

  • Delta Financials

    Congerss passed the Ryan budget, right? So they did that and the president vetoed it. When did the executive get overriding powers to spend without constraint – the debt ceiling is meant to be a constraint that holds both congress and the executive accountable. It might be silly from the point of view of MMT – but, it’s absence and a drunken executive could threaten the currency system itself – and even a thoughtful MMTer would agree with that. SO, it’s part of the elaborate system of checks and balances.

    As for the 14th amendment – doesn’t that just deal with due process?!

    The essence of democracy is to use leverage to try to strike a deal. The debt ceiling is as legitimate a democratic tool as any. And refusing to raise it doesn’t equal default. It enforces a future spending limit on the govt. This entire debate is the sort of nonsense that makes politics such a cry baby “sport”. We shouldn’t even be having this debate – we should be having that more legitimate + real – role of government debate. That’s actually interesting and useful. And no “ideology” (certainly not MMT) has a monopoly on the answer to that question. Let’s get real.

  • Delta Financials

    That’s a thin argument, Cullen. When you approve spending, you certainly don’t know anything about future revenue. Every year, two years, five years – whenever the debt ceiling debate comes up; you do. So the debt ceiling offers a country’s elected reps the chance to take an informed decision on the trajectory of overall spending and revenue. That’s actually a good system. I don’t think the US is a particularly poor precedent in terms of systems of checks and balances – unless you want to move to systems that have failed every 10/20/30/40/50/100 years – which actually accounts for most of the world – so the one of two countries argument doesn’t cut ice, either.

  • Delta Financials

    Good point, Johnny.

  • Joe in Accounting

    So Congress needs a check on itself for appropriations and tax rates they have set themselves, made into law and gone through the system of checks and balances in place? We don’t hit the reset button every time a new congress takes office.

    “One of the most important aspects of our republic”!? Interesting then, that it is not in the Constitution, but rather, the debt ceiling was created, ironically enough, to make it easier for the government to borrow. The Treasury once required congressional approval each time it issued debt.

    “In the end you have a system of devoid of enough money to operate due to the abundance of currency”. What does that even mean? Currency is not money? My bank account is denominated in US currency and interestingly enough my debit card is accepted when I swipe it at the grocery store.

  • Dan M.

    The threat of another depression is not a threat seems are holding us up with, but a natural result of slashing spending. Two totally different kinds of “threats.”

    If we should slash spending from current rates during a recession with low interest rates and very low inflation, there should be some fundamental reason to do so. The deficit hawks have none. Unlike those on the left that warn of depression if spending is slashed, the deficit hawks are completely wrong in their predictions of default and/or hyperinflation… Unless they overtly cause the former.

  • Cullen Roche

    You can see the budget size in real-time just about any time you want to. You don’t need a debt ceiling to tell you there’s a large deficit. If you want to reduce spending the propose a budget, propose new legislation. Don’t use some phony law to hold the economy hostage and claim we’re going to default.

  • Delta Financials

    Are you suggesting congress operates with perfect information of future economic conditions when it passes legislation, Joe? That would be a pretty bizarre claim to make. So again, as a system – it’s actually a good system.

    Without getting into a constitutional debate, the notion that the executive unilaterally issuing debt is somehow consistent with the constitution is equally ridiculous.

    The debate you guys are really having is whether the system should still exist given that we now operate with a FIAT currency. If you win that argument, we might get a legal structure to codify what you’re arguing. For now, the idea that the legal structure should be turned into a circus is about as wise as the Gingrich’s ideas on overriding supreme court decisions when he doesn’t agree with them.

  • Joseph Browning

    Ah…. honestly believing that spending to try and prevent a Great Depression is no different than deliberately creating a world-wide financial crisis only because some members of Congress don’t want to spend what they’ve already approved to spend.

    This is so monumentally stupid you can’t even really parody it. It’s a self-parody said with the greatest amount of earnestness and fervor.

    Cullen, you have too much tolerance of obviously blind and stupid ideology. IMO, you need to be Pragmatic when it comes to running your comments section here at Prag Cap and kick out the riff-raff who add nothing but noise and false understanding time and time and time again.

  • Joe in Accounting

    Ryan budget wasn’t passed by the Senate, so no veto there. That system of checks and balances thingy. See School House Rock, “I’m Just a Bill”

    There’s more to the 14th than due process. Check out section 4 of the amendment. Speaks to validity of the public debt.

