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Today,  the MSM noticed that there's an issue of constitutionality related to the debt ceiling. Ryan Grim and Samuel Haass report that some Democratic Senators, including Chris Coons and Patty Murray, have begun to discuss. And they've contacted the White House raising the question of what the President's constitutional obligation would be if Congress refuses to raise the debt ceiling before the Government again must issue debt. Keith Olbermann then picked up the issue in an interview with Grim on Countdown, and Lawrence O'Donnell raised itin part of his discussion with the world's most genial, and persistent deficit hawk, Alice Rivlin on his show. Who knows who will pick it up tomorrow?

A dairy at DailyKos today by Jed Lewison also picked up the issue and opines:

I'm not a lawyer, but given that the plain language of the Fourteenth Amendment is that public debts must be honored, it would seem that if there were conflict between making good on those debts and staying within the debt ceiling, the Constitution would require the government to make good on its debts, trumping the debt ceiling. Given that the financing of a program like Social Security is structured as a public debt, it seems that at a minimum, the debt ceiling doesn't apply to much of the federal budget.

Again, I'm not a Constitutional law expert here, but the key point is that there is an open question about what legal obligations the Obama administration would face if Congress fails to raise the debt limit. Not only has Congress passed legislation that would come into conflict, but the Constitution itself appears to conflict with that legislation as well. Because these are unsettled issues, the White House has a significant degree of latitude in choosing a path forward if Congress fails to raise the debt limit. It certainly shouldn't limit its options by automatically assuming that the debt limit itself is the controlling legal mandate.

In past months I've written about the debt limit and considered various responses to the developing Congressional deadlock and the widely predicted “default” crisis, as well as the constitutionality question. In my view, the debt limit is not unconstitutional in the present context of legislation and constitutional mandates!

The Senators, MSM commentators and Jed Lewison are all right to suggest that the constitutional obligation to pay all US obligations must not be ignored by officeholders. But their suggestion that the debt limit forces the President to choose between complying with the debt limit, and ceasing to issue more debt, or complying with his constitutional mandate to uphold the constitution, and issuing further debt to pay US obligations, is not the case. It's a false choice. It assumes that the only way for the Government to generate the money it needs to allow it to spend Congressional appropriations, is to borrow more of its own currency back by issuing more debt instruments and selling them.

There is another perfectly legal way, legislated by Congress, for the President to create the revenue he needs to pay US obligations, however, and to make the debt limit irrelevant. And because there is, there isn't any kind of constitutional crisis here. There is only an obligation for the President to use the means that Congress, in its wisdom, has already provided to pay our debts.

What is that way? It is called Jumbo Coin Seigniorage. Congress has granted to the Executive the authority to employ jumbo coin seigniorage to replenish the Treasury General Account (TGA) at the Fed and pay all of the obligations of the United States without issuing more debt or even, technically, doing any more “deficit spending.”

As beowulf puts it:

The Secretary has rather broad authority to mint coins, Congress was apparently feeling generous when it authorized platinum coins in 31 USC 5112(k) (“with such specifications, designs, varieties, quantities, denominations, and inscriptions and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe…”). If deficit spending was paid for (eliminated actually) with miscellaneous receipts, revenue generated by selling the Fed jumbo denomination coins, and since the Federal Fund Rate can now be pegged with Interest on Reserve payments in lieu of selling Treasuries to drain excess reserves, Tsy could fund govt operations indefinitely without ever raising the statutory debt limit.

Beowulf might also have pointed out that national debt can eventually be reduced to near zero with the constant use of coin seigniorage. Details of how coin seigniorage would work with citations to legal issues involved are in beowulf's post; and an outline of steps in a procedure is in my recent posts here and here. A more modest proposal than mine on how to use jumbo coin seigniorage to avert the debt ceiling crisis by using newly minted platunum coins to retire $2 Trillion of debt now held by the Federal Reserve was recently offered by wigwam.

So, since the Executive has a way of paying all obligations without deficit spending by using coin seigniorage and its Constitutional duty is to uphold both the Constitution and the laws of the United States, it follows that the Executive must use coin seigniorage to replenish the TGA as necessary to implement all the spending appropriations passed by Congress and all the previous obligations of the United States.  

