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People are used to seeing Republicans say crazy things - on rape, on guns, on entitlement reform, on the economy. And sometimes it seems that Democrats are so intent on being "the adult in the room" that they do not address the real issues at the heart of Republican rants for fear of seeming to be responding in kind. Now and then an idea comes along that seems crazy on the face of it, and so is dismissed out of hand by serious commentators.  The Trillion $ Coin is one such idea.

But what if it isn't quite so crazy after all? What if it is in fact the only serious, rational, and logical response to a very irrational political and economic landscape?  What if this one idea can highlight just how crazy or current political,, economic and monetary orthodoxies really are? Many non-economists are bamboozled by the complexities of how money is created and accounted for; by how one arm of the Government can create money out of nothing and lend it to the other and then charge interest for the privilege.

But at bottom, the system is really rather simple. Read on if you want to understand why the Trillion $ Coin may be the best way to untangle the contradictions of our current political and economic system.

I've been reading about and advocating the Trillion $ Coin option as a means of avoiding the US Debt Ceiling impasse on US Blogs for some time now, but have always sought to leave the lead role in writing diaries on the topic to legal or economic experts. And just when I finally decide to weigh in in a more substantial way Krugman decides to write more or less exactly what I wanted to write:

Barbarous Relics -

There will, of course, be howls from the usual suspects if that's how it goes [and the President decides to mint a Trillion $ coin]. Some of these will be howls of frustration because their hostage-taking plan was frustrated. But some will reflect sincere horror over a policy turn that their cosmology says must be utterly disastrous.

Ed Kilgore says, in a somewhat different way, much the same thing I and people like Joe Weisenthal have been saying: what we're looking at here is a collision of worldviews, one might even say of epistemology.

For many people on the right, value is something handed down from on high. It should be measured in terms of eternal standards, mainly gold; I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn't kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume.

And given that the laws of value are basically divine, not human, any human meddling in the process is not just foolish but immoral. Printing money that isn't tied to gold is a kind of theft, not to mention blasphemy.

For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better -- and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes. It often makes sense to put constraints on our actions, e.g. by pegging to another currency or granting the central bank a high degree of independence, but these are things done for operational convenience or to improve policy credibility, not moral commitments -- and they are always up for reconsideration when circumstances change.

Now, the money morality types try to have it both ways; they want us to believe that monetary blasphemy will produce disastrous results in practical terms too. But events have proved them wrong.

And I do find myself thinking a lot about Keynes's description of the gold standard as a "barbarous relic"; it applies perfectly to this discussion. The money morality people are basically adopting a pre-Enlightenment attitude toward monetary and fiscal policy -- and why not? After all, they hate the Enlightenment on all fronts.

Because that is what it comes down to, a fundamental dispute over the nature of money itself. And so I have been disappointed that our own resident economic and monetary experts - Jake, Chris Cook and Migeru et al haven't weighed in and contributed their undoubted wisdom on this topic. So this is my attempt to provoke some informed discussion on the topic both here in Europe and also on a more world wide basis. Because it seems to me that the ECB (driven by the Bundesbank) has been as prone to the logical fallacies endemic to the US debate.

First, please let me explain the issue as briefly as possible:

The US national debt has been increasing ever since it was first measured. Ronald Reagan tripled it; GW Bush almost doubled it during their terms of office. Vice President Cheny famously said to Paul O'Neill, then Treasury Secretary, "You know, Paul, Reagan proved that deficits don't matter. We won the mid-term elections, this is our due". The Congressionally approved debt ceiling was increased on a regular basis, a process which came to be regarded as routine.

Of course, when a Democrat like President Obama wins re-election, that is entirely a different matter, and the Republican controlled House of Congress has refused to increase the debt ceiling unless the President makes even bigger spending reductions to "entitlement programs". The last time this came up, Congress waited until the last moment to increase the debt ceiling, and the US's credit rating and economy was damaged as a result.

The main argument against increasing the debt ceiling further is that the total value of debt has become unsustainable, and that the current generation is unjustly forcing their children and grandchildren to pay for their current benefits. Certainly US debt as a proportion of GDP (103% in 2011) has increased substantially in recent years, and particularly in response to the financial crisis and depression which followed it. However it is still broadly comparable to other major economies, Germany (82%), United Kingdom (83%), European Union average (83%), Canada (85%,) and much lower than Japan (230%).