    Not raising the debt ceiling would constitute a default, because it would force the Treasury to stop payments on things that have already been appropriated by Congress.

    The debt ceiling is being used as a tool by one party in one branch of the government to force their ideology on the role of government on the other party and other branches and country, which will have devestated effects. See here: As the author likes to say, “he did the math”.

    No one mentioned MMT, but if you read MMT and MR on this site you will not see any ideology regarding size of the government. MR is simply descriptive and MMT which has a prescriptive element still identifies inflation as the contraint to government spending.

  • Delta Financials

    and subject that to a presidential veto?
    Legislators pass spending that goes on for many years; with imperfect information. “real time” information on the budget isn’t any mechanism of assessment. This is. The budget could be, if they bothered passing one anymore.

    Like I said, the key here is a separation of powers, checks and balances argument. This is the system we have today, whether MMTers think it’s good or stupid is hardly the point. Greater executive power isn’t something to be granted through a circus operation by the treasury and/or the fed. If that’s the system we should have – legislate it into law. But, have a real debate about the role of government if you can’t.

  • Joseph Browning


    To stop spending, stop *approving* spending.

  • Delta Financials

    Joseph; calm yourself down. There are plenty of genuine debates to be had on the role of government – what works, what doesn’t. The nice thing about this place is that we can usually have them without someone deciding every other viewpoint is unworthy of a response. If you want to limit your horizons – go for it. But, you’re only displaying your ignorance by being blind to the fact that we’ve had this monetarist v Keynesian debate several times in history. Both sides won and failed. And it goes on… That’s politics. One side doesn’t have a monopoly on the future.

  • Cullen Roche

    What does MMT have to do with anything I’ve written here? I am not an MMTer. I use MR to describe how our system is designed. If you understood MR you’d understand that the USA has no solvency constraint as in “running out of money”. I don’t think you’ve fully digested my premise.

    Maybe start here:

  • Joseph Browning

    I agree. There are plenty of genuine debates to be had on the role of government.

    Supporting a voluntary default is not one of them.

    It is monumentally stupid. Foolish. Idiotic.

    If spending is too high, stop approving spending.

  • Joe in Accounting

    Not suggesting congress operates with perfect information. That’s impossible with lobbyists around. But if the spending or tax bill got through both houses, an executive and judicial review, then it is the law of the land and needs to be enforced. As MR shows, deficit spending today does not restrict our ability to deficit spend or not in the future. If the congress and President thinks that it should curtail the deficit, pass a law reducing spending or raising taxes.

    That was in response to “john’s” statement that the debt ceiling is one of the most important aspects to our republic. The executive is allowed to unilaterally issue debt because congress gave him that authority with the debt ceiling! The constitution says only Congress may borrow on the credit of the US. During WW1 this became burdensome so they said fund the deficit that we approve with borrowing up to this limit. My point is its nonsense to have that limit because it isn’t a check on the president/treasury. Congress set the tax rates and the appropriations, if Congress gives Treasury a deficit they need to borrow. If Congress thinks they are borrowing too much, they can pass laws that reduce spending or raise taxes.

  • john

    Yes, it is not in the constitution because fiat currency is not in the constitution either. Currency is not money. Money is something of value and that value takes effort, human energy. Metals have been money for centuries because they have to be mined which takes human effort. Everything produced and tangible is money because it too takes human energy to produce. Currency always follows money because it can be created without effort and then spun as money by creating value by imposing the power to tax in that currency. Imagine who be hurt the most of currencies were replaced by money? Would the politician or banker be hurt or would the carpenter and mechanic or engineer be hurt. Obvious the carpenter, mechanic and engineer would benefit as they have a trade still worthy of trade. The politician and banker would have a much less valuable commodity to trade with as their services would be deemed somewhat worth-less. They be forced to work as their efforts would need to be equally worthy of another’s efforts. The carpenter can build you the house you need, the politician can only offer you words and the banker can only offer you what is already yours or perhaps a bit of your neighbors in return for a bit of yours. Either way, you can see that some are working and some are scheming, and scheming only works when you don’t have to actually produce the outcome. You cannot create money out of thin air, but you can create currency.

    So perhaps, this site should be called CR or Currency Realism, since it no longer has any reference to money. If I were the Greeks I would naturally return the power to myself by introducing money back into my society through barter. Oh wait…..

