Among the many posts on the Trillion Dollar Coin (TDC) and Platinum Coin Seigniorage (PCS) we're seeing this week, is a category of posts favoring using PCS in a limited way to avoid the debt ceiling crisis, rather than using it in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.”
The Trillion Dollar Coin, as in #TDC and #mintthecoin is a meme representing more than a Trillion Dollar Coin. It represents, instead, the general capability of the Treasury Department under 31USC5112(k) to mint platinum coins of whatever face value the Secretary cares to specify.
The coins involved could have $1,000, or $1 million, or $1 Billion, or $1 Trillion, or $60 Trillion, or $100 Trillion, or even $1 Quadrillion face values. So, an issue immediately raised is what platinum coin denomination(s) should be minted by the Treasury Department if it decides it wants to use PCS to help fill the Treasury General Account (TGA) with enough electronic credits to fulfill its objectives?
Of course, the answer to this question is inherent in the way I posed it. It depends on the objectives involved, and these objectives will not and should not be merely narrowly financial or technical. They will and should be political.
And the two main political objectives associated with PCS and the TDC up to this time have been a) remove the risk of a politically induced default on the debts of the US Government caused by a refusal of the Radical Republicans to raise the debt ceiling to accommodate deficit spending appropriations Congress has already made; and b) to end the political context of austerity which has constrained and limited government activity in the service of public purpose, since the “fiscally responsible” (really stupidly fiscally irresponsible) Democrats gained control of the Executive Branch of government in 2009.
In the latest outburst of posts, tweets, articles, and videos about the TDC, we're beginning to see, a feeding frenzy in which the participants self-organize around the TDC meme AND the objective of avoiding the debt ceiling, but without providing any consideration at all to higher value PCS options that could both make the debt ceiling a dead letter and also remove the driving force for austerity politics. This focus on the bare TDC and its application to the debt ceiling is “small ball” policy analysis that ignores larger issues related to PCS. It needs to stop before it totally drives PCS into a defend the status quo solution, that may defuse the debt ceiling, but still leave us in the sorry state of austerity-driven politics
The focus on “small ball” policy analysis of PCS is emblematic of the superficiality of media outlets and what passes for “journalism” in the early 21st century. Too many content professionals are no more than marketers and propagandists, and don't make even minimal attempts to get at the heart of the larger PCS news story.
If the small ballers get to control the PCS debate it will result in the waste of a remarkable opportunity to change the whole direction of American politics. Progressives need to wake up and try to grasp this opportunity, before the fiscal conservatives save their version of the financial system with its increasing tendency to impose austerity on the rest of us while the 1% get more and more wealthy.
Let's review the pattern of those recent “small ball” PCS posts (each one summarized in the Appendix), and the significance of the position they take on PCS, then in my next post, I'll deal with an exception to the “small-ball” pattern. And in the Post after that I'll compare the small ball position with the one taken in the relatively few PCS “game-changer” posts.
The “Small Ball” Pattern
The primary characteristics of the small ball posting pattern are:
-- They generally don't consider any other options but the “TDC” option. They take the TDC meme literally and address their description, analysis, and advocacy to the TDC option, and its ability to end the debt ceiling crisis, and not to any of the other Platinum Coin Seigniorage variations, and what they may be able to do.
-- They view the TDC option as somehow screwy, outrageous, ridiculous, looney, bizarre, or highly inappropriate, even though they acknowledge that it is legal, and probably would not be inflationary.
-- They also believe that debt issuance prior to deficit spending, the way things are now done, is preferable to issuing platinum coins and then spending without debt issuance. So, some are concerned about the impact the TDC will have on the Federal Reserve's control of monetary policy and its independence and most are advocating Josh Barro's idea of swapping PCS capability for repeal of the debt ceiling legislation.
-- They favor the TDC, however, despite its negative characteristics, for one very good reason: using it is preferable to defaulting, in violation of the Constitution, when the debt ceiling is reached, and, again, according to Josh Barro's proposal, the capability to make TDCs can be traded for debt ceiling repeal, once it's shown that it can be used to avoid the debt ceiling and prevent default.
Let's evaluate this pattern. First, the idea that we have only one problem to deal with and that's the debt ceiling problem is short-sighted and narrow, and reflects the bias of small-ball writers towards the economic and political status quo. What they all want is for the debt ceiling crises to be over, for it to go away, and for the political system to return to normal.
Well, that may be what these writers want; but “normal” in the current political system is austerity politics, a politics in which “the fiscally responsible” people in both parties are about to agree on severe cuts to discretionary spending and the social safety net, and also, perhaps to increasing tax revenue, which will extract further money from the economy. The cuts in deficit spending being planned, with or without any debt ceiling crisis, will severely reduce aggregate demand, and will do that for years to come; condemning American to a depressed and stagnant economy for several more years and perhaps beyond. That situation's not much good for most of us, but it would be the result of the failure to end austerity resulting from viewing PCS as just an expedient for solving the debt ceiling crisis.
