Skip to main content

Ben Bernanke appeared at the University Of Michigan Ford School Of Public Policy yesterday and he spoke at length about the current economic situation in the US.  His most noteworthy comments were about the failure of Congress to raise the debt limit and whether seigniorage would be a feasible policy solution for the government to fund itself.  (Seigniorage is an operation for funding government spending by issuing currency.)

The platinum coin issue was raised during the Question and Answer portion of the presentation.

And the first audience question is that, if Treasury had [inaudible] trillion dollar platinum coin [laughter], would the Fed have accepted it and credited Treasury's accounts? If not, why not and what does this mean for the independence of the Fed moving forward?

Well, as you--I'm not going to give that any oxygen. [Laughter] As you probably know, the Treasury and the Federal Reserve over the weekend, the Treasury issued a statement which the Federal Reserve approved stating that we didn't think this was the right way to deal with this problem. I mean, there are legal issues or policy issues. I think the right way to deal with this problem, as I said earlier, is for Congress to do what it's supposed to do and needs to do and authorize an increase the debt ceiling so that we can pay our debts, we can pay our bills. And that's the right way to do it. And, you know, I think that's what will eventually happen. But I don't think that going off in that other direction would really be all that helpful.
[excerpted from a transcript]
[in the video embedded below, the quote begins at 45:15]

Bernanke also spoke about the debt ceiling, in general.
I want to say one word about the debt ceiling which is that not everybody understands what the debt ceiling is about.  Raising the debt ceiling, which Congress has to do periodically, gives the government the ability to pay its existing bills.  It doesn't create new deficits. It doesn't create new spending.  So not raising the debt ceiling is sort of like a family trying to improve its credit rating saying, I know how we can save money, we won’t pay our credit card bills.  That’s not the most effective way to improve your credit rating.  And it was the very slow solution to the debt ceiling in August 2011 that got the US downgraded last time.
[in the video embedded below, the quote begins at 11:55]












It’s not a surprise that Bernanke doesn't accept seigniorage as a possible policy solution for funding the government.  There’s a school of thought based on the intrinsic zero value of modern money and Bernanke doesn't adhere to it.  

The idea that our money is created ‘ex nihilo’ (out of nothing) traces back to 1971, when President Nixon ended the gold standard.   The dollar, no longer backed by gold, became ‘fiat money.’  Its value is no longer derived from gold because the finite quantity available limited the number of dollars that could be issued.  Nobody wanted that.  When the dollar was freed from its link to gold, dollar quantities could become infinite.  Ok, I'm exaggerating, but you get the picture.

Without the value of gold to give the dollar its worth, what value does it have?  Exnihiloistas say it only has a contrived value.  It has the value arbitrarily assigned to it by its issuer, the US Treasury, and reinforced by the social contract and laws, and demonstrated everyday all the time in its acceptance throughout the land.  Some exnihiloistas add or subtract minor points but the core of exnihiloism is the imaginary value of modern money.  

What exnihiloistas are saying isn't wrong.  What exnihiloistas are saying isn't untrue.  It's a difficult concept to grasp and it's certainly beyond the understanding of people who believe that “In God We Trust” is what really matters.

Back to Bernanke.  He’d probably object to the idea that there’s nothing to back the dollar and give it value because the dollar is always backed by another dollar.  It may sound like doubletalk.  What good is there in a worthless dollar backing another worthless dollar?  

Think of a drop of water compared to the oceans.  Or a single person compared to an army.  The dollar’s value derives from every other dollar.  Its value is collective and it also derives from the context in which it exists.  

Labor, its ability to earn income, and what it produces give the dollar value.   The consumer classes and the demand economy they create give the dollar its value.  The worker who pays a tax gives the dollar its value.  Business too gives the dollar its value.   The sovereign State that issues and manages its currency gives the dollar its value.  Government that spends is distributing money into the economy and it gives the dollar its value.  All of these acting in concert together give the dollar its value.  

The exnihiloistas say we could use bingo chips and they’d have value too, and they’d be right.  