  • Joe in Accounting

    Really? Is this a joke? Underwear has value and it takes effort to create underwear (a little extra effort to make them dirty underwear)and is tangible, so therefore is money, regardless of the fact that no one wants my “money”.

    Actually, fiat is in the Constitution, when it gives Congress the power to coin money, regulate the value thereof, and of foreign coin, and fix the Standard of Weights and Measures. So basically, Congress has the constitutional power to “decree” what is money.

  • Joe in Accounting

    And introducing money back into society through barter? In barter economies there is no money, people trade goods and services they produce for goods and services they want. Barter takes money out of the economic equation.

    I’m all for entertaining ideas from other schools of economic thought, but taking a cartoonish interpretation of one is a waste of everybody’s time.

  • Cullen Roche

    I think you’ve confused a number of different things there. Money is primarily a medium of exchange. Currency, as in cash coins and reserves are one form of money that MR calls outside money. In today’s system money is primarily entries in computer systems denominated in USD created by banks. This is inside money. These electronic deposits give us access to real goods and services at a certain value. Today, money is primarily bank deposits. You can question the constitutionality, but you can’t question that reality because anyone with bank deposits can buy just about anything they can afford.

    This site focuses primarily on this reality around modern banking. You can reject it if you’d like. But be informed in doing so.



    Of course, US has a solvency constraint. MR is based on the fact(s) that other countries are believing in US $$ and accepting it as a form of payment.
    If US would start deviate from the proper accounting, stop issuing Treasure bonds and instead direct FED to print money that it will simply break trust from foreign entities.
    But trust from foreign entities is the very reason why what you call MR makes sense in the first place. What if Chinese would stop accepting payments in US $$ for their products and Saudis would stop selling oil to us for $$$ as well? What if they’d start demanding Euros or Yuans? That would break the backbone of MR because it relies on the fact that US issues debt in its own currency, but paying in Euros/Yuans would cause US to buy those currencies; thus, issuing debt in some other currency or tied to some other currency.

    So, assuming that US is not revenue constrained and can start printing and spending $$ at will, why should we assume that other countries will continue to accept US $$ as a form of payment when trading with us?

  • Delta Financials

    Many different points. Let’s try and go in reverse order:

    on MMT – my statement that said “certainly not MMT” was precisely because its primary usefulness & relevance comes from descriptive elements (some of which are themselves contentious). So, it’s hardly a go-to place for questions on the role of govt.

    On how the debt ceiling is being used – no different than several pieces of “must pass” legislation including SEVERAL passed during the financial crisis… and not entirely different from what just happened regarding the cliff. If the politics of brinkmanship is the way you want to go – both parties get to play it and running into a corner and throwing a tantrum is pretty unproductive in the process.

    On whether this would technically equate to “default”, I suspect you’re wrong, though, in substance I actually agree. Our reps shouldn’t be stupid enough to throw us into chaos when it isn’t warranted. They’ll face that pressure and get the chance to respond to it. And if they’re stupid enough to actually have us default – we’ll have several emergency measures etc etc that will lead to further systemic change. That’s democracy. Brinkmanship, dysfunction and everything.

    But quite where you find the legal, moral authority for one branch of govt to play a circus trick to try and get out of something which is law today, I do not know. Checks and balances are important things. And yea – the senate didn’t pass the Ryan budget and that’s fair game in this system of checks and balances. But, my point is congress bears responsibility for spending under the constitution and since congress can’t mend ways easily, this is a legitimate tool that we have in place to give the system a chance to have what should be a worthy debate about course correction as and when needed.

    Not to speak of the president who voted not to raise the debt ceiling as senator. Again, how about we debate the actual underlying issue rather than discussing circus tricks and our moral outrage about rules of the game in the real world.

  • Delta Financials

    I’ve written extensively about the fact that it can’t run out of money in the past – so let’s not be condescending in our responses, Cullen.

    The substance of my point is your theory – however wonderful you may believe it to be – and however much I may agree with it, does not equate to legitimizing circus tricks as the means for how the system of governance should operate.

    I have zero Greek fears, I’m not even in the cut spending now camp – but, a republic functions on debate, not executive overreach and circus tricks. It’s dangerous to argue that the system should be overridden simply because you don’t like what the current law allows the other side to do.

  • Joe in Accounting

    First of all, this would not restrict the US from issuing debt denominated in US dollars, so still no funding constraint.

