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This one is a message intended for all progressive organizations, especially those who have worked so hard to derail the drive for cuts in Social Security, Medicare, and Medicaid, or are working hard to protect other valuable discretionary programs.

There's another hostage-taking coming in the next three months over the 2012 Budget legislation. You know it! I know it! Everyone knows it!

So ask yourselves these questions:

1. Would Congress and the President be trying to cut Federal spending if the Treasury General Account (TGA) at the Fed had more than $50 Trillion in it?

2.  Would Congress and the President be trying to cut Federal spending if the President has already paid off roughly $50% of the national debt?

 3. Would Congress and the President be trying to cut Federal spending if the national debt was scheduled to be almost entirely paid off by September of 2014 and they knew that the Treasury had the money already to make the necessary payments?

4. Would Congress and the President be trying to cut Federal spending if they knew that the US could never become insolvent and never had to borrow back its own dollars?

5.  Would Congress and the President be trying to cut Federal spending if they knew that all four of these conditions were true?

So what if I told you that by the time the hostage-taking is likely to happen all of these conditions can provide the background for budget negotiations, and whether they do or not depends on what the President, alone decides to do?

Then shouldn't it be the highest priority of those who are opposed to austerity and cutting the social safety net to carry out a strong campaign to make the President take the few simple steps needed to create these conditions and head off the hostage-taking?

Here are the steps:

A. Mint a platinum coin with face value of $60 Trillion, deposit it in the U. S. Mint's Public Enterprise Fund (PEF) Account at the Fed, then have Treasury “sweep” the difference between the cost of minting the coin and its face value into the TGA.

B. Immediately pay off the $6.2 trillion owed by the Federal Government to the Federal Reserve Bank, the various Government Agency Trust funds, among them Social Security and debts to other Government Agencies.

C. Pay off the non-Government sector debt, as it comes due using Proof Platinum Coin Seigniorage (PPCS) revenue when necessary. Since the estimated cost is about $300 Billion paid off per month; we can expect another $1 Trillion to be paid off by the end of the year leaving a national debt of about $7.1 Trillion, with a bit less than $53 Trillion still left in the TGA.

D. Pay for any 2011 spending not covered by taxes between now and the end of the year, estimated at about $600 Billion, using the credits in the TGA, rather than issuing debt.

The function of minting the high face value proof platinum coin, filling the Federal purse using PPCS, and beginning to pay off the national debt quickly, is to demonstrate dramatically that there is no US solvency problem, nor any debt and/or deficit reduction problem.

Issuing the coin and getting the Fed to issue $60 Trillion in credits to Treasury, will demonstrate exactly that, and blow any justification for austerity and spending cuts out of the water. The Republicans won't be able to spin that; and without a plausible claim that austerity is necessary, the drive to take hostages and force austerity on America will evaporate. Within a few weeks we will have a new political discourse, and hostage-taking will no longer be part of it.

(Cross-posted from Correntewire.

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Comment Preferences

    •  This is the umteenth diary proposing (1+ / 0-)
      Recommended by:
      importer

      minting a platinum coin, but only the first time I've gotten around to asking (sorry if it's been asked and answered in another diary):

      wouldn't that cause the rest of money in circulation to be devalued?

      •  One would have to assume that there (0+ / 0-)

        was enough platinum in the mint to do just that.  When we question whether Ft Knox has any gold in it, who's to say how much platinum we can come up with?

      •  There is another question here (0+ / 0-)

        The value the diarist is talking about really is, imo, contingent upon somebody BUYING the coin.  It is not enough, again imo, to simply mint the damn thing and stick it in the treasury.

        If somebody bought it, then, since the costs of minting said coin are less than the value, presumably, then the profit could go back into the treasury.

        I think as "status coins", the fed reserve could mint lesser denominations and sell (much like Franklin Mint) and, as the diarist says, sweep the profits into the treasury.

        Once the coins are bought, it is not like the fed giving low interest loans out and essentially printing money (which DOES imo lower the value of our existing currency.)  Instead there would be real money coming into the treasury.

        boycott Koch = don't buy Northern TP

        by glitterscale on Sat Aug 06, 2011 at 10:46:42 AM PDT

        [ Parent ]

        •  The buying (3+ / 0-)
          Recommended by:
          psyched, wigwam, glitterscale

          is done by the Federal Reserve Bank.

          The platinum coin is nothing but a token. It could be a simple wood chip, except that the wood chip transfer could not be performed legally.

          The platinum coin method is legal, because in 1996, the US Congress made that legal. And the value of the transfer is not in any way dependent on the market value/price of the platinum in the coin.

          Basically, the mechanism of the transfer goes  as below.

          1) The Secretary of the Treasury orders the US Mint to produce a 0.25 oz platinum coin denominated as $30 Trillion.

          2) Once the coin has been minted, it gets transferred a few miles in an armored vehicle to the local US Federal Reserve Bank

          3) The coin is put into a vault, and there it stays for ever, or until it is brought out for a public display!