Today, interest rate risk constrains the US from borrowing unlimited dollars to fund government spending.  To be clear, the risk is minimal for now, but it could become serious in the future.  One way that could happen is with a sudden rise in interest rates following a debt default.  With seigniorage, could the US really spend as much coin as it can issue?  Won’t the currency lose its value in an inflationary spiral?  That's not an immediate concern either. Inflation appears when the economy can’t produce enough to meet demand.  Inflation isn't here now, even when the doom and gloomers predicted it would be at the current rate of government spending.  It’s not here because the number of people unemployed and the wage stagnation of those who are employed results in weak demand.  If there is a constraint, it would be at the point where government created enough jobs and a wage scale that recognizes the value of labor so that inflation could develop.  The US is a long way off from that.    

Are there other constraints to consider if the present monetary system was scrapped and the government funded itself by seigniorage instead? That’s where the conversation begins.  (I took the long way around the horn to get here, didn't I?)   The question isn't whether a platinum coin, or a T-Bill, or a bingo chip has value or an advantage over another token.  The question is what constrains the system.  For example, the availability of resources is a constraint.  No matter how much currency is issued, it can only buy as much as labor can produce at maximum capacity.  

There is another constraint and it’s one that’s particularly relevant today. In a representative democracy like ours, it’s the control that citizens have over those who are in positions of power in the economic system.   A progressive utopia could become reality.  All the US has to do is buy it.  The untapped vast wealth fiat money makes available is truly that powerful.  

Now, imagine Mitt Romney in charge of it.  Imagine his pal Donald Trump in charge of it.  What if David Koch were at the levers of power as the full potential of fiat money were unleashed?  

There’s the constraint.  Be careful what you wish for.

6:36 PM PT: Thank you for the spotlight.  I appreciate it.  

To readers who make it through to the end of these long-winded words, it isn't so much an editorial opinion piece, as an invitation to untether from what we think we know is real, and consider for a moment the possibility of the unreal.  

Originally posted to leftreborn on Tue Jan 15, 2013 at 04:03 PM PST.

Also republished by Money and Public Purpose and Community Spotlight.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  Thank you for the synopsis - I had hoped to (7+ / 0-)

    attend his talk - but had other obligations.

    Gravitation cannot be held responsible for people falling in love. - Einstein

    by moose67 on Tue Jan 15, 2013 at 04:27:32 PM PST

  •  You do realize... (5+ / 0-)

    ...that in the first quote Bernanke actually said nothing at all.

    Preparing for the Mayan doomsday prophecy by hastily trying to get in the good graces of snake-bird god Q’uq’umatz

    by dov12348 on Tue Jan 15, 2013 at 04:37:39 PM PST

    •  He said what he said. For me, the discussion on (7+ / 0-)

      this is about the laughter which was even inserted into the transcript.  Of course, hearing it is different.  Bear in mind that the audience can't be completely ignorant.  Can they?  

      So I think there's something to learn just from that.  

      Question:  BB took questions via Twitter and there was some pretty funny stuff in the feed.   Would Kos readers be amused by a diary that just reproduces some of the snarkier remarks and questions that were submitted?

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Tue Jan 15, 2013 at 04:46:23 PM PST

      [ Parent ]

    •  Interesting, huh (6+ / 0-)

      He really said nothing in both quotes against the idea of PCS.

      His answer was purely political in nature. Nothing about the actual economics.

      •  Could be he doesn't understand... (2+ / 0-)
        Recommended by:
        offgrid, catfood

        ...the economics.  It's bad because it's new idea and just seems weird.  And a lot of people don't like it.

        Preparing for the Mayan doomsday prophecy by hastily trying to get in the good graces of snake-bird god Q’uq’umatz

        by dov12348 on Tue Jan 15, 2013 at 04:57:10 PM PST

        [ Parent ]

        •  QE forever is for banks my friend. (1+ / 0-)
          Recommended by:
          mbguenth
        •  I'm sure he understands the economics... (3+ / 0-)
          Recommended by:
          offgrid, FG, leftreborn

          I'm more certain he understands the POLITICS of the question.  This is absolutely the last card that will be played in this game and President Obama and his team are holding it very close.  It will be denied and no one will "give that any oxygen" untill they have to.

          It will get "oxygen" when the republicons have overplayed their hand and refused to increase the debt limit and the country is ready to default.

          Of course the right is screaming what a bad idea this is and the earth will end if this coin is minted.  It completely makes their "hostage taking" look like the foolish tamtrum it is.  The wil lose even more support from the public.  They will look like the fools they are.