    The US produces 25% of the world’s output sold in dollars, therefore, there is a demand for dollars. China could stop accepting dollars, but they would also have to accept high unemployment as their exports would drop significantly, or their currency would rise also making their imports more expensive.


    “First of all, this would not restrict the US from issuing debt denominated in US dollars, so still no funding constraint.”

    If US would issue debt in order to buy foreign goods & services, which would be priced in some other currency then that would either force US to issue debt in another currency or make US $$ tied to another currency via exchange rate; thus, making US debt currency constrained.

  • Cullen Roche

    Foreigners don’t fund the US govt’s spending. See any bond auction. The dealers can always take down the auctions on their own. See my piece on the monetary system where this is discussed.

    The ability to sell bonds is based on an inflation constraint. So long as there is enough output to back the economy the bonds will get sold because people will always want to save in bonds versus cash (as long as cash isn’t losing its value at an unacceptable rate, ie hyperinflation).

  • Delta Financials

    the same logic applies to the debt ceiling itself – it’s law and needs to be enforced. That;s that.

    The debt ceiling itself is a check on congresses accumulated actions. A spending bill that passed in 1992 may not have the support of the current house, but continues to be law. The debt ceiling forces congress to consider the impact of the accumulated actions of prior congress actions.

    The platinum coin idea on the other hand is pure executive overreach.

    What would be a nice solution here – would be to hold these guys down to actually passing a budget. Both houses. They don’t stop working until they get one done and then they increase the debt limit to enable the budget to be enforced. You know, do things, the right way.

  • Cullen Roche

    I am not being condescending, but you’re referencing MMT here as though that has anything to do with what’s being discussed. I can’t tell if you think I am an MMTer (which I am not) or what.

    The debt ceiling is a circus. It’s a stupid self imposed gimmicky constraint that only exists in ONE other democracy. There are better ways to solve things. That’s my point. And yes, I agree, the coin is silly and a circus trick. But so is the debt ceiling….

  • Delta Financials

    I was just talking about MMTers in general. Semantics and labels aren’t my thing, I’ll say MRists next time if that makes you all happy! :)

    Debt ceiling = current law; a valid check on accumulated congress action in the absence of perfect information and a check on the overall process in the absence of the administration bothering to pass a budget these days!

    Platinum coin = circus trick at best. Severe executive overreach that undermines the currency system itself over the long run, at worst. If the Fed can print print print and the politicians can spend spend spend, why won’t we eventually get corruption (already a growing disease), sweetheart deals and a bad economic system of freebies in the long run. Think about it – systems without robust checks and balances go there, eventually.

  • Joe in Accounting

    Ok, I think this pretty much agrees with Cullen’s original point which I also agree with. Let’s not have silly circus tricks so each party can try and out do each other and just pass laws. The Platinum Coin “trick” is available to the President beacuse it too was a law passed by Congress, giving the Sec Treas that power. The 14th Amendment also passed by Congress and ratified by the states to honor the debt incurred.

    The reason I linked to the Wray article because I think the article sums up how most people on this site feel:

    “I think reasonable people can disagree when it comes to what government ought to do. I think it is worth discussing. Lay it out on the table. Forget the silly arguments about deficits and hyperinflations and taxation by dictatorships and JG slavery and bankrupting our grandkids and associating with Austerians and Hedge Fundarians.
    And about arbitrary government-to-GDP ratios. We don’t need to argue about whose is bigger. What matters is what you do with government.
    What should government do? It’s a mostly political question. A 24% government (US) can do most of what most people seem to want government to do. And more than what others want. And so can a 50% government (France). The jury is still out on a 15% government (Mexico)—it would be hard to point to Mexico as either a case of a successful government doing what people want it to do, or as an Austrian Austerian utopian Small Government.
    What do you want government to do?”

  • Cullen Roche

    Well, MR and MMT have become extremely different things which is why I posted the link. Some people think I am still MMT or heavily related. We overlap on some things, but the core pieces are very different now. So you might want to review if you think otherwise. That’s the only reason I posed the links….No offense intended….

    The platinum coin is also current law. It’s no more of a circus than what Congress does with the debt ceiling. I guess we’re just going to disagree on that though….Fair enough.


    I was not talking about bonds, but about US $. Currently US bonds are equivalents to US $$.

    Foreigners do fund US government spending and US spending in general via accepting $ as a form of payment.
    This is happening because, with its historic checks & balances, US financial system is still considered the safest in the world; thus, making people all over the world to accept US $.