What else is there to say? The President has no choice in this matter. Congress has appropriated money for particular purposes. It has also passed a debt ceiling, and passed a law providing the Administration authority to engage in jumbo coin seigniorage to get revenue necessary to spend appropriations in the presence of the debt limit. The President is also bound to uphold the Constitutional mandate in the 14th Amendment that no one may question the validity of the debts of the United States, which certainly also implies, in the context of the debt ceiling, that it is the obligation of the President to remove any basis for such questioning by using the authority granted to him to raise all revenue necessary to spend Congressional appropriations. So, what is he waiting for? He should end the faux “debt ceiling crisis” by ordering the Secretary of the Treasury to immediately use jumbo coin seigniorage, while ignoring the inevitable teeth gnashing by those holding the nation hostage, to provide the TGA with a balance large enough to cover all appropriations already passed by Congress!

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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Comment Preferences

  •  Question (5+ / 0-)


    In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof.

    by jsfox on Thu Jun 30, 2011 at 06:36:56 AM PDT

    •  Inflation is just one of many repercussions of (1+ / 0-)
      Recommended by:
      Ray Pensador

      this jumbo coin seniegniorge option, which should only be used as a short-term negotiating tactic with the GOP, not as a unilateral new single party monetary policy.

      The House GOP Teabaggers are engaging in an extortionist threat to get Democrats to endorse their worldview, just as voters are signaling a complete rejection.  

      We've seen several diaries, and other sources indicating that when the Bush tax cut extension automatically expire in December 31, 2011 we will immediately be on a significantly more favorable trajectory with regard to the deficit.

      If we reduced defense spending back to the Clinton eras, we'd be just about back to a balance budget doing nothing else.

      And, Democrats would be in an excellent position in the 2012 elections to use the GOP social spending plans against them.

      My concern is that, instead, we will agree to a grand compromise, where while we do not actually got "benefits" we impose the error in accounting that led to the 23% automatic Medicare reductions to Medicare compensation to doctors.  Which we have been curing every year with the so called "Doctor's Fix" legislation.

      The Mayo Clinics of Arizona already announced in January that they will no longer take Medicare patients as they loose too much money.

      But, this is the most likely current expectable scenario as far as I can see, which will be incredibly stupid as an election strategy, and neutralized this winning set of issues for us.

      What I find intriguing about this idea Let'sGetItDone brings to us, is that if might be usable in a "short-term" if our Democratic leaders decided to play real hardball, over the deficit and taxation issues.

      I don't know how realistic it is to expect them to do this, after they have pretty much capitulated at every opportunity.

      However, the treat of something like this, might be an effective "closing whallup to get a better compromise.

      Instead, I expect we will see an unnecessary agreement by Dems to extend the Bush cuts, even to the wealthy, lock in the automatic Medicare compensation formula, under the false guise that it will only reduce fraud, and inefficiencies.

      Poll analysis suggest the main reason, we lost the 2010 elections was due to many seniors not believing the $500 Medicare reduction that were part of our health plan were just to Medicare Advantage.  They were right this was less than a third, and even that third, provided dental, and preventative care, that many seniors appreciated.

      I hope folks will consider any option that avoids the catastrophe we seem to be voluntarily heading towards.

      The means is the ends in the process of becoming. - Mahatma Gandhi

      by HoundDog on Thu Jun 30, 2011 at 07:39:13 AM PDT

      [ Parent ]

      •  My point in the above (3+ / 0-)
        Recommended by:
        psyched, BruceMcF, ItsaMathJoke

        is that coin seigniorage is not an option among many. It is the only way that President Obama can fulfill his constitutional oath of office. Congress has provided a means to pay for its appropriations. It is coin seigniorage. With the debt limit, Congressional appropriations of deficit spending, and the duty of the President to faithfully execute the laws, he must use coin seigniorage as the way out. he can use my preferred option which is to use it for all future spending.  I'd like to see that done because it would save over 11T of projected interest payments over the next 15 years. On the other hand, if he prefers he can use wigwam's option of using the coins to buy back $2T of debt from the Fed, thus providing space under the debt limit.