President Obama hasn't opposed reducing the level of debt, merely arguing that measures aimed at doing so should be "balanced" as between tax increases and expenditure reductions. Republicans have opposed all tax increases, and the recent agreement to delay the onset of the "Fiscal Cliff" by two months by allowing some temporary Bush era tax cuts to lapse was only passed because it was supported by the vast majority of Democrats (and a minority of Republicans) in the House. The crisis over the "Fiscal Cliff" is commonly misunderstood as being about reducing excessive debt, whereas it is actually about trying to avert a recession caused by trying to reduce debt levels too quickly.

And that is the nub of the matter. Republicans and "Austrian" economists argue that the only way to reduce debt is to reduce "bloated" state expenditures on entitlement programs, whilst Democrats and Keynesian economists argue that the current historically high level of debt is

  1. A normal cyclical response to the fiscal crisis

  2. Is not in itself a problem as it is being funded at historically low interest rates

  3. Is not caused by entitlement programs which are solvent and funded by employee tax contributions

  4. But is the consequence of historically low tax rates, and also the consequence of unfunded wars in Afghanistan and Iraq.

Enter the current Debt ceiling crisis which Krugman has compared to a kidnapper threatening Democrats to cut spending or else the economy gets it in the form of a crash caused by the US defaulting on its debts.

There is a debate  as to whether Republicans would actually follow through on this threat, as it is their donor base - businesses large and small, defense contractors etc. - who would suffer most immediately from cutbacks in government procurement contracts and an economic crash. Yes, unemployment would rise rapidly and damage Democrats at the polls, but it is the business class who would most immediately see a rapid reduction in their profits if confidence in the US economy were to collapse. Obama is in power for the next 4 years in any case now, and business simply cannot afford to wait that long for economic recovery just to achieve their cherished entitlement spending reductions.

Many thus see the current crisis as another gigantic and damaging display of economic brinkmanship to see if Republicans can force Democrats into massive spending reductions in return for an increase in the debt ceiling. Figures as high a $3 Trillion in spending reductions have been mentioned, with the debt ceiling only increased on a temporary basis, and by less than the spending reductions to be imposed.

Never mind that such spending cuts would crash the economy, devastate tax revenues, and quite possibly increase the national debt as a proportion of GDP. This is class war, not rational economic debate, and a striking feature of Republican negotiating positions has been a refusal to actually cost the impact of any of their policy proposals. This is especially the case when it comes to identifying precisely which entitlements should be cut. Republicans have steadfastly refused to name and cost the precise cutbacks to be imposed, referring vaguely to closing loopholes and reducing waste, so that they will later be able to blame Democrats for the actual choices made.

On the Democrat side, many doubt President Obama's negotiating skills, and fear that his attempt to act "bipartisan" and remain the "adult in the room" will result in a historic dismantling of large parts of the Democratic "New Deal" and "Great Society" welfare programs. Many centrist Democrats accept the conservative framing of the crisis as being due to unsustainable expenditures, and dispute only the scale of the cutbacks to be imposed.

Enter, stage left, an utterly different legal and monetary argument entirely. Apparently there is an hitherto obscure clause in US legislation - first alluded too by a blogger called Beowolf in 2010 and developed by Letsgetitdone on Daily Kos - that allows the Secretary of the Treasury to mint platinum coins of any denomination whatsoever to commemorate certain events.

31 USC § 5112 - Denominations, specifications, and design of coins

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

In theory, therefore, the President could order the Secretary of the Treasury to mint a 1 Trillion $ coin and deposit it with the Fed thereby, by the arcane laws of Government book-keeping, reducing US Debt by 1 Trillion dollars, and taking the current debt ceiling out of play for the next year or so.

The objections to this gambit have been primarily legal, economic and political. Let us consider each in turn.

