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View Diary: How to Knock Two-Trillion Dollars Off the National Debt, Ending the Debt-Limit Crisis (40 comments)

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  •  According to the St. Louis Fed ... (0+ / 0-)
    Ml includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. Seasonally adjusted M1 is calculated by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.

    This  deposit would immediately be swapped for the Fed's Treasury bonds. at which point it would fall into none of these four categories.

    The value of this coin would wind up on the Fed's books, replacing $2T of the Treasury bonds they are now sitting on.

    •  This must be one magic coin (0+ / 0-)

      because it cannot be both currency issued by the treasury and at the same time not currency. M1 includes M0 which is hard currency.

      Your basic problem is that you assume the Fed can do one sided accounting entries. It does not operate that way. In order for the Fed to create money, there has to be demand for money, and something to offer the Fed in exchange for the money. In most cases this exchange is simply the promise to pay it back with interest.

      The Fed also is mandated to manage inflation. The thing about QE is that even though they are creating more money, they have the treasury bills in exchange for it. This works to assure they can pull money out of circulation by selling these bills to the open market. The risk for the Fed is that interest rates increase and thus the power of their t-bills goes down.

      What you are proposing is that they give up their t-bills in exchange for a magic money coin that is not money. This means they can no longer redeem through exchange the two trillion they issued. If the coin is money, that's even worse -- they only have more money with which to control the money supply!

      Feel free to reply, but I won't be coming back to this thread. I've seen you had a similar exchange with LHB in a similar diary. LHB's points were very similar to mine. You don't seem to get it, and I doubt I will be able to change that.

      "We are stardust, we are golden, we are caught in the devil's bargain, and we got to get ourselves back to the garden." - Joni Mitchell

      by shaggies2009 on Tue Jun 28, 2011 at 01:32:42 AM PDT

      [ Parent ]

      •  Please re-read the definition of M1. (0+ / 0-)

        Note that M1 specifically excludes currency inside "the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions."  Per the St. Louis Fed:

        Ml includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. Seasonally adjusted M1 is calculated by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.

        With respect to your parting comment:

        Feel free to reply, but I won't be coming back to this thread. I've seen you had a similar exchange with LHB in a similar diary. LHB's points were very similar to mine. You don't seem to get it, and I doubt I will be able to change that.

        LHB insisted that the debt gets repudiated but couldn't identify who fails to get paid.  Similarly, you have claimed that this coin would increase M1 but have not identified which of the four categories of M1 it falls under.

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