        I share most of your concerns about Ds giving away the store if these negotiations continue. But not your concerns about "printing money." See my reply above and my printing money post linked to above for reasons why inflation wil NOT be a problem.

    •  Look under the bed (4+ / 0-)
      Recommended by:
      psyched, BruceMcF, maddogg, ItsaMathJoke

      There's no evidence that Government deficit spending causes demand-pull inflation with the kind of output gap we have. There's not one case of that happening since we went off the gold standard.

      We have seen some commodity inflation recently, but that's not due to deficit spending. It's due to commodity speculation in oil spilling over into other commodities. There are a number of things that can be done to break that inflation. Take the insolvent big banks (kept in business only by fraudulent accounting rules and practices) into resolution, and stop the practice of paying outrageous bonuses on profits that don't really exist. Put the perps who created the crash of 2008 in jail. Investigate the commodity speculators and prosecute those who've been violating the law. Voila! No more commodity-based cost push inflation.

      Further, using coin seigniorage as a basis for spending is no more inflationary than using debt instruments to do this. The coins stay at the Fed. All that goes into the economy are the reserves the Treasury normally sends out when it spends. These reserves are no more inflationary than the debt instruments issued when the Government borrows before it spends. See: here.

      Finally, if you're really going to insist on looking under the bed, then do this wigwam's way. Use coin seigniorage to buy $2T of Treasury Bonds held by the Fed. Then that amount gets subtracted from the debt limit, and the Federal Government can then borrow again before it deficit spends.

    •  Inflation? Nonsense. (2+ / 0-)
      Recommended by:
      maddogg, ItsaMathJoke

      Any argument that requires the unstated assumption of "the economy automatically tends toward full employment" is unfounded.

      And that is the foundation of the "seigniorage automatically creates inflation" argument, the idea that the economy either is at or automatically tends to full employment.

      If we were at full employment ~ say the dollar dropped substantially and we had an even bigger export boom than we presently have, big enough to spark an investment multiplier-accelerator ~ we would have a much smaller deficit, so balancing the budget would be easier, and at the same time, "balancing the budget" would no longer have the same risks of a second massive financial crisis like 2008 ...

      ... so in the only circumstances where there might be an inflationary risk, there's no longer any serious economic damage caused by balancing the budget.

      Cutting a budget-surplus program like Social Security and a balanced-budget program like Medicare because we have given rich people tax breaks but continue to spend ever more on military spending in the interests of rich people would be insane in any event. But at full employment, the deficit would be small enough that just taking back a portion of the Bush giveaway to the wealthy would be sufficient to eliminate the deficit.

      For much more on modern monetary theory, see billyblog

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Thu Jun 30, 2011 at 09:56:43 AM PDT

      [ Parent ]

  •  So, are they going to come out with a whole (3+ / 0-)
    Recommended by:
    johnny wurster, LordMike, HoundDog

    new series of Commemorative Quarters to pay off the debt, is that the plan I'm hearing?

    I suggest starting with Baseball's Greatest Steroids Users.  That'll keep them going for a few years.

      •  well, I don't really get this (0+ / 0-)

        "jumbo coin seigniorage" thing - but at first glance, it does seem to have some intriguing possibilites . . . .

        •  You issue a Platinum coin ... (3+ / 0-)

          ... with a face value of, say, $10b. Then you deposit the coin in the Federal Reserve bank of your choice, and the Federal Reserve credits the Treasury account with $10b.

          A roll of 20 would be $200b.

          Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

          by BruceMcF on Thu Jun 30, 2011 at 09:59:33 AM PDT

          [ Parent ]

          •  Though the author of the piece ... (3+ / 0-)
            Recommended by:
            psyched, Letsgetitdone, Roadbed Guy

            ... is referring to $250b or $500b denominations. Any "real big" denomination works, as long its a workable fraction of the debt ceiling. A single coin or a few can be used to retire some US bonds in possession of the Federal reserve and so reduce the total debt outstanding ... so there is no need to change the current day to day operations, just the occasional deposit of one or a few jumbo coins at the times when previously we went through the formality of raising the debt ceiling.

            Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

            by BruceMcF on Thu Jun 30, 2011 at 10:26:54 AM PDT

            [ Parent ]

            •  As it happens (2+ / 0-)
              Recommended by:
              psyched, Roadbed Guy

              I'd like to change the day-to-day operations by using coin seigniorage to provide a basis for spending all Congressional appropriations, until Congress repeals its stupid requirement that the Federal Government must issue debt instruments whenever it intends to deficit spend.

              The importance of using coin seigniorage this way is that it will demonstrate a number of very important truths:

              1) when there's an output gap, spending money without issuing debt won't cause inflation;

              2) the national debt is very, very easy to pay off if we will only stop issuing debt when we deficit spend; which, in turn, should demonstrate;

              3) that our level is not very important, because however high it is has no effect at all on our spending capacity); and

              4) it is irrelevant whether we run deficits or not; but since deficits add to private sector financial assets dollar-for-dollar, what is relevant is the effects of deficit spending.

              •  On the other hand, ... (2+ / 0-)
                Recommended by:
                psyched, Roadbed Guy

                ... there is the principle of greater institutional dislocation leading to scope for greater unintended consequences.

                And if you sneak in and cancel bonds being held by the Fed, you won't be immediately taking away Wall Street income, so its far more likely to actually be done by the White House, which is when all is said and done fundamentally a Hedge Fund Democrat administration.

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                by BruceMcF on Thu Jun 30, 2011 at 06:18:21 PM PDT

                [ Parent ]

                •  At this point (2+ / 0-)
                  Recommended by:
                  psyched, dmh44

                  Bruce, at this point, I am more afraid of the demonstrated negative consequences of the institutional arrangements we know than the unanticipated consequences of disrupting those arrangements.

                  •  If so, then adding ... (0+ / 0-)

                    ... unnecessary changes on top of necessary changes may not be the best.

                    And its certainly not necessary to change any of the nuts and bolts of regular Treasury operations to nullify the impact of the debt ceiling in interfering with executing fiscal policy as passed by Congress.

                    Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

                    by BruceMcF on Fri Jul 01, 2011 at 11:35:31 PM PDT

                    [ Parent ]

                    •  I think the issue (0+ / 0-)

                      is not only to nullify the impact of the debt ceiling but also to nullify the impact of the debt itself on people's perceptions about whether we ought to solve our problems or not.

                      Over time I think we'll be able to persuade many people that the MMT account of fiat money and its implications for deficits, debts, fiscal sustainability, and fiscal responsibility are correct. But there will still remain a very large portion of the population that thinks of Government debt in the same way they think of household debt, mainly as a negative. For those people, it would be much better if we created a system where we retained the gap between spending and tax revenues during periods where we're experiencing an output gap, and yet had declining or nearly zero public debt. This is true because if we did that much of the opposition to enacting the programs we need to enact to solve our increasingly serious national problems would melt away.

                      •  So how do we "persuade" Obama to do what is right? (0+ / 0-)

                        We don't seem to have a good megaphone in the media. And even in our own clusters the people do not actually understand the issue and the solution.  I had thought the seigniorage stuff would require legislation.  Now I am slowly being convinced that if the Congress wants to prevent the executive from sweeping these funds into the general revenue bucket then the Congress will have to create new legislation for that purpose and the pres would have the opportunity to veto such legislation.  The primary point here is that Obama need not capitulate to the morons. If he does then he is not protecting the constitution and this republic.  It is an Abe Lincoln moment.

    •  Yes, Except each "Quarter" is worth a (2+ / 0-)
      Recommended by:
      Roadbed Guy, wilderness voice

      quarter trillion dollars.

      One hitch, is that we would have to re-rig all the vending machines to give back a lot more change.

      The means is the ends in the process of becoming. - Mahatma Gandhi

      by HoundDog on Thu Jun 30, 2011 at 07:41:03 AM PDT

      [ Parent ]

    •  No (4+ / 0-)

      The plan you're hearing is that they mint a small number of platinum coins having face values of $500 B or more and deposit those at the Fed to keep the balance in the TGA spending account always positive. According to law there's no correspondence necessary between the cost of producing the coins and their face value. So, a coin might cost $3,000 to mint including the cost of the platinum. But the face value would be, say, $500 B. Upon deposit at the Fed and crediting of the US Mint's account for the face value electronically, the Mint realizes a profit of $499,999,997,000. Then the Treasury seeps the Mint's account for profits, transferring them to the TGA, and then the Treasury can continue to spend by marking up accounts.