1. Legal argument

The legal argument has been that the provision in question was for the purpose of minting commemorative coins of much lower denominations, and was never intended as a mechanism to make a major reduction in US debt. Even proponents of the idea do not dispute this point. However, they say, the language of the provision is clear and unambiguous, and would thus not be overturned by a Court on the basis that the framers of the provision never intended it to be used in this way. In recent days the former Director of the Mint who co-wrote the provision in questiontogether with an increasing number of legal scholars have come to that conclusion. However there is no telling what a Republican and conservative dominated SCOTUS would decide on the issue, although arguably, no one or no body would have standing to bring such a case.

However there is an even more fundamental argument in favour of the Coin. The US national Debt has been run up by a succession of administrations spending money on programs duly authorized by Congress. For instance the 2012 Federal Budget, duly approved by Congress, adds a $1.3 Trillion deficit to the National Debt, but Congress did not lift the debt ceiling to actually enable the Government to fund that debt. Does the 2012 budget supercede the older Debt ceiling limit even if it did not specifically amend it?

For President Obama to stop spending on some of these programs in order to remain below the debt ceiling could actually be construed as him breaking the law. Which programs should he cut? If he cut (say) pensions, could pensioners not sue him for discriminating against them and not paying them moneys he was instructed by congress to pay out? On what legal basis could he cut some programs and not others? The Republican dominated House of Congress is currently suing the President for not fully implementing the Defense of Marriage Act (DOMA). Expect the Democrat dominated Senate to sue him if he fails to pay budgeted payments to pensioners in full.

In other words, the Debt ceiling law conflicts with all other legislation passed by Congress which contribute to the US exceeding the debt ceiling when implemented in accordance with such duly passed legislation. When considered in the context of the 14th. Amendment which prohibits the US from defaulting on its debts, the debt ceiling legislation could actually be found to be unconstitutional. The point is that the debt ceiling law does not amend previously approved spending legislation, although a Court could conceivably find that it supercedes and thus over-rides previously approved legislation. But how is the President to decide what legislation not to implement - the defense budget, Medicaid? The potential for further political dispute and litigation is endless.

The bottom line, as far as this line of legal reasoning goes, is that the President may have no choice but to mint a large denomination coin in order to comply with both the Debt ceiling and previously passed expenditure programs. Too be clear, the President cannot simply mint coins for his own use, or to fund some of his own favoured programs not approved by Congress. the only purpose, in minting the coin, would be to enable the President to comply with both the Debt Ceiling and other spending programs duly approved and mandated by Congress whilst not breaching the 14th. Amendment which outlaws defaulting on historic debts.

2. Economic argument

The economic argument has been amply made by Krugman in a succession of increasingly strident and confident posts. To summarise: Swinging cuts in expenditure is the very last thing the US needs as it tries to emerge from recession. Increasing the amount of money in circulation (as could be an indirect consequence of depositing the coin in the Fed) will not be inflationary so long as the US economy remains mired in a liquidity trap, with negative real and nominal interest rates, and with the economy operating way below capacity.

If I understand the economic landscape correctly, Krugman is actually a pretty mainstream Keynesian economist on this. Modern Monetary theoristsgo much further: Governments should print/mint money to fund their expenditures, and use increased taxation to mop up excess liquidity at times of rapid economic growth to prevent excessive inflation. Furthermore, some inflation is actually desirable at times of huge economic inequality as a means of reducing the value of historically accumulated wealth, and thus the relative scale of wealth inequality in society - which in itself seen as an economically inefficient, not to mention a socially iniquitous feature of recent economic trends. (Correct me if I am getting this wrong guys!).

3. Political argument

When I first started to articulate the case for the Trillion $ Coin, I was poo-pooed by liberal political commentators like Booman who regarded the whole thing as blatantly illegal and politically silly. Just because the the Republicans are crazy to threaten default if they don't get their way on "entitlement" reductions, doesn't mean  they President can suddenly go all crazy and act in a blatantly unconstitutional and politically silly fashion.