          Imagine the speeches the President will make about how he avoided this until there was no other choice to save the economy from being wrecked by irresponsible (add your own list) republicons.

          Of course the usual right wing suspects will be screaming like stuck pigs.  They will threaten impeachment. Supreme Court, and anything else.  

          But you know what?

          Precident Obama called their bluff and they lost BIG!!!

          And it is a BFD.

          And life will go on...

          I screwed up with a careless uprate so I'm a "No Rate" pariah. When I give a comment "+1 n/t", please consider that a recommend. (That's my workaround to participate here). DK haiku, one complete thought in a title field. Roar louder! NR since 3/7/12.

          by Josiah Bartlett on Wed Jan 16, 2013 at 06:23:50 AM PST

          [ Parent ]

      •  Anyway that's all I read of his. (1+ / 0-)
        Recommended by:
        offgrid

        I assumed the rest of it would be just as empty.

        Preparing for the Mayan doomsday prophecy by hastily trying to get in the good graces of snake-bird god Q’uq’umatz

        by dov12348 on Tue Jan 15, 2013 at 04:58:23 PM PST

        [ Parent ]

      •  I wouldn't expect him to say much and what I (4+ / 0-)
        Recommended by:
        MichaelNY, pdx kirk, Lujane, Sandino

        noticed was 1) the laughter which was a reaction I didn't expect from that audience, 2) the second part of the question was about the independence of the Fed.  

        I'm interested in that because I predicted it would be an issue and I was lashed for saying so.  The proposal said the coin would be deposited at the Fed and I suppose that people don't know that the Fed can decide what it accepts  or not.   It has to do with the independence the questioner mentioned.  

        "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

        by leftreborn on Tue Jan 15, 2013 at 05:14:31 PM PST

        [ Parent ]

        •  Everyone laughs when they first hear of it (9+ / 0-)

          or because they think they are supposed to laugh (as may WELL have been the case in that room). What is interesting is that most people stop laughing when they start to really think about it. Agree with PCS or not, the conversation is changing the way we think, and talk, about money/currency and there is power in that alone.

          I think it will be really interesting to see what Bernanke is saying ten months or a year from now. PCS is not the best way to deal with the debt ceiling because it's like killing a fly with a Cruise Missile. I mean, sure, the fly is dead but damn that was an awfully big bang. One the other hand, it is the perfect weapon with which to address debt and unemployment where a big bang is the only realistic solution. Anyway, back to my point, by the end of the year, after Obama has been fighting non-stop with the House over their own self-induced crisis' AND the economy is still flagging or worse, will high value PCS (HVPCS) really look so crazy then?

          Even beyond that (my apologies for making the same point I made on another thread earlier this evening) just try and tell me that there aren't a bunch of guys in really expensive suits sitting around somewhere having a VERY SERIOUS conversation about HVPCS. Do you think it could suddenly become apparent that there is a crystal clear, likely legal, path to injecting that much money into the economy and there aren't greedy bastards Republicans already out there with designs on it?

          For that reason if no other, I think we ARE going to see HVPCS (or a comparable instrument) sooner then we think. The real fight will be making sure that this Congress spends it where it needs to be spent.

          BTW - when HVPCS does come to fruition, can we please put the building of Dumbfuckistan (as per kos) on the agenda right away? I just really, really want to get rid of those guys.

          "When in doubt, do the brave thing." - Jan Smuts

          by bunnygirl60 on Tue Jan 15, 2013 at 06:55:01 PM PST

          [ Parent ]

          •  The US is accepting a limitation that only allows (9+ / 0-)

            it to be as good as its worst exampes.  This is why we can't have nice things.  (In case it didn't come across I'm using my brand of obscure humor.)

            I'm serious about the constraints.  People want to fight against the seigniorage concept.  They will throw any monkey wrench into it to try and break it.  If it's not a monkey wrench it's a logic fallacy.  If it was that good it would be in effect now. You covered some of that in your diary.  Financial reform with a government role needs political reform urgently.  It's not like this has been unknown.  It's good for people to conceptualize what could be if we had elected officials who want to use government as the collectivized power of people instead of drowning it in a bathtub.