      These profits are accounted for as miscellaneous receipts in the Federal Budget, not as debt. So, there's no more need to sell instruments at all. Over time the national debt would fall to zero. And technically there would be no deficit ever. But the gap between Government spending and tax revenues would remain, a gap that's essential if private sector savings and repair of private balance sheets are to continue.

      •  OK, very good (3+ / 0-)
        Recommended by:
        BruceMcF, psyched, ItsaMathJoke

        But I have only one question, like Peter Griffin who after spending 5 minutes in a stem cell clinic and having many horrible health problems cleared up asked "why aren't we doing that?"

        If almost seems like we cannot afford not to.

        •  Because bullshitting people ... (3+ / 0-)
          Recommended by:
          psyched, ItsaMathJoke, Roadbed Guy

          ... on how money works at the level of the whole economy is easy and the radical right wing noise machine has been on the job since the 1950's.

          Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

          by BruceMcF on Thu Jun 30, 2011 at 12:12:49 PM PDT

          [ Parent ]

        •  Versailles? (2+ / 0-)
          Recommended by:
          psyched, Roadbed Guy

          Residents of the village of Versailles, don't want to waste their time talking to people who aren't known to them. They become committed to certain narratives which are untrue, but order their lives. When thoughts are directed at Versailles from outside, those thoughts are evaluated from the perspective of what they will mean for the villagers if they become the basis of a new narrative.

          Since all the denizens of Versailles are among the "haves," they will look at new ideas in terms of what it means for them. Coin seigniorage is a new way of doing things, some people are saying that it may cause inflation, or at least that using it risks inflation. The bottom line is that the inhabitants of Versailles give higher priority to avoiding the risk that their assets could be debased, than they do to the certainty that poorer people than they are today already having their lives ruined by the austerity policies that are the current Versailles passion.

  •  One reason for the debt (3+ / 0-)
    Recommended by:
    LordMike, Pale Jenova, furi kuri

    is to provide a safe haven for all the pretty money we have transferred to the corporate accounts by 30 years of Reagonomics. Without Treasury Bonds they might have to, gasp, invest it in real stuff. Of course, the real stuff would be in China.

    "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

    by johnmorris on Thu Jun 30, 2011 at 06:41:58 AM PDT

    •  So? (1+ / 0-)
      Recommended by:

      If we don't like that we can pass legislation prohibiting it.

    •  We have enough for the real purpose. (1+ / 0-)
      Recommended by:

      The current debt ceiling is many multiples of how much paper we need for term pricing purposes, so even with inflation, we can roll over enough paper debt for real financial purpose.

      If the markets wants to switch back to the bond system, they need only instruct the GOP to make raising the debt ceiling a priority.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Thu Jun 30, 2011 at 10:03:28 AM PDT

      [ Parent ]

    •  Excess reserves (1+ / 0-)
      Recommended by:

      If the govt continues to deficit spend, but doesn't issue bonds to re-absorb the money thereby created, then there will be more and more money in the world.  That prevents the Fed from setting interest rates via open market operations (they have to drain the money supply until transactable money is scarce enough to carry the desired premium over short-term T notes;  we call that premium the short-term rate).

      Letsgetitdone is advocating the Fed paying interest on reserves instead.  All that excess money, which would have been saved in bond form, will instead be saved as bank deposits.  That works to set the interest rate, but it leaves the Fed booking losses instead of Treasury paying interest on additional bonds.  That shouldn't be a fundamental problem, but it might be a technical issue when (if?) the economy recovers and it's time to raise rates.

      The "interest on excess reserves" solution also only fixes the money supply at distinct timepoints -- the end of each business day.  Do we really want Goldman-Sachs taking out a trillion dollars every morning, giving it to their day-traders to play with for 8 hours, then redepositing it before the close of business to collect their daily interest?

