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View Diary: The debt ceiling dance and the trillion dollar coin (218 comments)

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  •  How is this not new money? (0+ / 0-)

    Platinum in coin is worth, maybe $100.  Geither says it's worth $1T in collateral for the fed expanding its balance sheet ton loan that amount to the treasury so it can pay bondholders and other obligations.  That absolutely is new money being created and spent.

    "This world demands the qualities of youth: not a time of life but a state of mind[.]" -- Robert F. Kennedy

    by Loge on Sun Jul 31, 2011 at 09:53:42 AM PDT

    [ Parent ]

    •  No it is collateral for payment of money (1+ / 0-)
      Recommended by:
      psyched

      already contracted by Congress to be spent.  Raising revenue and budgeting for future obligations is a different subject.

      Sunday mornings are more beautiful without Meet the Press.

      by deben on Sun Jul 31, 2011 at 10:02:08 AM PDT

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      •  If we raise the debt ceiling, (0+ / 0-)

        These obligations are paid for by voluntary transactions with participants at treasury auctions.  Obviously, the more treasury bills in circulation, the lower the price and higher the yield, which affects inflation generally, but this would pay for the obligations by essentially appropriating the savings of everyone who holds dollars.  There's certainly an argument it won't cause a selloff because investors are still willing to lend to the US knowing full well what our deficit projections are, but I do see a loss of investor confidence because this is exactly what countries do when they can't find buyers to finance obligations.

          It also has the effect that the republicans never have to agree to raise taxes ever again and democrats never have to agree to cut spending, which only compounds the long term problems.  I just don't believe they'll only ever do this once.  If it solves this political impasse, it'll solve all the others.

        "This world demands the qualities of youth: not a time of life but a state of mind[.]" -- Robert F. Kennedy

        by Loge on Sun Jul 31, 2011 at 10:22:54 AM PDT

        [ Parent ]

        •  So you're saying that the plan all along (1+ / 0-)
          Recommended by:
          psyched

          has been not to pay for the appropriations made and that anyone who factored them into to their expectations was making a mistake?

          Take away the question mark: that is what you're saying.  It's absurd.

          In my avatar, the blue bars show how many want Reps who COMPROMISE; the aqua bars show who wants Reps who STAND FAST no matter what. (Left=Overall; Center=Democrats; Right=Republicans.) And there's the problem!

          by Seneca Doane on Sun Jul 31, 2011 at 10:28:06 AM PDT

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          •  Not at all (0+ / 0-)

            I answered that in the second paragraph.  Investors borrow over 10 year periods or even 30 year periods, so a solution that results in neither tax increases nor spending cuts and shows the political system to completely not work would, I'm guessing, lead investors to be a bit more skeptical of the united states.  (a clean bill would do nothing on the appropriations side, but would still reflect an understanding that our congress isn't insane).

            I did assume the treasury would borrow the two trillion all at once, which is probably not the case.  

            "This world demands the qualities of youth: not a time of life but a state of mind[.]" -- Robert F. Kennedy

            by Loge on Sun Jul 31, 2011 at 10:38:52 AM PDT

            [ Parent ]

            •  Go look up "flight to quality" (1+ / 0-)
              Recommended by:
              psyched

              Investors will stick with the U.S. instruments because, as a friend of mine used to say, this country is where the last capitalist will die.  At most, you're worried about some general inflation.  That's not deadly.  Recession/depression is deadly.

              We are being moved towards serfdom.  I can't believe that a Democrat is steering.

              In my avatar, the blue bars show how many want Reps who COMPROMISE; the aqua bars show who wants Reps who STAND FAST no matter what. (Left=Overall; Center=Democrats; Right=Republicans.) And there's the problem!

              by Seneca Doane on Sun Jul 31, 2011 at 11:00:04 AM PDT

              [ Parent ]

        •  Now suppose we default on the debt. (0+ / 0-)

          What happens to the value of dollars held by angry citizens?  They would lose value.  That would be truly, guaranteed inflationary.

          As for Republicans never having to raise taxes and Dems cut spending (as if Democrats are the only party who spends like a George W. Bush), the law on coining money can be changed.  Maybe Tea Baggers can get to work on it and attach it to a defense appropriations bill.

          Sunday mornings are more beautiful without Meet the Press.

          by deben on Sun Jul 31, 2011 at 10:29:28 AM PDT

          [ Parent ]

    •  It's not new money spent (1+ / 0-)
      Recommended by:
      psyched

      It's money used to pay back debt, which doesn't add to net financial assets in the private sector. Some of it would also be used to pay for programs already appropriated by Congress. We already know these are not inflationary we are not risking a double-dip, not inflation.

      'I think what you're concerned about is adding huge amounts of net financial assets in the form of money to the private sector. But that won't happen.

      Let's say we mint a $30 T coin to be used over 10 years. Then $6.2 Trillon gets used to redeem Fed-held bonds and Trust fund held bonds. The rest would be gradually paid over the next ten years to pay down the remaining $8.1 Trillion in debt. $16 T would also be used to allow deficit spending appropriated by Congress over the next 10 years, without having to incur any ore debt. If that deficit spending is inflationary it will be a consequence of Congress appropriating more deficit spending than it should during the 10 years. But that has nothing to with the fact that the PPCS revenues will be in the TGA. After all, it's still up to Congress to appropriate the spending.

      The most basic point here is that money can't be inflationary if 1) it doesn't add to net financial assets in the private sector and 2) if it never gets into the economy at all. it's mere existence, or the failure to borrow new money means nothing.

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