Second, I know it's fashionable for the Very Serious People (VSP) who comprise the New York/Washington policy/financial axis to view PCS as silly, ludicrous, and all the other various epithets they've seen fit to bestow on it. But. In doing so, they reveal their ignorance of the history of fiat money issuance and coin seigiorage unaccompanied by debt issuance in the United States and elsewhere.
Lincoln's Greenbacks funded the Civil War without ruinous inflation, and many nations funded their spending in World War I without debt issuance, and Nazi Germany, even if we hate the example, used it without issuing debt and without inflation in the pre-World War II period. Platinum Coin Seigniorage is not a priori silly. It is just not the way things have been done before, and if used in high denominations, it would require adjustments by the Federal Reserve. That does not make it silly, or looney, or ludicrous, or any such thing. It just makes it new and untried. That may be a problem for conservatives, and members of the MSM village, who, above all, want to be viewed as among the VSP; but it should not be one for progressives.
Third, the belief that deficit spending preceded by debt issuance is preferable to using PCS to close the gap between tax revenues and government spending is a belief I don't share. The basis of it, apart from some of its advocates benefiting from current arrangements in some way, is the belief, that Treasury issued reserves in the process of spending without debt issuance are more inflationary; than reserves added only after debt issuance. This, in turn, requires assuming that debt instruments added to the economy as net financial assets are less inflationary than reserves added when unaccompanied by debt instrument sales. This assumption is false.
Debt financing is accompanied by interest payments into the economy of some $245 Billion at present. In addition, debt instruments can be sold anytime reserves are needed, and also, debt instruments can be leveraged multiple times when used as collateral in credit transactions. Reserves do receive Interest-On-Reserves (IOR) from the Fed these days. But the rate paid is lower than on Treasuries and also the payments are made by the Fed and are not a cost to the Treasury. Finally, since reserves injected into the economy through deficit spending cannot be leveraged as effectively as debt instruments, they are not as potentially inflationary in a financial system where private banks and the Fed, based on credit, routinely create money out of thin air, whether the Treasury deficit spends or not.
Believing that it's preferable to have debt issuance precede deficit spending, rather than to use PCS prior to it, also is accompanied by concern about the impact of use of massive PCS would have on Federal Reserve control of monetary policy. PCS, in fact, is likely to result in the Federal Reserve's having to adjust whatever it wants to do in response to deficit spending. Is this a problem, or a bad thing? Does that compromise the Fed's independence? Doesn't the Fed now formulate its monetary policy based on the assumption that the Treasury will issue debt?
Of course, it does. So, what the Fed does now is already impacted by what the Treasury does. It is already reacting to what the Treasury and Congress do, and we also know very well that it reacts to what Wall Street does. And the change that would be introduced by using PCS as the basis of all deficit spending would do no more than cause the Federal Reserve to make some different assumptions before it reacted to these various forces.
The idea that this is destroying the Fed's vaunted independence, and that this makes it impossible to consider very high value PCS, is no more than a bias that prefers the status quo, and the way things are done now, where the predominant influence at the Fed is from the big banks and Wall Street. It is just conservatism talking again. Just a willingness to avoid changing how we do things to take austerity off the table, and make a better life for everyone out of fear of the new, the strange, and the unknown.
Fourth, even though the “small ball” writers are for using the TDC as a last resort, most of them endorsed Josh Barro's idea of making a deal to swap the PCS capability in return for repeal of the debt ceiling law. This idea is a terrible one, and if progressives support it or even accept such a trade, then that would a perfect example of “loser liberalism.”
It's essential to understand that if the Treasury uses PCS and continues to have the PCS capability, then the debt ceiling legislation is already a dead letter. It doesn't matter if it exists, since the outstanding debt can be paid using PCS, and all future deficit spending can be covered by credits generated by the Fed in the course of using PCS.
Since that's the case, a trade of the PCS capability for repeal of the debt ceiling legislation is a trade of something potentially very, very valuable as an enabler of progressive politics in return for nothing at all. It would be a bizarre trade. A silly trade. It would be a moronic trade. A trade made for no purpose at all.
Only a person who wants to keep the system of government deficit spending exactly as it is today can possibly advocate such a trade. But why would people want to keep it the same as it is now, since the political impact of such a system is so disastrous for progressive politics and for government efforts to achieve the public purpose? Why would people want to preserve a system that constantly sets the political table for austerity by constantly increasing something called “the national debt?”