  • Cullen Roche

    Why do foreigners want USDs? Either because they want to buy US goods and services from us or they want USDs because they know the USD is backed by $16T in annual output (so they’re happy to sell us goods and services in exchange for USDs which they use to exchange for domestic currency in the means of creating jobs, investment, etc). Bonds aren’t backed up by nothing, but the paper they’re printed on. They’re backed up by output. And the USA has 23% of the world’s output. So your argument fails because it implicitly implies that output will collapse. Hyperinflationists have been making this false argument for 5 years.

  • Delta Financials

    We’re close enough to agreement on this, so I’ll let that pass.

    Now, that’s a far more interesting debate – and something I’d love to see Cullen thrash out another one of his thought provoking articles on.

    But, on some of the starting assumptions: the federal government raises $2.9T or so, but between state, local and federal – the number is $5.6T – so that’s closer to 35%. Do we agree on starting assumptions here, or do you disregard state & local for some substantive reason?

  • john

    I understand your position fully. Yes, currently we have a currency system and thus that governs as money, thus this currency in enough quantity can buy you anything you want. What I am saying is that our current system is a scheme more than a system. Anyone with a little knowledge of history and the role and path to currency issuance knows the repetitive nature of such a system and its demise. The reasons for creating a currency system have always been the same and always are it’s undoing. The reason our system is beginning to break apart is that we have stretched the link of currency to the money for which it provides a medium of exchange. If one were to fully embrace MR or MMT and then act upon its foundation, one would have a system of such massive miss allocation of resources and corruption that the system would self implode. No one is questioning the reality of our system any more than they are questioning the reality of the temperature outside today. People are questioning why this is the reality we have to live with. Our system is not the way it is because it is good for the people, it is the way it is because it is good for those in power. A politician can spend without taxing, how powerful a pull is that? Now they have spent and stayed in office. The result of our modern system is a monetary system devoid of capital to nurture investment because we have increased prices so much by deficit spending that no one has any savings and thus has no capital to invest. Don’t even start with the corporate balance sheet BS. That is only good if they start sending their clients checks to buy more stuff. I would not put it past them. Look at AAPL, how much cash do they have? How many phones do I need in my drawer that all do the same thing before I don’t need anymore phones. Soon AAPL will be a giant hedgefund with nowhere to invest their capital. If I were them I would be turning that currency hoard into money. A thousand acres in Aspen is still a thousand acres in Aspen. Glad I did not sell that for your “money” a hundred years ago.

  • Geoff

    “What do you want govt to do?”

    Nuke North Korea

  • Joe in Accounting

    Not my article, but I would assume state and local were left out because in MMT terms they are “currency users”. Not only do they have to debate about what to do, but also can we afford it. As we know, the Federal gov’t doesn’t have that same constraint, so the debate is strictly what ought government do.

  • Cullen Roche

    I still don’t think some people realize what MR is. MR just describes the current system. My personal views about policy are not MR policies. They are MY personal preferences using MR understandings. You could understand MR and come to totally different conclusions on policy. But at its core MR is just a description of the money system. Nothing more.

  • perpetual neophyte

    “The debt ceiling itself is a check on congresses accumulated actions. A spending bill that passed in 1992 may not have the support of the current house, but continues to be law. The debt ceiling forces congress to consider the impact of the accumulated actions of prior congress actions.”

    Help me understand. Is your premise that Congress has no understanding of the impact of previous spending up until the debt ceiling is reached? e.g. your spending bill’s impact from 1992.

    And _that_ is what prevents them from offering legislation on future spending via normal budgetary and appropriations options rather than threatening default on spending already approved and legislated?

  • Joe in Accounting

    “Glad I did not sell that for your “money” a hundred years ago.

    How old are you?

    AAPL invests their capital for their shareholders. What kind of return would those shareholders get from 1000 acres in Aspen? Is AAPL divesrifying into ski resorts?

    How many movies do I need to watch before I am fully entertained? How much gas do I need in my car before it gets too full? How much food do I need in my stomach before I no longer need food? Maybe in a hundred years I’ll be able to answer these questions.


    Cullen wrote:
    Why do foreigners want USDs? Either because they want to buy US goods and services from us or they want USDs because they know the USD is backed by $16T in annual output…
    So your argument fails because it implicitly implies that output will collapse. Hyperinflationists have been making this false argument for 5 years.