I have little doubt that Booman was fully in line with mainstream establishment Democratic thinking. The whole system depends on Obama acting as the "adult in the room" even if all around him go crazy. The markets would be spooked, and therefore the establishment in both parties would be spooked. However I also have little doubt that many political liberals in the US also basically agree with the mainstream "Austrian" or "Chicago" school of economics, which is now virtually the only sort of economics taught in Economics 101 and propagated in the MSM in the US. To them, for the President to instruct the Treasury to mint a Trillion $ Coin is not only legally dubious and economically all wrong, but also politically very dangerous. It strikes at the very heart of their belief if the intrinsic and real value of money and the "obvious" inflationary implications of simply minting more.

There is no doubt that some Republicans are salivating at the prospect of the President minting a Trillion $ Coin as this would put him at odds with much of the Democratic as well as Republican and independent political and economic establishment of the country. The President has been consolidating his position since his re-election, and for him to act in such a fashion would be construed, by the MSM, as the desperate act of an unscrupulous man. Never mind that the alternative would be an (unconstitutional) default and economic melt-down.

For all of the above reasons, I expect the President to mint such a coin only as a last resort after every alternative has been exhausted. First he will inflict swingeing defense and discretionary expenditure cuts so that even the Republican donor base will scream at the cancellation of Government contracts. Overseas military bases will be closed, the Afghan withdrawal accelerated, and perhaps even a few private sector prisons closed. If all of this doesn't bring Republicans to heel, he can always keep the "Coin" jangling in his pocket. Interestingly, White House Press Secretary Jay Carney has referred all queries on the coin to the Treasury...

If the President does end up minting the coin, you can expect Republicans to go absolutely ape-shit, as to do so strikes at the very heart of their economic ideology. With one bound the President will be free of their debt ceiling shenanigans and almost all of their leverage, as controllers of the House, will be lost. In a fit of peak, they would probably seek to impeach the President, never mind the fact that impeachment is a process which should only be used in cases of gross personal misconduct rather than as a tool in a policy dispute.

If the President is impeached, I expect the Senate to treat the charge with the derision it deserves. Even conservative Democrats uncomfortable with the Coin strategy will come back on side, and the President's hand will be strengthened immeasurably on acquittal. Republicans will have to learn that control of the House is not sufficient to hold the President, and the US economy and people to ransom. The conservative stranglehold on power will have been broken and the Reaganite fever lifted. If only we, in Europe, had a similar opportunity to break the back of "Austrian" economic theory and practice.

PS - Some democrats have suggested that the trillion $ coin should have President Reagan's likeness on one side, and GW Bush's on the other - in honor of the fact that Reagan tripled the National debt, and Dubya doubled it - in order to emphasize the origins of the debt and counteract The current GOP orthodoxy that Obama is responsible for it all. My preference is to have Iraq on one side and Afghanistan on the other, to highlight the fact that the estimated 3 to 4 Trillion costof those wars (c. 25% of total US National Debt) were never funded and that wars have real costs in treasury as well as lives. Obama could go further and propose an Oil Company, Carbon, Tobin or gambling tax as a means of funding the Coin and eventually buying it back off the Fed and melting it down. Let those who benefit from wars pay for them.


The The Trillion $ Coin is

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Comment Preferences

  •  In addition to legal, economic, and political (1+ / 0-)
    Recommended by:
    Frank Schnittger

    perspectives, there is a "smell test" perspective. I think that may be at the root of all the discomfort.

    There are three assumptions that apparently are not codified in law about coins, which the Trillion Dollar Coin (TDC) violates:

    1. The denomination of coins is lower than the denomination of paper money.
    2. Coins and paper money are minted for the purpose of circulating among the public.
    3. Coins will be minted in bulk: not an unlimited supply, but enough of each that an average person could acquire one.

    I'm not sure these assumptions have always held true. We may well have had some gold coins with higher denominations that the smallest paper money.  Some of the coins we have minted have been transparently aimed at collectors, even though they have also been legal tender. And in any case, these assumptions aren't based on critical economic or Constitutional principles - they are simply "what we are used to."

    But even so, they form at least a psychic speed bump to the whole notion.

