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View Diary: 'Grown-ups don't mint trillion dollar coins' and other childhood fantasies (224 comments)

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  •  "The Coin" is in unknown territory (2+ / 0-)
    Recommended by:
    FG, VClib

    Confidence in the dollar is based on the market expectation that (to an approximation) the US will increase the supply of dollars in line with economic growth.

    Whether the Fed buys the Coin or buys Treasuries, the money supply is increased in the same way - the coin is effectively a non-interest bearing Treasury.  However, issuing the coin circumvents the historic mechanism the US uses to constrain monetization of government deficits - with a much looser policy - whatever the President wants rather than what the country has always used - what the House, Senate and President agree upon.

    The uncertainty of what this means is not limited to what Pres Obama will do, but what future Presidents may do.  It is all too easy for financial markets to expect the Coin is the turning point where the US even more aggressively pays for government spending and trade deficits with a rapidly depreciating dollar.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Wed Jan 09, 2013 at 12:35:49 PM PST

    [ Parent ]

    •  This is more or less why I don't like it. But (0+ / 0-)

      issuing an extra trillion in non-interest bearing Treasuries is not a big deal. Moreover, fewer regular Treasuries can be issued to compensate. So the problem is primarily the perception of lack of fiscal discipline in the future. I doubt it's enough to lead to any sort of dramatic effect on the markets.

      •  The doubt is significant and potentially large (0+ / 0-)

        as the US is on a path to have rising share of GDP for government spending, with Federal Debt growing much faster then GDP, while the country has an aging population and large trade deficits.

        Lastly, we are on track to have $20 T in federal debt in less than 4 years.  While Treasury interest rates are extremely low right now, if Treasury interest rates went back to historic norms, debt service alone could quickly to to $1 T/yr.

        If the US has debt of 20% of GDP and annual deficits less than $100 billion, I would agree with you, however debt is near 100% of GDP and annual deficits are over $1 Trillion.

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Wed Jan 09, 2013 at 08:36:12 PM PST

        [ Parent ]

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