    1. Speaking of Hyperinflation – take a look at the nice chart in Taleb’s “Antifragile”. We don’t know either it is right or wrong, but it is an interesting idea – it suggests that inflation does not necessarily need to increase gradually, but can be an instantaneous hit.

    2. Yes, you are absolutely correct that foreigners want US $, because they are backed by $16T of output. But that also assumes that the current system responsible for making US $ is under the checks and balances of the open market.
    But MR states that no matter how many bonds US issues, FED will buy them. Yes, it is true. But it does not mention what side effects of losing trust that can have on US $.


    Steve Jobs could convince you that you are living LIKE you are having a 1000 acres in Aspen if you are owning an Apple product…

    Unfortunately, he is dead and APPL growth will soon follow him.

  • Cullen Roche

    There’s no evidence that inflation in a developed economy occurs instantaneously.

    The supply of dollars is created primarily by banks who go through a much more thorough approval process than the govt might if they created all the dollars….

    MR states no such thing about the Fed buying bonds.

    Hyperinflationists have been making this argument about “trust” for years. Inflation remains low, the USD is fine. At some point I would assume some people begin to question the validity of this “trust” argument.

    You want trust? Send me your dollars and TRUST me – I will go buy some fabulous US goods and services. :-)

  • Greg

    If spending is too high, show me the evidence of it without pointing to deficit levels or the debt ceiling. Surely there should be some other evidence besides relationships to arbitrary levels of debt or balance.

    IOW take money out of it. If you cant show me evidence in the “real economy” of overspending……… there isnt any.

  • CommonSense

    If there wasn’t a debate over the debt ceiling or default, would we even hear about cutting spending? Given Congress’ reluctance to pass a budget these days, I doubt it.

    Anyways, the debt ceiling has been raised 75 times over history, this time is no different.

  • J Dukate

    If you cant show me evidence in the “real economy” of overspending……… there isnt any.

    This is what most economist use to make that determination you are asking for: Debt to GDP(Best Measure for Real Economy)

    If the ratio is flat on moving down you are right, we are not overspending in relationship to “real economy”. If the ratio is moving up then you are wrong. Take a look. What do you see:

  • Andrew P

    The debt ceiling has only been around for about 100 years. There is nothing fundamental about it. And the Trillion Dollar Coin might be a good thing at this point in history. It will allow the Fed to unload its QE purchases of Treasury Bonds, and still drive interest rates down to still unheard of lows.

    For some perspective on the economy, see this article.

    Loans stopped creating deposits back in 2008 (since loans stopped), so something else needs to take up the slack.

  • Andrew P

    Everything is fine until it isn’t. I don’t think any serious hyperinflationist thinks that the vertical transition is right around the corner. Japan has been doing QE for 20+ years and hasn’t been able to ignite inflation despite desperate attempts to do so. It will take time, possibly more than a decade or two or three. But eventually, banks will make loans again. That is when the ability of the Fed to “normalize” the economy will be severely tested.

  • Scott Krisiloff

    Can we tease out the logic that “USD is backed by $16T in annual output”? Specifically in MR, how is this the case? If banks are oligopolists producing USD, then how are deposits explicitly backed by the output? Do banks have a call option on the entire US economy?

    I think the idea that the whole economy backs USD is somewhat taken for granted.

  • Philip Diehl

    I’m the former Mint director and Treasury chief of staff who, with Rep. Mike Castle, wrote the platinum coin law and produced the original coin authorized by the law. Therefore, I’m in a unique position to address some confusion I’ve seen in the media about the $1 trillion platinum coin proposal.

    * In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years. The Secretary’s authority is derived from an Act of Congress (in fact, a GOP Congress) under power expressly granted to Congress in the Constitution (Article 1, Section 8).

    * What is unusual about the law (Sec. 5112 of title 31, United States Code) is that it gives the Secretary complete discretion regarding all specifications of the coin, including denominations.

    * Moreover, the accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.

    * Once the debt limit is raised, the Fed ships the coin back to the Mint, the accounting treatment is reversed, and the coin is melted. The coin would never be “issued” or circulated and bonds would not be needed to back the coin.

    * There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.

    * This does not raise the debt limit so it can’t be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached.

    * This preserves congressional authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amendment option would entail and avoids another confrontation with the Roberts Court.