    •  I'm not uncomfortable. Are you? nt (0+ / 0-)

      Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

      by hestal on Fri Jan 11, 2013 at 05:41:14 AM PST

      [ Parent ]

    •  I think you make a fair point (5+ / 0-)
      Recommended by:
      Elwood Dowd, JesseCW, Zinman, katiec, pdx kirk

      The trillion $ coin option would be an unprecedented use of a legal loophole and would make many people (and not just Republicans) very uncomfortable indeed. It would require quite a public education campaign to make it feel less strange to many people, but that campaign is now already underway. In academic circles, modern monetary theory has been around for a long time, and the concept is not in any way strange to those who understand how fiat money is created and accounted for.

      If this campaign does nothing else but get people to understand that conservative "Chicago school" or "Austrian" economics is not the only kind, and rehabilitate Keynesian and more recent and more empirically correct forms of economics, then even that will be a contribution to reforming current dominant economic and political narratives and improving political and economic outcomes.

    •  The 100,000 note was never in public circulation (4+ / 0-)


      Mitch Gore

      Want to end too big to fail banks? Then move your money and they will no longer be too big.

      by Lestatdelc on Fri Jan 11, 2013 at 06:16:15 AM PST

      [ Parent ]

    •  "What we are used to" is a misconception. (9+ / 0-)

      Elwood, as you recognize in your post, there are substantial and long-standing exceptions to all three of the assumptions you cite -- which is not to say that they are not relevant as an (unreasoned) source of discomfort.  But I believe the real discomfort at the root of this discussion is instantly brought to the surface with two simple questions:

      Q1. Who creates US dollars?

      Q2. Who determines the total number of US dollars?

      The oversimplified but fundamentally correct answer both questions is:

      The US money supply is controlled by private (mostly TBTF) banks acting in their own self-interest.

      Sure, the the banknotes in your wallet say "Federal Reserve Note" and the Federal Reserve (itself a private entity) does create a lot of the money in circulation.  But most money is just accounting entries in bank computers -- which the banks essentially create at will pursuant to Congressional delegation via the Fed.

      The Fed does require a "reserve ratio" between private bank reserves and loans.  However, MMT researchers have shown quantitatively and without subtantial contradiction that banks easily obtain low-cost reserves after the fact to cover whatever volume of loans they choose to make.  MMT's catchphrase, "Loans create deposits" is just the opposite of what we learned in ECON 101.

      So, all the right-wing screaming and moaning about a trillion-dollar coin debasing the currency is a smokescreen.  What we're really arguing about is this:

      Should the quantity of money in circulation be determined by private actors guided by pure self-interest, or should it be a public decision?

      And the discomfort grows from there ... what's going to keep my savings from being eaten up by inflation if there's no effective control on the amount of money in circulation?

      I think we've got a better shot when we know who's controlling the money spigot (e.g., an elected President and Congress) and can hold them responsible, insead of the current system: a bunch of anonymous, myopic bank CEOs who answer to no one except Boards of Directors that are packed with their yachting buddies.

    •  This is the only real objection (3+ / 0-)
      Recommended by:
      Frank Schnittger, JesseCW, offgrid

      In the court of public opinion, it could be a tough slog if the MSM can't (won't?) wrap their heads around it. The economics behind all this is complex for the average person, who may well conclude (1) we have too much debt, (2) there is a legal limit on the debt, (3)

      The public, after all, has been sold for almost four years on the idea of a debt and deficit crisis. As Frank pointed out, this led to widespread confusion about the "fiscal cliff" being a "debt crisis" rather than a "too-much-austerity-right-now" crisis." Those things are, in fact opposites, but (as Krugman linked to) the WaPo had a graphic on their website calling it a "debt crisis."

      Doing this will require very careful explanation to the American people. What is it? How we got in this mess and how holding the debt ceiling hostage is without precedent. President Obama, in September 2009, made a televised address to the nation in support of his healthcare bill. I've felt a similar one, making the case against the GOP lunatics on debt ceiling/budget issues is long overdue.

      Even then, if "the markets" freak, the President will look bad.