            "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

            by leftreborn on Tue Jan 15, 2013 at 08:27:51 PM PST

            [ Parent ]

          •  this is "Helicopter Ben" (1+ / 0-)
            Recommended by:
            leftreborn

            Bernanke is completely and fully aware of how money works. His job is to create money out of thin air.

        •  I don't see how it reduces the Fed's independence (0+ / 0-)

          It's really the same thing as depositing a quarter dollar, although it's a hell of a lot of quarter dollars.

          I just don't see how this affects the independence of the Fed. It might make the Fed irrelevant, but not less independent.

          Of course, being bankers, they wouldn't like it one bit because there is no money to be made from interest.

          But I'm certainly no authority in economics. I suspect though, as bunnygirl60 says, that there will be a lot of discussion in back rooms over this idea.

          •  It's hard to talk about the Fed because people (4+ / 0-)
            Recommended by:
            Sandino, katiec, offgrid, annan

            are opinionated about it with a great deal of misinformation.  I apologize right now for the way that sounds.  I can show you what I mean if you're open minded.  

            The Fed was chartered specifically to be free of political influence.  Politicians would endanger the nation if they meddled in monetary matters.  This should be easy for people to understand today because we have an example of it in front of us. As Krugman said the other day, the Republicans are acting like terrorists with a bomb threatening to blow the whole place up if they don't get their way.  

            The Fed operates free of influence from Congress and the executive branch.  They can't dictate policy to the Fed.  The Board of Governors is still appointed by the President (14 yr term) and approved by the Senate. The Fed must still report on its actions to the people through their representatives in Congress.  Independent but still responsible.

            In the proposed transaction between the Fed and Treasury there was no allowance for the Fed to act according to its statutory responsibililties.  The dollar amount is too big to expect casual acceptance.  This isn't a partisan opinion or a judgment against seigniorage.  It's a professional observation based on my first hand knowledge. If I was going to manage a project or spearhead an initiative I'd welcome input from people who know where the roadblocks are.  

            The Fed's ability to collect interest is irrelevant for one simple reason.  It doesn't operate for profit.  In fact, it transfers any profits it makes to the Treasury at the end of the year.  It recently announced a record amount of something like $91 billion for 2012.  This kind of information is always reported in newspapers like the NY Times, the Wall St Journal, and other legitimate publications.  

            Feel free to disagree. I only request a minimum of courtesy and politeness.  

            "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

            by leftreborn on Tue Jan 15, 2013 at 09:33:05 PM PST

            [ Parent ]

            •  "Independent" central banks suck (1+ / 0-)
              Recommended by:
              limpidglass

              The Fed was chartered specifically to be free of political influence.

              Not really. It was created to be a lender of last resort, to quell frequent panics.  The "central bank independence" meme is a recent one, that its proponents pretend to be venerable, but actually only was heard of during the 60s and popularized in the 70s and 80s.  Before Volcker, it was accepted that the Fed chairman would do the President's bidding. That it would or could be independent of both the executive and the legislature that created it and could destroy it is impossible.

              Politicians would endanger the nation if they meddled in monetary matters.

              An "independent" central bank endangers the nation far more. "Independent" central bankers equate to central banksters - for they are never independent of the criminals who select and staff their ranks.

              •  I appreciate the comment and I'm more interested (0+ / 0-)

                in understanding the nature of things as they are so that
                strategy can be developed to deal with them effectively.

                If there's a roadblock ahead, I like to know about it, and plan how and if I can get around it.  It does me no good when I hear people doubt and deny the roadblock, as well as the reason for it, when I'm sitting with it right in front of me.   Yeah it sucks.  But what sucks even more is the fighting about it if we're all trying to get to the same place.

                Peace.

                "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

                by leftreborn on Fri Jan 18, 2013 at 06:58:39 PM PST

                [ Parent ]

    •  He was saying "heh heh heh folks PCS (1+ / 0-)
      Recommended by:
      leftreborn

      is so stupid, and I'm going to say next to nothing so I don't give the concept "oxygen." In other words, he knows the danger and power of PCS is that it opens up the discussion and makes people ask uncomfortable questions. It disrupts assumptions about how necessary and unavoidable this fiscal crisis is. And we can't have that.

      if necessary for years; if necessary, alone

      by SouthernLiberalinMD on Wed Jan 16, 2013 at 06:38:34 AM PST

      [ Parent ]

  •  I don't believe we have interest (2+ / 0-)
    Recommended by:
    leftreborn, psyched

    rate risk since the Fed basically controls interest rates through it's open market operations.  Kind of silly actually to worry about what we pay in interest when we in effect, set the interest rate.  The fact the Fed sets interest rates also contributes to the value of the dollar.