What do austerity advocates now use to justify the policies they prefer? The answer is that they use the existence of the debt. And then they talk about fiscal responsibility, and the grandchildren, and the markets driving interest rates up, and the possibility of running out of money, and about cutting Social Security, Medicare, Medicaid, discretionary programs that people need, and then they go on to talk about this thing we need that we can't pay for, and that thing we need that we can't pay for, and all the financial limitations we have in doing things that we desperately need to do to make our country viable again.
We need to put an end to all that. And we can do that if the PCS capability is maintained; and if we can find a President who will use its power to its full extent. That's why progressives need to wake up, and not only defend PCS against a Republican attack that has already begun; but also come forward with their own PCS proposals that will go beyond the TDC and offer PCS options that will put an end to the political basis of austerity!
Appendix: ”Small Ball” Views on the Trillion Dollar Coin
This survey summarizes what each of the pieces on the Trillion Dollar Coin appearing in the last few days I had the opportunity to review had to say. They served as the foundation for the above analysis. The dominant pattern is established by the Wiesenthal and Barro posts, and then is replicated by pretty much what looks like an MSM-based echo chamber. Not every post appearing in this time frame is replicated here. And some posts on the TDC were opposed to the idea and so, are not part of the 'small-ball” category. Nevertheless, I think the posts and the video segment reviewed here are representative and that they served as a good basis for the pattern I identify in the Post.
Joe Wiesenthal: Minting the Trillion Dollar Coin won't cause massive hyperinflation because: the money from a TDC wouldn't go into the economy since it wouldn't be used to pay back the debt; and even if some of it did go into the economy, the Fed could “sterilize” that by selling enough of the Treasuries it's holding to get money out of the system.
The TDC won't destroy the dollar because: the money won't be just poured into the economy like “a helicopter drop” of money to people would be. It's just a stop-gap to get by the debt ceiling and keep services going.
People who say we should mint a $16 Trillion coin or a $100 Trillion coin are missing the point. The point isn't to pay off our debt. It's to get by the debt ceiling. If we did try to pay off the debt with a minted coin we'd get inflation or hyperinflation because of the massive expansion of money.
Joe Wiesenthal2: Wiesenthal points out that Paul Krugman, Jerry Nadler (D-NY), and Josh Barro of Bloomberg News have endorsed it. Barro proposes an agreement in which the Republicans give up the debt ceiling and Obama gives up the PCS capability. Wiesenthal then says that it's silly to think of funding the Treasury with a coin, but even sillier to think that defaulting is a good idea. So, let's do the lesser silly (my paraphrase).
He also thinks that minting a TDC would not result in massive inflation because that results only from a massive injection of new money into the system, and a TDC could result only in spending conforming to Congressional appropriations. Also, we should not mint a $100 Trillion coin because: the current economic constraint is not about money, it's about law and getting around the debt ceiling, and a $1 T coin gets around that just as well as a $100 T coin.
Josh Barro: The Treasury has the authority to mint large denomination platinum coins and deposit them at the Fed to finance payments of the Government's bills in lieu of issuing debt. If the Republicans offer a list of demands to be met before they vote to increase the debt ceiling then the President should should simply say that he will mint platinum coins to pay the Government's bills until the debt ceiling is raised. And he should also promise that as soon as the debt ceiling is raised he will have Treasury issue bonds to drain the economy of currency equal to the value of the platinum coins in order to dampen down inflationary expectations. Josh Barro then says:
And then he should offer to sign a bill revoking his authority to issue platinum coins -- so long as that bill also abolishes the debt ceiling. The executive branch will give up its unwarranted power to print if the legislative branch will give up its unwarranted restriction on borrowing to cover already appropriated obligations.He goes on to say that debt ceiling coercion is no way to run a country and neither is “. . . . monetizing deficits through direct presidential of the currency, in lieu of borrowing.” So, the ideal “concession” for Obama to offer is to trade this power for repeal of the debt ceiling legislation.
Matthew Yglesias: Platinum Coin finance would create new spending capacity, but no new spending authority. But because “it's mighty silly” he supports Josh Barro's call for legislation that would trade platinum coin financing authority for repealing the debt ceiling.
Joshua Holland, a progressive writer, likes the idea of using the TDC. He cites Josh Barro's post and also Jerry Nadler's support of the TDC idea, and then brings in Kevin Drum's legal qualms about the platinum coin legislation which I've reviewed earlier. But then he concludes that he'd just use the coin and let the chips fall where they may. He grants that there may be law suits, but says he still thinks it's a good idea because there's “. . . nothing more ridiculous than a Congressional minority threatening the economy by trying to extract unpopular concessions in exchange for paying the bills that Congress itself already ran up. Let's not pretend this is normal behavior we're dealing with.”
And then he points out we should not pretend that the behavior of hostage taking using the debt ceiling is constitutional behavior and then cites the 14th Amendment Section 4, and the oath of office to strengthen his case.