      Republicans...think the American standard of living is a fine thing--so long as it doesn't spread to all the people. And they admire the Government of the United States so much that they would like to buy it. Harry S. Truman

      by fenway49 on Fri Jan 11, 2013 at 06:36:32 AM PST

      [ Parent ]

    •  None of these have universally true (3+ / 0-)

      1. While no coin has ever been larger than the largest denomination paper notes produced, there have been very large coins in the past.  The 1915 Panama-Pacific Exposition commemoratives were half unions ($50 gold coins), as large or larger than most bills in private circulation.  Modern US bullion coins are monetized with values larger than those familiar as pocket change as well; the 1 troy ounce platinum eagle has a face value of $100.  Obviously, none of these approach the idea of a $1 trillion coin, but there is precedent for coins with much larger face values than the $0.25, $0.50, or $1.00 that most people will encounter.

      2. Frequently not true.  There have been large number of collectable, commemorative, or investment coins produced by the United States, including an ongoing bullion coin program.  The public is most familiar with circulating currency by its nature, but not all currency is intended to circulate.  The largest paper bill ever printed was also not a circulating note, but an instrument to enable inter-bank money transfers in the era before electronic money management.

      3. While striking only a single example of a coin would be unusual, low mintages of unusual coins have been common.  Mintage figures for the 1 troy ounce platinum eagle each year are in the mid-four-digits.  There were fewer than 3000 1856 Flying Eagle cents.  That $50 Panama-Pacific coin exists in very small numbers; only 645 of the octagonal version and fewer than 500 round ones.  There were also fewer than 500 $4 gold coins (called stellas) produced in 1879 and a miniscule 25 of them minted in 1880.  There weren't even that many of the 1907 ultra-high relief Saint Gaudens double eagle (no precise census, somewhere between 18 and 22 examples believed likely).  Only 8 official (Class I) 1804 silver dollars were struck, and there are only 5 1912 Liberty Head nickels (assuming they were legitimately created to begin with).  There were only 5 1885 Trade dollars produced.  And a few US coins are believed to be unique: the 1873 no-arrows Liberty Seated dime, the 1870-S $3 gold, and the 1849 Coronet double eagle.  The $1 trillion platinum would be in good company.

      "All opinions are not equal. Some are a very great deal more robust, sophisticated and well supported in logic and argument than others." -Douglas Adams

      by Serpents Choice on Fri Jan 11, 2013 at 07:42:30 AM PST

      [ Parent ]

  •  Excellent Review (7+ / 0-)

    Very clear presentation of a complicated, arcane matter.
    This idea seems a good last best resort.
    If Obama does mint the coin even if oppostion arises in political and legal sectors, the economy would be allowed to function and proceed, thus the all important "facts of the ground".


    by michealallison on Fri Jan 11, 2013 at 05:38:24 AM PST

  •  I am a regular reader of economic (9+ / 0-)

    diaries on DKos, but I have missed yours about the platinum coin.

    But there has been plenty to read otherwise.

    Letsgetitdone has published several diaries for Money and Public Purpose and they have been excellent and leading edge.

    He has also blogged on other sites. He has developed an excellent description of MMT and the platinum coin. In fact, he and some of his associates have been instrumental in getting Paul Krugman on board. In the case of MMT and the platinum coin Krugman is a student, he is not the teacher. And, to his credit, he is learning more all the time, and he is willing to spread the word.

    But Letsgetitdone has done an excellent job in this important area. Anyone who wants to improve our economic system, who wants to build a better America, could not do better than to follow his diaries and visit the other sites where he blogs.

    Great things are happening right here at DKos. Pay attention, everyone. You will learn something. In fact, it could be an amazing experience, and it could take DKos to the next level if we all spread the word about MMT, and if we try to imagine what MMT could mean for the future. The platinum coin is just a small special case. MMT can be a game changer.

    And, it could transform your world.

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Fri Jan 11, 2013 at 05:40:02 AM PST

  •  I am a supporter of the coin (8+ / 0-)

    and of MMT.  What people fail to see about the coin idea is that it really is just a physical manifestation of what investors already know; the U.S. is an issuer of its own currency and therefore can always pay its debt.  There is no 'pay back' required from tax payers.

    Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

    by whoknu on Fri Jan 11, 2013 at 06:00:52 AM PST

    •  What many people have difficulty getting (7+ / 0-)

      their heads around, is that most "money" is not created by the Government at all, but by private banks (often in the unregulated shadow banking sector) in the form of credit. Banks routinely lend a multiple of what they have in assets and the difference is effectively the creation of new money in the form of credits only some of which ever takes the physical form of currency notes and coins.

