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View Diary: Coin Seigniorage and Inflation (34 comments)

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  •  Not the same (0+ / 0-)

    Placing a 10 trillion dollar coin (thats what I think they should do) at the Treasury would only say to everyone " OKAY, there is no doubt we have the money, lets just talk about how much of it (if any) we should spend and on what we should spend it.

    The beauty of this "trick" would be to put on full display the farce that debt ceilings and "unsustainable levels of debt" discussions have devolved into.

    •  You're right. (0+ / 0-)

      Merely depositing the coin does nothing.  You know, actually spending it....  you know to pay our debt obligations, etc, causes inflation.

      •  No reason to expect inflation (1+ / 0-)
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        The coin doesn't mean spending more, it just means how the spending is "financed".

        Everybody agrees that spending more can cause inflation.  Especially beyond the point of full employment, which we are quite far from.  The question is whether the spending will be directly done by "printing money" or by what is misnamed government "borrowing" or "printing bonds" (and selling them).  The "Quantitative Easing"  that central banks around the world have done just reverses the "printing bonds" and makes it as if the government had just "printed money" in the first place. Yes, the coin is the same as "printing money" or  "monetizing debt", "printing bonds" + QE, as Fulwiller notes.

        But the evidence is that in the long run, and especially concerning long term rates, that "printing money" can be less inflationary than "printing bonds" for a given level of spending. Yes, there can sometimes be deflationary effects of "printing bonds".  But in Abba Lerner's words, they are "not likely to be very large".

        The US & UK largely financed WWII by "printing money", by capping treasury bond yields, having the Central Bank do QE if necessary. Result: the bigger war caused less inflation than WWI.  Japan has "QE"d, monetized about half of its national debt.  Result: they are still fighting deflation, not inflation. No inflation from all the QE that central banks around the world did right now.

        Yes, modern "mainstream" economics and practice says the reverse.  Mainstream economics has scientific standards comparable to or worse than astrology.  What are bonds but currency, money, that inflates?  The idea that issuing the self-inflating money called bonds is essentially deflationary is prima facie preposterous. Think about the effects in the limit.  Say the government decided to issue bonds at 1000% interest, forcing the creation of 10 times as much currency-money eventually. This will not dominate the other effects and will not cause (hyper) inflation?  Of course it will.

        •  You're being absurd. (0+ / 0-)

          Adding more words doesn't change reality.

          The coin doesn't mean spending more, it just means how the spending is "financed".

          Everybody agrees that spending more can cause inflation.

          I'm glad we agree that printing money and never removing it will cause inflation.

          There's no reason to deposit the coin unless you are going to spend the proceeds. Sure, I'll grant you that while the economy sucks inflation will be mostly a non-issue but unless you remove that money when the economy starts to recover you will incur drastic inflation.  And it sure won't be fun to try and suck a trillion dollars out of the economy in the span of several months.  Meanwhile you've also shaken the confidence of every sovereign entity holding US bonds.

          It's a BAD BAD idea.

          •  Your claims (1+ / 0-)
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            are very imprecise. Scott clearly outlines why repaying the Fed and intragovernmental bonds would not be inflationary. I don't see you criticizing his reasoning. He also explains why repaying non-government sector debt will be less inflationary than rolling over that debt. Again, I don't see you criticizing his reasoning there. Thirdly, he explains why using PPCS to spend appropriations won't cause inflation unless the mandated appropriations are inflationary, in which case the cause of inflation is the appropriations, and PPCS. I don't see you critiquing this reasoning. So, specifically, just what is it you disagree with and why?

      •  Have you read the diary? (1+ / 0-)
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        It argues specifically that there would be no inflation. The arguments might be mistaken. But I don't see you taking them up and disputing them. All I see is the bald unwarranted assertion that spending the revenue to pay debt causes inflation. You need to do better than that, you need to lay out the transmission mechanisms that will produce inflation. If you can't do that why should anyone believe what you claim?

        •  No I really don't. (0+ / 0-)

          The diarist is describing a system that could spend practically without limits without repercussions.

          That should be all you need to know to know it's wrong.  

          •  Not at all - but the limits are real, not magical (0+ / 0-)

            The diarist is describing a system that has been used around the world many times, for decades, based on economics which was successfully used when the US & the world grew the most.   It cannot be used to "spend practically without limits without repercussions".  

            He is just saying the only limits are the REAL limits.  There are no MAGICAL MYSTERY limits on government spending.  The sole effect of the coin would be that there would be more currency-cash-money in the economy & relatively fewer government bonds, which are just another form of government money. ("NFA")

            Confidence in US government bonds would not be shaken, but improved. Since there would be fewer bonds outstanding, bond prices would tend to go up, interest rates go down, and probably inflation also.

            The US has a powerful and oppressive system for removing money from the economy.  It is called "taxation", and is used particularly to grossly overtax working people, while wealthy criminals get huge sums of federal money tax-free.  

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