    * Any court challenge is likely to be quickly dismissed since (1) authority to mint the coin is firmly rooted in law that itself is grounded in the expressed constitutional powers of Congress, (2) Treasury has routinely exercised this authority since the birth of the republic, and (3) the accounting treatment of the coin is entirely routine.

    * Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

    Philip N. Diehl
    35th Director
    United States Mint

  • Kyle F

    Do you have any pulse on the current administration’s feeling about actually using this avenue?

  • Greg

    Sorry Dukate

    Not allowed to use any of the financial metrics. Use real indicators. The truth is you cant. Debt to GDP ratio is not a *real* indicator. If you change the interest rate on the debt the whole thing changes. Put the interest rate at near zero and there is never a problem using that metric.

    If Americans are spending too much, that means they are acquiring too much no? If the average American is acquiring too much, show me what they are acquiring too much of. Too much land? Too much beer? Too many apples?

    Ill tell you one thing they acquired too much of over last decade…. bank debt! And making them unemployed does nothing to help reduce that

  • Delta Financials

    A currency user that taxes with the ability to enforce tax collection is part of the “size of government”, surely! Your claim is tied to the ability of a government to “spend beyond its means”, which isn’t really relevant to the size of government debate.

    The key aspect of what the role should be is part of the incentive structures government creates, in my view. If funding education and healthcare only make us devote a disproportionately rising share of resources to those activities, without corrective market forces at work – I’d suggest we’d be better off with a differently structured system. So, the question perhaps becomes can government be anything but big and stupid? I think we spend a disproportionate amount of time on allocation and not nearly enough on results. Is the education system today up to scratch? Is effectively promoting a liberal arts school that can offer a class with 4 students learning about something that won’t increase their productivity part of the role of government? I’d think that should be a luxury and govt should be kept way out of it. Not sure how debt overloaded young adults work well for the system as a whole. Debt that can never be written off, at that.
    The same principle applies to FDIC, FEMAs insurance standards, bank bailouts and a lot of substantive things the govt gets involved with.

    Should we create currency to bomb another country? I’d suggest that’s not what the role of government should be.

    I sometimes fear the MM schools pay lip service to the broad system of restraints on government that has held the currency system together all these years, but that they don’t really see the problem of loosening checks and balances leading to future federal waste as a real problem. And the history of the world teaches us that the incentive problem can ruin once strong economies beyond recognition.

  • Joe in Accounting

    First, I really think you have separate lumping MMT with MR. Yes, MMT advocates policies that would seen as “big government”. I’m not trying to argue for or against those. MR, as Cullen relentlessly points out, is just a description of the system. MR says here are the constraints within our monetary system that has been developed through our system of checks and balances in our constitutional republic. The team on the MR site is like the “Super Friends” of economics, cutting through all the BS out there.

    Yes, state and local governments are governments, and these governments derive a significant portion of their funding from taxation as well from federal spending. I think the “role of government” debate would most definitely evolve from the role of federal government to the role of all levels of government and how to integrate the funding and operations of their initiatives to maximize efficient use of resources.

    But, you will not find that debate on this site or the MR site. And frankly, that is not the debate that is going on in Washington. Both parties(and factions within those parties) have their views on the role of government with regard to defense, education, healthcare, etc. But its not really what the debate they are having is about. They are saying we out of money, heading down the path of Greece, etc. You and I know that is not true. So cut through the BS, pay our bills as appropriated and go through the normal system for passing tax and spending legislation that the country sees fit for the “role of government”.

    Of course you have to keep in mind what Wynne Godley said which you will also find on the MR site:

    “Therefore, a necessary condition for the expansion of the economy, at least in the long term, is that the fiscal stance should rise: Government expenditure must rise relative to the average tax rate.”

  • Tom Brown

    Here’s another way I see what the GOP is doing as disingenuous:

    The GOP, I think, doesn’t really care about the deficit or the debt. Remember old “deficits don’t matter” Cheney? … or how about “deficits don’t matter Reagan” for that matter (the reason Stockman couldn’t stomach sticking around in Reagan’s administration, BTW). The real goal of the GOP is to shrink the size of government… only they don’t want to have to be the ones to propose the specific cuts (other than a few brave souls like Alan Simpson and Paul Ryan) because they know where ALL the spending goes (everything else is essentially chump change):

    1) Medicare/Medicaid
    2) Social Security
    3) Defense

    McConnell didn’t even want to reduce the size of the farm subsidies and made sure that didn’t happen during this most recent fight.