    Otherwise, your explanation of what gives the dollar value is a great one.

    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 Tue Jan 15, 2013 at 05:29:24 PM PST

    •  Agreed. Not a concern at this time. I'm going to (0+ / 0-)

      quibble on whether the Fed sets interest rates all on its own.  It has a lot more interest on short term rates than long.  The Fed also conducts operations in the open market to move interest rates toward a target.  In the market, when there is strong demand for Treasuries, interest rates are pushed down.  If demand for Treasuries was weak, because they were in default let's say, higher interest rates would attract buyers. That's how the market sets rates.  The Fed enters the market and its ability to buy in large quantity influences the market.  

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Tue Jan 15, 2013 at 07:04:02 PM PST

      [ Parent ]

  •  It seems that it is part math (2+ / 0-)
    Recommended by:
    Renee, MichaelNY

    part confidence trick in which the "full faith and credit of the US" plays a significant role.

    If we print too much money (quantitative easing) that eventually that feeds into the value of all the dollars already printed, and into bond values.

    In that scenario then it would add inflationary pressure especially if the printing rate out stripped the growth in the economy.

    The Trillion Dollar Coin doesn't add these pressures simply because it would have only been a temporary fix. Once the debt ceiling was removed or raised the coin would be melted down and given to the President as a paperweight :)

    Good Diary, thanks :)

    I hope that the quality of debate will improve,
    but I fear we will remain Democrats.

    Who is twigg?

    by twigg on Tue Jan 15, 2013 at 05:40:44 PM PST

    •  The only thing that makes your personal IOU (4+ / 0-)
      Recommended by:
      twigg, Renee, MichaelNY, JesseCW

      have any value is the confidence that others have that you'll pay it off EVENTUALLY, whenever eventually is.  And in a large enough system, where you and your IOUs (let's call you the US treasury and your unbacked IOUs dollars), are in wide enough circulation, that EVENTUALLY never really has to come to pass.  It doesn't mean that you can print as many IOUs as you want but it does mean that people expect you to take measures to keep the value of your IOUs consistent.

      How would you keep your IOUs from becoming worthless?  By buying them back from time to time as needed.  Of course, since you can't use IOUs to buy your IOUs back (what would the point of that be), you have to do it some other way.  Like, maybe, taking 36% of the IOUs away from the top bracket of your friends and then burning them.  (The IOUs, not the friends.)

      Dollars are IOUs.  In Econ 101 they teach you that there really is no distinction.  When the fed talks about "The Money Supply," they don't mean just the US dollars in circulation.  They include outstanding debts in circulation, including bonds.  Which really are IOUs.  

      When the Fed wants to increase or decrease the money supply, they don't tax and burn money.  They buy back treasury bonds using tax dollars and burn them.  It's much easier.

      •  Using IOUs to buy its IOUs back is exactly what (1+ / 0-)
        Recommended by:
        nuclear winter solstice

        the Treasury does.  The debt is managed with a calendar that shows the schedule of IOUs coming due each week and the new IOUs that will be issued in roughly the same amount.  

        "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

        by leftreborn on Tue Jan 15, 2013 at 10:33:06 PM PST

        [ Parent ]

        •  You misunderstand. (0+ / 0-)

          Paying off old treasury bonds and issuing new treasury bonds in the same amount (and generally at a lower interest rate, right about now) does nothing to change the money supply.  That's not the same thing as what I was talking about.