      Life is full of good people, all of whom are flawed.

      by lilnev on Thu Jun 30, 2011 at 12:13:26 PM PDT

      [ Parent ]

      •  I'm not generally much for paying interest (1+ / 0-)
        Recommended by:

        on reserves. I'd rather see the overnight rate fall to zero. As for the Fed, I'd like to see it placed under Treasury, so there's no issue with respect to their losing money. As for Goldman Sachs, I'd like both GS and other big banks to first have their toxic assets valued at market rates, and then be taken into resolution by the Government when they're shown to be insolvent. Then, after cleanup, I'd like the big banks to be spun off to private capital as rather small banks. That should take care of the GS problem.

        •  I, too (1+ / 0-)
          Recommended by:

          would like to see the really big banks broken up.  I think Too Big to Fail should be recognized as imposing externalities (in the form of risk) on everyone else, and benefiting from an unfair subsidy (they can borrow at artificially low rates, because everyone knows they're backstopped by the Fed).  These should be offset with a "size tax" that makes it uneconomic to be really really big.  They'll split themselves up to stay competitive.

          Life is full of good people, all of whom are flawed.

          by lilnev on Thu Jun 30, 2011 at 04:36:05 PM PDT

          [ Parent ]

  •  Maybe the government should release (1+ / 0-)
    Recommended by:
    furi kuri

    all those 1804 silver dollars it claims to have minted. :)

    Keep repeating the lie until the public believes it is truth: TARP worked! TARP worked! TARP worked!

    by Pale Jenova on Thu Jun 30, 2011 at 07:15:53 AM PDT

  •  The extreme right wing frames the issue, and (3+ / 0-)
    Recommended by:
    BruceMcF, psyched, maddogg

    everybody else falls into line.  They are brilliant.  The bottom line (IMO) is that this is a phony issue used as a subterfuge for a preordained outcome: A "shock doctrine-type" crisis.

    The Democrats and the President either don't have the backbone to properly confront this extortion (nor any other important issue), or are unprincipled participants of the charade.

    Either way the die is cast.  

    •  Or are ... (5+ / 0-)

      ... victims of their own "sensorium" ~ they filter information through experts, and sadly the top status experts in my own field of economics are chosen for mathematical skills but not for being able to discriminate between fantasy and reality.

      The radical right has been deliberately promoting the equilibrium model based approach to economics since the 1950, and that approach has captured all the high ground in terms of control of the hiring committees of all the high status PhD granting economic departments.

      The fact that it incapacitates an economist for understanding many dimensions of the economy is of no real concern to them, since they already "know" the answers to those questions as a matter of faith, and having enough credentialed social scientists working with a language that is incapable of saying that the doctrine is false is, in a quite handy thing.

      Even if it does lead to inconveniences like the Panic of 2008, especially given the benefits of the long labor market depression that has followed.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Thu Jun 30, 2011 at 10:09:45 AM PDT

      [ Parent ]

  •  I'm completely in favor of this! (2+ / 0-)
    Recommended by:
    Letsgetitdone, psyched

    And knowing that it's not only not unconstitutional, but it's actually required, and the laws are already in place to implement it... I just love it!

    Reality has a well-known liberal bias -- Stephen Colbert

    by ItsaMathJoke on Thu Jun 30, 2011 at 09:14:39 PM PDT

    •  Now (1+ / 0-)
      Recommended by:

      all we have to do is persuade this administration to stop negotiating and do it.

      •  I will: (1+ / 0-)
        Recommended by:

        Send E-Mail to Thom Hartman, Norman Goldman, and Ed Schultz.  I will call in and bug them also.  If Bernie Danders is on the Hartman show I will camp on to speak to him.  That is the way you get it to the "progressive" people that don't do Kos..  Rachel Maddow should also get involved.  Others might try the same path.  If this gets blessed by Hartman and Goldman Then I think the deed she be done.  Other people need to Email these lefties also with a subject line that contains the keyword  "seignorage".  Water cooler wars are important.

        •  I believe that the way to do this (1+ / 0-)
          Recommended by:

          is to have a meeting with a group of congressional staffers. The San Francisco Bay area is a good place to start, because we have a group of over a dozen "liberal" democratic congresspersons and two senators in a small geographical area. And this includes Pelosi's staff as well.

          It is critical to get congressional staffers to understand. Once you get a core group to understand, half the battle is won!

  •  Government Default is Unconstitutional (0+ / 0-)

    Yes, the debt ceiling per se is not unconstitutional, its the resulting government default that would be unconstitutional.