William Wei at Business Insider produced a youtube explaining the mechanics of the TDC, inaccurately, in the interests of brevity I suppose, lets people know about the #mintthecoin movement, and then asks people to choose which is more silly, minting the TDC and paying your bills; or not minting it and going to default.
The #mintthecoinpetition asks the White House to direct the Mint to make a single platinum trillion dollar coin! It asks for this simple solution to avoid playing political football with the US and global economies.
Charles Riley of CNN also writes about the TDC. He says it's not going to happen because it could lead to even people worrying about inflation and to critics of Federal reserve QE being apoplectic if the Treasury Department did a further “helicopter drop” of $1 Trillion. But later after outlining the solution, he refers to it as “elegant,” and points out that Jerry Nadler supports it as do many on twitter.
Alex Hern put together piece which combines the Wiesenthal and Barro posts and follows Barro down the road of advocating the swap I outlined earlier. He also repeats Wiesenthal's statement that the TDC idea was first suggested by Cullen Roche on July 7, 2011. So clearly Hern did no research of his own on the coin and its origin.
Connor Simpson at the Atlantic Wire is another participant in the echo chamber generated by Joe Wiesenthal. Connor mentions the platinum coin, links to all the names I've mentioned above, repeats Wiesenthal's viral error about the origins of the TDC movement, mentions the #mintthecoin petition, and then follows Barro down the line about what ought to be done, but also emphasizes using the coin as a negotiating tool to get the debt ceiling leverage off the back of the President in the negotiations over the budget. Then he asks why Obama didn't think of this before? And answers: “Because no one's first resort to a debt ceiling fight is to create what is essentially a loonie on horse steroids, duh.” He then concludes by presenting various humorous tweets on the subject by way of agreeing with the position that the move would not damage the economy much.
Bonnie Kavoussi of The Huffington Post provides a piece on the #mintthecoin petition. She calls attention to the debt ceiling and the possible dangerous consequences of default and then refers to the concerns of some that using the TDC may “could be a slippery slope to hyperinflation.” The piece also contains a video explaining the TDC, and reproduces a number tweets about the #mintthecoin petition drive. Everything is focused around the TDC and the debt ceiling problem.
Rachelle Younglai of Reuters This article just reports on the coin proposal, the #mintthecoin petition drive, and the context in the debt ceiling crisis. It doesn't question the legality of platinum coin seigniorage, and doesn't suggest that the proposal is “wacky” or “silly” or “ludicrous.” It mentions the likelihood of Congressional opposition from members trying to reduce deficits, and also mentions that using the coin would compromise the independence of the Fed.
Cullen Roche joined the small-ball party with a brief post at Pragmatic Capitalism. The debt ceiling is silly. The platinum coin solution is silly. The US government has no solvency constraint, and “Willingly defaulting on US debt by using the debt ceiling as a threat is pure madness. I can’t think of many things that would be more reckless than this.” The platinum coin is a legal workaround for the debt ceiling problem first discussed in a web comment by Carlos Mucha (beowulf). Mint the TDC. Deposit it at the Fed. Use the proceeds to pay down debt and it functions like raising the debt ceiling by $1T. It's not inflationary because it's not new spending. It's an accounting gimmick and shouldn't be used. But if the choice is between the coin and default, then “. . . then the decision is a no-brainer. It would be unpatriotic to default. Even more unpatriotic for leaders to allow default when they could mint the coin.” And then he endorses the Josh Barro solution of swapping the PCS capability for repeal of the debt ceiling.
Steve Randy Waldman also weighs in on the controversy. SRW thinks “The benefit of the plan (depending on your politics) is that it circumvents an institutional quirk, the debt ceiling. The cost of the plan is that it would inflame US politics, and there is a slim chance that it would make Paul Krugman’s “confidence fairies” suddenly become real. But note that both of these costs are matters of perception.” He thinks Treasury will reluctantly issue coins in the Million Dollar, rather than the Trillion Dollar range, to continue spending, and that the Fed will “sterilize” this spending selling assets to absorb an equal amount of money in the private sector. He thinks that's all that would happen and that it would be a “big nothingburger.”
Chris Hayes segment with Jerrold Nadler (D-NY) and others on video.
This segment reflects the dominant pattern discussed in the text perfectly. The segment poses the issue as a trade-off between using the TDC and default due to the debt ceiling. Notice how Veronique De Rugy defends Republican debt ceiling tactics. Notice, also, that Chris Hayes appears not to have thought beyond the TDC idea as a solution to the debt ceiling.
Today, Paul Krugman weighed in with a very specific statement advising the Administration to be ready to mint the TDC immediately to take the debt ceiling issue off the table. He says: “Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.”
(Cross-posted from New Economic Perspectives.)