      Every time you use a credit card you are using non-physical "money" only some of which will ever be backed by "real" government issued notes or coin.

      Governments "create money" by spending it and "retire" some of it by taxing parts of the economy to prevent the inflation that would be created by an unlimited ongoing creation of new money.

  •  You might want to mention (5+ / 0-)

    A Kossack (Letsgetitdone) who helped push Beowolf to flesh out the economic thinking behind not just the Trillion Dollar Coin (TDC) meme but the lager paradigm-shifting possibilities behind using Platinum Coin Seigniorage (PCS).

    Wake Up Progressives: the Trillion Dollar Coin Can Be Game-Changing!


    Mitch Gore

    Want to end too big to fail banks? Then move your money and they will no longer be too big.

    by Lestatdelc on Fri Jan 11, 2013 at 06:14:59 AM PST

  •  BTW, would have voted for (2+ / 0-)
    Recommended by:
    Frank Schnittger, sfinx

    "a potentially game-changing concept, way beyond the debt-limit hostage threat" if it had been an option.


    Mitch Gore

    Want to end too big to fail banks? Then move your money and they will no longer be too big.

    by Lestatdelc on Fri Jan 11, 2013 at 06:23:11 AM PST

  •  Counterpoint question (3+ / 0-)
    Recommended by:
    Frank Schnittger, hestal, offgrid
    However there is no telling what a Republican and conservative dominated SCOTUS would decide on the issue.
    Who would even have standing to bring suit?


    Mitch Gore

    Want to end too big to fail banks? Then move your money and they will no longer be too big.

    by Lestatdelc on Fri Jan 11, 2013 at 06:26:46 AM PST

    •  The House is currently suing the President (1+ / 0-)
      Recommended by:

      for not enforcing DOMA.

      However the DOMA case is different (as I understand it) as here the Executive has decided, unilaterally, not to enforce a law duly passed by BOTH Houses of Congress. That seems to me to be a legitimate complaint, even if there is some asymmetry in that the House (and not the Senate) in taking the lead role in seeking to have it enforced. The Senate is not empowered, on its own, to repeal DOMA, and so it doesn't need to be a party to the action for the house to have standing. The law is the law until it is changed by both Houses.

      But the DOMA precedent is potentially instructive. Suppose Obama stopped paying (say) pensions because the debt ceiling had been breached. Then (according to the DOMA precedent) the Senate could sue the President for NOT implementing previously passed pensions legislation in accordance with the law. A Court would have to decide which legislation took precedence: Pensions legislation or the Debt ceiling.

      I have read somewhere that the Court might give precedence to the more recently passed legislation as over-riding previously passed legislation. But there is no sense in which the debt ceiling AMENDS previously passed pensions legislation and so the question of WHICH previously passed legislation should not be implemented in order to comply with the debt ceiling legislation is moot. Clearly the President could have a lot of discretion, and those who complain he has unfairly targeted pensioners (who could then sue the President for not paying them their pension) would also have a case.

      The bottom line is that the 14th. Amendment requires all Congressional acts to be funded, either by taxation or debt, and Congress is acting unconstitutionally if it seeks to prevent the President from meeting those fiscal obligations. Obama would be doing Congress (and the American people) a favour by giving them a way out of this conundrum by minting a few coins or some other stratagem for circumventing the disaster. If the House wants to reduce expenditure, it has to persuade the Senate and the President to pass and sign some laws doing so. Otherwise the House simply doesn't have the power to change existing law.

  •  It's Unusual, and We Have an Orthodoxy-Obsessive (4+ / 0-)
    Recommended by:
    Frank Schnittger, JesseCW, hestal, katiec


    Obama will allow Microsoft to patent the Moon as a fluid lifting device before he'll mint a trillion dollar coin.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Fri Jan 11, 2013 at 06:28:48 AM PST

  •  Line-item veto problem (3+ / 0-)
    Recommended by:
    Frank Schnittger, offgrid, Sandino

    The legislative paradox Congress has created with the prospect of the debt ceiling not being raised to accommodate Congressionally approved (technically mandated) spending is in essence forcing the Executive branch into a de facto line-item veto, which the SCOTUS has already ruled unconstitutional.