          4) The Federal Reserve credits the US Treasury with $30 Trillion. Debits itself $30 Trillion.

          5) It adds to its assets a $30 Trillion platinum coin.

          The US Government now has its lunch money, which can  then be used as the US Congress (since the congress is in charge of where and how the money is spent) sees fit.

          •  The Reason Why (0+ / 0-)

            this problem exists in the first place, is because of an existing statute from the days of Abraham Lincoln, that puts a limit of $500 million on the currency notes (the so called Lincoln Greenbacks) that can be issued by the Treasury. By convention, this limitation appears to have been extended to the amount of digital currency that can be created by the Treasury - in other words, the Treasury cannot by itself mark up its TTL (Treasury Tax and Loan) accounts - from which all Federal Government spending occurs.

            The reasons for the limitations on the Lincoln Greenbacks was that the US still was on a gold standard at the time. The country did not get off the gold standard  until 1935 domestically (under FDR,) off the silver standard till 1964 (LBJ) and off the gold standard internationally (and finally) until 1971 (Nixon.) That transition should have been accompanied by a change in the accounting practices of the FED and the Treasury, but that was not done, because politically, it was just easier to pretend as if we were still on the gold standard, and for the most parts that pretense did not cause too much disruption, until these same regulations and statutes have become a political football to be tossed around, and used as a tool to terrorize the nation and the world.

          •  Very good, CA (1+ / 0-)
            Recommended by:
            clonal antibody

            But in this post I suggested $60 Trillion enough to last for 15 years and pay off the national debt.

      •  Since only relatively small amount of (0+ / 0-)

        money go into circulation every year and at least initially some of it is used to retire debt held by the Fed (so it doesn't circulate at all), it is not a big issue initially. But of course if we have trillions of dollars a year of additional money going into circulation over extended period of time, it should devalue currency. More accurately, you're replacing T-bills that pay interest with dollars (that are essentially T-bills with no interest). Since dollars don't pay interest, there value should drop somewhat.

        •  Dollars go into circulation via gov't spending. (1+ / 0-)
          Recommended by:
          FG

          And they come out of circulation via taxation and gov't borrowing.  And the value of a dollar is a matter of supply and demand, i.e., gov't spending vs. taxation and gov't borrowing.

          The proposal does not affect the spending, which is controlled through the appropriation process.  (An appropriation is the right to draw money from the Treasury; it puts no money into the Treasury.)  Nor does it affect taxation.

          But, it does cut out the borrowing.  So, the question is: What effect would cutting out the borrowing have on the value of the dollar?  

          I used to think that gov't borrowing took dollars out of circulation and paying off government debt, e.g., through the Fed buying up bond on the open market (a.k.a., "quantitative easing") put dollars back into circulation.  (I'd explain this to myself and others by comparing the economy to a river, and the national debt as a reservior on the river, into which water can be diverted to mitigate floods and from which water can be released to mitigate droughts.)  

          And, I think that that's  the model that members of the Fed used had in mind when they embarked on QE1 and QE2 in hopes of mitigating the recession (a drought of sorts).  They thought it would help and feared that too much of it would provoke inflation.  It did neither.  The effects were negligible.

          The Modern Money Theory people, especially Stephanie Kelton and Scott Fullwiler, had predicted this.  They claimed that gov't borrowing exchanges one government backed asset dollars for another Treasury bonds of similar value (exactly what you noted).  But, it was their contention that because there is a very active and efficient market in Treasury bonds, those bonds can easily and instantly be exchanged for dollars (or used as collateral on a loan, which has the same effect) and therefore their value participates in the the bidding (demand) for goods and services just dollars deposited in a savings account or checking account would.  

          Their bottom line is that government borrowing has no effect on the value of the dollar (i.e., on inflation), which QE1 and QE2 seems to have confirmed empirically.

          •  Very good point. And at zero bound it may very (1+ / 0-)
            Recommended by:
            wigwam

            well be true as short-term T-bills offer no interest and are no different from dollars. It is hard to say though why QE didn't have much effect. Could be due to zero bound. But in the absence of zero bound we could see the effect of printing money vs issuing debt on dollar value due to the fact that T-bills are sold at a discount from par accounting for future interest. So I guess removing borrowing will have an effect when the crisis is over and interest rates are above zero. How much of an effect is hard to say and I'm not an expert.

            •  If the gov't stops covering deficits via borrowing (1+ / 0-)
              Recommended by:
              FG

              ... bonds of all sorts would still be available for those who want them.  Presumably, the price would increase, since the supply would diminish.  But the current interest rate is so close to zero that there's not much room for price increases.

              Here is an more scholarly analysis of inflation and coin seigniorage by Scott Fullwiler, who is a well respected member of the MMT community.