    The GOP knows if they start digging in too deep here and telling the public “we propose cutting SS by X%, and Medicare by Y%”, etc (defense is off the table for them, BTW), they know the public … even in safe GOP districts, is going to get hopping mad! (Remember the photos of the Tea Party “patriots” holding signs up saying “Keep your dirty government hands off MY Medicare!!!”)

    That’s why McConnell (as effective leader of the GOP now) is making such a fuss complaining that “Obama is failing to LEAD on… he won’t step into the mine field for us and propose the kind of cuts in popular programs that WE want to make, but are too cowardly to actually state out loud!”

  • Johnny Evers

    Well, yeah, if you’re going to balance the budget you have to cut those programs.
    It has to be done in a bi-partisan manner, as the Bowles-Simpson commission tried to do. It was set up so that both parties could step into the minefield together.
    It won’t happen, because Obama hates Republicans and the feeling is mutual. And because I suspect that Obama believes that more state control of the economy is a good thing.
    But does the GOP care about balancing the budget — outside of Ryan and a few others, probably not. Politicians rarely think beyond the next day.

  • Alex

    Doubtless you are referring the the Coin Act of 1792. Taken in the context of _who_ could emit money and of certain kinds of metals in the era (you are likely aware of the battles of the Constitutionality of a US Central Bank), and what kind of money could be coined (Gold and Silver, a limitation to the States, because the Federal was even more sharply limited) it’s likely that federal judges at the time would impose the death penalty on you, acting as Federal Mint chief, for pursuing such a course of action.

    To wit, in the Coin Act of 1792, the same 220 years of Congressional Authority you cite:
    Sec. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.

    Remember, the American Founders were keenly aware of taxation by central government, having held a revolution to overthrow what they perceived as theft by parliamentary fiat. They were also keenly aware of Pre-Constitution hyperinflation of Continental Currency. What is inflation by central bank but simply another tax? Whatever the pragmatic and realistic economic consequence, they were more cognizant of the dangers of government devaluing the wealth of individuals. When gold and silver are your coin, any private citizen can own a mint, which was entirely the point.

  • Tom Brown

    Fair enough. Personally, I think we might want to take a gander across the pond to see how austerity is working out in Europe. Do I think we need to get our house in order? Absolutely, but I’m not in favor a making fooling draconian cuts. I think we need to:

    1) Reset our growth expectations: I just don’t believe the idea that we’re going to “grow our way out of this.” We can do better than we’re doing, and we should try to make a realistic assessment of how much better. 1% growth? 2% growth, 3%? … let’s get some realistic (but conservative) numbers to make projections with. 8% just seems like fantasy land (or China… in a bad year).

    2) Based on 1) we need to make a long term plan that can get us where we want to be in a reasonable number of years and we need to try to avoid drastic downsizing of important government programs that could keep the economy stalled… but with a realistic assessment of what it means not to be stalled.

    3) Keep in mind that we aren’t going to be a competitive nation if we cut all government spending, especially that part that helps to bring DOWN the cost of doing business. For example: the federal highway system is, I think, a net benefit to commerce, by bringing down the cost of moving goods and services around the country. I don’t think forcing the gov to sell off this asset to rent collectors (with huge, bloated, bonus collecting management teams) in private finance (who can borrow money from banks that the banks didn’t have in the first place… because that’s the way our system works) is going to help INDUSTRIAL capitalism or employment or the vast majority of us. I think these austerity measures are sometimes a weapon that essentially parasitic and non-productive financial (and sometimes crony) capitalists uses to grab resources that they didn’t invent, or build, or contribute to in the least… to maximize their rent taking, premium collecting, and interest (and fee and fine) gathering at the expense of ALL of the rest of us, industrialists and workers alike.

    Who knows.. we might be pleasantly surprised and do better than we thought we would… and then the LAST thing we need is to rapidly reset expectations to be too optimistic (which politicians do all the time).

    And like you say, these are tough things to accomplish with politicians.

  • Librarian

    I just got around to reading the January 8 print version of the Wall Street Journal. Page C3 refers to Cullen bringing up the $1 trillion coin idea in 2011. Maybe some readers will look up this blog and contribute. I sure appreciate everyone’s input. I have learned a lot.

  • FIX

    King FIX Sells Colombia for 5o Million One Trillion Dollar Platinum Coins valued @ one billion dollars each to help the world economy…
    This inquiry was taken and all willing parties are ready to sell.