    Mitch Gore

    Want to end too big to fail banks? Then move your money and they will no longer be too big.

    by Lestatdelc on Fri Jan 11, 2013 at 06:30:17 AM PST

  •  Good summary. (0+ / 0-)

    Why would it have to be a single Trillion Dollar coin.  Why not three trillion, or five?

  •  One legal argument against... (1+ / 0-)
    Recommended by:
    Frank Schnittger

    has to do with the meaning of the term "bullion".  Bullion gets its value from the weight and purity of the precious metal, not from an arbitrary denomination printed on the front.

  •  This should be forwarded (1+ / 0-)
    Recommended by:
    Frank Schnittger Jon Stewart - or at least to one of his writers.

    Poor people have too much money and vote too often. Republican platform plank, 1980 - present

    by Anthony Page aka SecondComing on Fri Jan 11, 2013 at 10:19:29 AM PST

  •  I was struck by this: (1+ / 0-)
    Recommended by:
    Frank Schnittger
    ...the 2012 Federal Budget, duly approved by Congress...
    This can't refer to a Congressional Budget Resolution -- there wasn't one, and hasn't been for four years. I must refer to the various appropriation bills passed by Congress, but to refer to these as a budget seems a stretch. They represent 1) what Congress has to spend, and 2) what Congress wants to spend. It can always change its mind about the latter, since an inability to pay the former (based on revenues) is the only thing that represents a "credit default". Such changes may be called broken promises, economically unwise, chaos inducing, or whatever, but they are not credit defaults.

    The other thing I found curious was the invocation of the President here:

    For President Obama to stop spending on some of these programs in order to remain below the debt ceiling could actually be construed as him breaking the law.
    I would think he'd have a perfect defense, i.e. yes, you appropriated $X funds for me to spend on Y, but you also prevented me from borrowing any more money (by not raising the debt limit), so so I'm only going to be able to spend $X-?? on Y. If you don't like that, provide more revenue, let me borrow, or (gasp) provide some guidance in a revised budget (sometimes known as "Doing your job.").  Isn't that the crux of the matter?
    •  2012 "Budget" (1+ / 0-)
      Recommended by:
      pdx kirk

      2012 United States federal budget - Wikipedia, the free encyclopedia

      The actual budget for Fiscal Year 2012 was enacted in threeappropriations bills in November and December 2011, in accordance with theUnited States budget process. In addition, legislation was passed to extend a cut in theSocial Security payroll tax for the entirety of calendar year 2012.
      •  I know. (1+ / 0-)
        Recommended by:
        Frank Schnittger

        Is there any appropriations bill you know of that contains comprehensive revenue forecasts to support it?
        Is there any budget you know of that doesn't?

        And as for the "process" they seem to have skipped over this part:

        Budget resolution

        The United States House Committee on the Budget and the United States Senate Committee on the Budget then draft a budget resolution. Following the traditional calendar, both committees finalize their draft resolution by early April and submit it to their respective floors for consideration and adoption.

        A budget resolution is a concurrent resolution that binds Congress, but is not a law, and so does not require the President's signature. The budget resolution serves as a blueprint for the actual appropriation process, and provides Congress with some control over the appropriations process. No new spending authority, however, is provided until appropriation bills are enacted.

        Once both houses pass the resolution, selected Representatives and Senators negotiate a conference report to reconcile differences between the House and the Senate versions. The conference report, in order to become binding, must be approved by both the House and Senate.

    •  A I understand it (0+ / 0-)

      The House iis suing Obama for not enforcing DOMA and SCOTUS has ruled a line-item veto unconstitutional. On what basis can the President then not implement some appropriation resolution provisions and not others due to the debt ceiling. If he didn't (say) pay pensioners in full, could they not sue him, or could the Senate not sue him on their behalf?

  •  For real? (0+ / 0-)

    All I see here is a very wordy echo of Paul Krugman whose philosophy is simple: PRINT BABY, PRINT.

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