              •  Dunno. Mosler sounds like a crank to me. (0+ / 0-)

                'Tea Party Democrat'? My biggest concern with this 'deficits don't matter' idea is that it in the absence of the crisis nothing will prevent Congress to spend like crazy and eventually it will create big problems. Yes, MMT people don't support big deficits in the absence of recession but who's going to listen to them? Deficit don't matter anyway, right? Yes, at this point their suggestions make sense but then they are not so different from suggestions of more mainstream economists. No one in the world has actually tried their theories so how do they know they will work?

                •  FWIW, i'd phase things in gradually. (1+ / 0-)
                  Recommended by:
                  FG

                  QE1 and QE2 caused no problems, and now the Fed is sitting on $1.6T of Treasury bonds.  In essence, the Fed has paid off $1.6T of the national debt, and it had negligible effect.  But that $1.6T is still on the books.  I'd recommend that the Treasury mint a $1.6T coin, buy those bonds, and retire them.

                  That maneuver would put no new money into circulation, and would have no impact on the way the government does business with the world.

                  I'd then launch QE3, followed by QE4, etc.  Eventually, the absurdity of selling and immediately buying back, these bonds would be come apparent.  Meanwhile, the platinum coins would simply be a legal mechanism for intragovernmental bookkeeping that made the government's books reflect the realities of the fact that the Fed was paying off government debt.

                  •  But Fed can get rid of the bonds it currently (0+ / 0-)

                    has on the books without any coins whatsoever. Same goes for QE3-4. Use of platinum coins in this context simply serves to skirt the law preventing lending by Fed to Treasury.

                    •  No it can't (1+ / 0-)
                      Recommended by:
                      FG

                      The bonds were bought by the New York Fed, most likely, and that regional Fed Bank is privately owned, so it cannot just get rid of the bonds by destroying them since that would effect the assets of the Bank.

                      Also, use of platinum coins doesn't skirt the law. Minting those coins is perfectly legal, and they are legal tender, so when they are deposited at any Fed bank, the deposit must be credited by the bank. The Treasury profits from this seigniorage are legally classified as miscellaneous receipts, revenue, not debt. So, the Fed is not lending to the Treasury in this operation, in any way, shape, or form.

                  •  This won't (0+ / 0-)

                    allow changing the political game over the next few months. To do that, you need the $60T coin or something similar.

                  •  I didn't phrase it correctly. MMT people (0+ / 0-)

                    understand that running deficits for no good reason is a bad idea. My concern is that if Congress is no longer limited by the debt, it will run uncontrollable deficits. 'Deficits don't matter' was citing Republicans from 5 years ago.

                    •  That's another matter (1+ / 0-)
                      Recommended by:
                      FG

                      MMT people think that deficits beyond full employment will cause demand-pull inflation. Their defense against that is to strengthen the social safety net with new automatic stabilizers that would kick in when approaching or exceeding full employment.

                      The first of these is the Federal Job Guaranteee. An FJG program would have its maximum spending during times of high unemployment. As the economy recovered and the private sector hired people again, the FJG grows smaller, until spending on it is miniscule at full employment.

                      The second is the SS Payroll Tax cut. During high unemployment periods, a payroll tax holiday applies with the Government replacing SS tax revenue in the SS Trust fund. As unemployment declines the tax could be gradually re-instated, point-by-point until full employment is reached.

                      Anyway, it's important to recognize that MMT is about full employment with price stability; not just full employment.

                •  What is it (0+ / 0-)

                  that Mosler says that makes him a crank? Please have the decency to quote it before you try to blacken his reputation.

                  •  The idea that taxes need to be cut and the whole (0+ / 0-)

                    Tea Party business. That's from his website.

                    •  Thanks (1+ / 0-)
                      Recommended by:
                      FG

                      Warren's not a doctrinaire person. I know him pretty well. He's very open to people and talks to everyone across the spectrum. He does think that certain taxes are too high; not taxes on the wealthy, but he does think, that the SS tax is a very regressive tax that progressives should never support. He knows all the counter-arguments; but points out that the Rooseveltian justification for "funding" SS doesn't apply very well to a fiat currency regime, where the Government can never run out of money. In such a regime, he thinks, SS payments should be 1) more generous than they are; and 2) guaranteed automatically by law without regard to the "trust fund" and what's in it. Of course, assuming that the Government would raise revenues using platinum coins, as above, there's absolutely no solvency issue is guaranteeing payment.

                      Warren is in fact very, very progressive in most of his views. Here's a recent discussion of them at FDL.

  •  My answer "yes" to all five questions. (0+ / 0-)

    Conservatives, including Obama, want to shrink government by limiting its ability to spend, especially the social-services portion of government, which they consider immoral.

    •  Yes, they might like to do that (0+ / 0-)

      But what reasons for their behavior will they give? Austerity will be gone, and they need some pretense to keep on the mask. If they all say they don't care about jobs, whether people live or die, or about the future of the United States they will be run out of town. Until now austerity was justified by debt, insolvency fears, burdens on our grandchildren. But they can't say that with the $50 T left fster we've paid down the majority of our debt.

      Their game will be over, they will have to give up or use brute force.

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