          Here's one of the points I was trying to make above: If YOU -- little ol' LeftReboarn -- loan ME money -- little ol' dumbo --, you and I, together, have increased the money supply of the United States.  If we do this enough, you and I and a few other people doing the same thing can cause inflation and thus cause the value of the dollar to go down.  The treasury and the Fed wouldn't even be part of the loop.  The money you loan me, based on my IOU, goes into circulation to buy whatever -- let's say, muffins.  The more you loan me, the more muffins I buy.  You have less cash on hand to buy muffins, but, aha, you have all those IOUs, and they show up as an asset on your balance sheet that you can borrow against from some other lender to buy whatever you like.  Maybe you like muffins, too.  Between the two of us, we could drive up the price of muffins using nothing but our good credit.  

          At some point, it becomes incumbent upon the fed and the treasury to notice that there is inflation going on because of people like you and me and then to take action to protect the value of the dollar by reducing the Money Supply by taking measures: like issuing fewer new bonds or trading foreign currencies.  

          All because of you, me, our IOUs, and muffins.

          •  Paean to Econ 101 (0+ / 0-)

            Dollars are IOUs.  In Econ 101 they teach you that there really is no distinction.
            Where is this mythical Econ 101 taught?
            There is nothing to MMT but really understanding this, that money is credit/debt. And then reasoning consistently therefrom. The modern "mainstream" doesn't and  concocts baroque "theories" which are basically  quantum homeopathic hermeneutic astrology.

            My point is that dismissing things as Econ 101 is not good pedagogy, not good philosophy, not good thinking. Not targetting what you said in particular, or saying you are being dismissive. You just gave me a good setup.

            The hard part, the interesting part of ANY subject is understanding the 101 level. The fancy stuff afterwards, sometimes with fancy math - or fancy fake math in economics - that's child's play.  As you have noted, economists might actually learn real economics at the ground level. The rest of their education - producing Bernankes etc, who is hardly the worst - is devoted to obscuring and denying the dangerous rational, logical, dare I say philosophical thought they have imbibed, by a mass of insane raving. Keynesian/Institutional/MMT econ is just a matter of weeding out the insane raving which violently contradicts the timeless truths of Econ 101.

            When the fed talks about "The Money Supply," they don't mean just the US dollars in circulation.  They include outstanding debts in circulation, including bonds.  Which really are IOUs.   Right in reality, but the Fed doesn't really know this.

            When the Fed wants to increase or decrease the money supply, they don't tax and burn money.  They buy back treasury bonds using tax dollars and burn them.  It's much easier.

            But this is wrong on several levels. The Fed doesn't and can't use tax dollars to buy bonds. The Treasury can - the treasury is what deals with the real money supply by fiscal policy. The Fed is restricted to monetary operations. And by your own correct logic, using dollars to buy bonds does not really, substantially, change the (base) money supply - it is just monetary policy. The idea is that it operates to increase the private IOU money supply - the mainstream robotically sees one "inflationary, expansionary" effect of this monetary policy and ignores the others, which can often outweigh it.

  •  Is the value of gold not "contrived" (3+ / 0-)
    Recommended by:
    Renee, shrike, JesseCW

    An object's scarcity is not an inherent source of value, and gold has relatively little real utility, even as an industrial metal.  

  •  Couple of things (4+ / 0-)
    Recommended by:
    leftreborn, FG, Remillard, mbguenth
    Labor, its ability to earn income, and what it produces give the dollar value.   The consumer classes and the demand economy they create give the dollar its value.  The worker who pays a tax gives the dollar its value.  Business too gives the dollar its value.   The sovereign State that issues and manages its currency gives the dollar its value.  Government that spends is distributing money into the economy and it gives the dollar its value.  All of these acting in concert together give the dollar its value.
    All these contribute to value. But the most important factor is that the fiat currency is needed to pay taxes. It is tax-driven money. If there no taxes and no requirement to use fiat to pay them, then the currency would lose it value and other competing currencies would soon multiply.

    Next, it's important to understand that the Fed must accept and credit fiat money deposits in the form of legal tender coins. I've explained why here. In addition a more extended and richer argument is offered by beowulf here.

    The view that Bernanke has any choice in this matter is a fairy tale the Administration is telling so it can blame the Fed for its not using the coin. Its denial of the coin now, also doesn't mean it will not use it later. The coin is still on the books. It is still a class of seigniorage options. If Obama can't get his preferred outcomes a clean debt ceiling bill and a Grand Bargain he may well turn to the coin to bail the country out before we have default. he doesn't want to let the Rs know that he may yet use the coin however, but wants to keep the pressure on them to get his preferred outcomes.