    The US Treasury officials are very smart people and know all about seigniorage, so why aren't they jumping on board saying that the US treasury is going to pay its bills by printing more money?

    First, seigniorage could cause hyperinflation, and the fear of hyperinflation will rattle the markets. Finally, many experts argue that seigniorage constitutes default because it uses inflation to erode the value of the debt. Thus, under Perry v. United States, jumbo seigniorage could be unconstitutional, too.

    •  Hyperinflation is not a worry (1+ / 0-)
      Recommended by:

      There is currently a great deal of capacity in the domestic economy that's going unused, and given our currently very high levels of productivity, even the fact that we are near capacity in oil production, refinement and distribution won't cause inflation greater than 100% per year (what I would define as "hyper").

      It will cause some inflation, however, but it causes exactly the same amount of inflation in the near/medium term as attaching debt to the money spent.  So in terms of inflation, printing, or in this case, coining more money is no different than borrowing it.  In the long term, coining more money might be inflationary, but that presumes a static fiscal policy once the economy has reached full productive capacity.  Once real production and employment picks up to the point where our real oil shortage starts making things too inflationary, the government can, and should increase taxes and/or reduce spending.  In any case, because we cannot predict what the government's fiscal policy will or should be in the far-flung future, we shouldn't be too quick to make predictions about the far-flung future effects of coining money now.

      Oh, and you can find experts that will argue Bigfoot lives in the Missouri Ozarks and lives off a diet of acorns and squirrel brains, that doesn't make it so.  Default is very specifically the failure to meet the payment terms of whatever payment contract you've legally agreed to.  If the terms of the debt are that it be paid in dollars, then the Treasury is not defaulting by printing dollars to pay that debt.  To think otherwise is to think that the 14th Amendment destroys the ability of the Congress to direct the printing and coining of money, specifically granted in the body of the Constitutions, without any specific language to that effect, since any printing of money would undermine the "value" of the public debt, and thus constitute a partial default under the logic of your experts.  

      From such crooked wood as that which man is made of, nothing straight can be fashioned. -Immanuel Kant

      by Nellebracht on Wed Jul 06, 2011 at 10:15:24 AM PDT

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      •  Sorry for the Late Reply (0+ / 0-)

        You make some good points. I also agree that the inflation consequence is exaggerated.

        If I were Geithner, I would do some market research on the probable reaction financial markets would have to jumbo seignorage. If there is no indication that such a policy would cause panic in the financial market, I'd go ahead and try it out for a couple of months. However, at some point I'd advocate invoking the 14th Amendment. Threats of impeachment are not credible because this issue has not been litigated in the courts, yet.

        My guess is that investors and economists would consider seigniorage as a type of govt. default. Thus, I believe the markets would panic upon the announcement of seignorage.

        •  I don't see why they would panic (1+ / 0-)
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          It doesn't do anything to commercial interest rates because they're already as low as they can go.  It signals that the government is willing to fund itself without relying on the issuance of bonds to cover the revenue shortfall.  If anything, that will increase the value of existing bonds as they start becoming shorter in supply, or in anticipation of a tightening of supply.

          I've never been much of a fan of funding government spending through bond issuance anyway, because it implies double-spending.  First, you sell the bond to get some money to spend on some social program or entitlement or whatever.  Let's just say for the sake of argument that this money is largely spent on those will use that money to increase their spending, so it increases aggregate demand and thus real production, sales and tax receipts.  Those tax receipts go to pay that bond back, so there's government spending again, but this time it's spent on wealthy bond-owners, which tends to promote financial speculation and general instability and inflation in asset and commodities markets.  Issuing bonds obligates bad spending dollar for dollar, for all the good spending it funds.  And that's assuming that the spending the government chooses to do is good, if it's not, then you've just got bad spending, twice.  In a general policy sense, I'd prefer not to force the government to spend money badly for almost all the money it intends to spend well, or if it doesn't intend to spend well, forcing it to double down on bad spending.

          From such crooked wood as that which man is made of, nothing straight can be fashioned. -Immanuel Kant

          by Nellebracht on Fri Jul 08, 2011 at 11:00:16 AM PDT

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