    •  When people ask me what supports "full faith and (2+ / 0-)

      credit" my automatic response is future revenues.  It's the straight answer.  

      A little populism makes the subject more palatable.  As it is, even the bond traders run screaming from the room.  Presentation counts.

      As for the Fed's fabled independence, I don't know what the Administration is doing.  I was just gratified that the gal in the clip who asked the first question is my soul mate, the one other person fretting about the independence of the Fed.  I already ordered my plane ticket to Michigan.

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Wed Jan 16, 2013 at 12:54:16 AM PST

      [ Parent ]

    •  He'll get his Grand Bargain. (2+ / 0-)
      Recommended by:
      Remillard, rsie

      He is using the debt ceiling and the sequester and the threat of possible financial chaos to cover the policy decisions he's wanted to make for at least a couple of years.  In 2011, he put Social Security on the table himself, and a reporter had to remind him that Social Security didn't contribute to the deficit.

      This is why O. won't use PCS--he's not really being forced into anything by the Republicans. He's working with the Boehner side of the party to get what he actually wants.

      if necessary for years; if necessary, alone

      by SouthernLiberalinMD on Wed Jan 16, 2013 at 06:46:11 AM PST

      [ Parent ]

  •  Looks to me like David Koch (0+ / 0-)

    and his pals are in power right now. Particularly his banker pals.  

    The fact that the 1% are getting what they want slightly more slowly than they would if Mitt Romney were in the White House waving a platinum coin around doesn't impress me much.

    And anyway, if we're worried about giving the Executive too much power--I'm having a hard time not laughing here--what about Mitt Romney with the power to order American citizens shot? What about Mitt Romney with the power to throw Americans into indefinite detention? Isn't it a little late to worry about excessive executive power?

    if necessary for years; if necessary, alone

    by SouthernLiberalinMD on Wed Jan 16, 2013 at 06:31:01 AM PST

  •  Good lord. "Be careful what you wish for." (1+ / 0-)
    Recommended by:
    mbguenth

    I mean, really. This is what awakens the fear of excessive executive power? The HVPC? Seriously???

    It's OK that the President can have you shot, or lock you up and throw away the key, folks, and his drone programs are fine, and his unlimited warrantless surveillance is just what's necessary to protect America, and FISA is an outdated mechanism that allows terrorists to run amok throughout our country, but the Platinum Coin! No, not the Platinum Coin!

    if necessary for years; if necessary, alone

    by SouthernLiberalinMD on Wed Jan 16, 2013 at 06:36:11 AM PST

    •  How did you get way over there? (1+ / 0-)
      Recommended by:
      SouthernLiberalinMD

      I'm not writing fiction or an editorial either.  The constraints on the system have all been written about.  They're an integral part of MMT, not my own ideas (I'm not that smart).  Giving up control to unscrupulous characters can create mayhem in seigniorage operations.  With Krugman calling out the Republicans as terrorists on Stephanopoulos last Sunday, this concern is right in front of us.

      It's self-evident that this isn't a new constraint particular to seigniorage because the current system obviously can go haywire in the hands of the wrong people too.  That problem doesn't go away with seigniorage.

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Wed Jan 16, 2013 at 11:29:42 AM PST

      [ Parent ]

      •  I got over there because (1+ / 0-)
        Recommended by:
        catfood

        the Presidency already has insane amounts of executive power, way more than it ever should, and having the power of the coin doesn't worry me much in comparison.

        But to tackle your point fairly, yes, sure, PCS in the wrong hands can be bad, just as the current system can be bad. There is no political system or strategy that can't be abused. That's why I think the founders' notion of checks and balances is so clever--except we don't have enough of them. It apparently didn't occur to the founders that we might need checks and balances against banks, although Jefferson said they were more dangerous than standing armies.

         What happens with seignorage is both an answer to the current hostage-taking and an expansion of the conversation about debt and the deficit, so that the VSP can't hermetically seal that conversation into a continual loop of "Oh, my God! We're deeply in debt!" and "We must cut spending now!" meanwhile often engaging in policies which will raise the deficit rather than lower it (for instance, we all know that if they had passed any of the last four budgets the Progressive Caucus proposed, they would have lowered the deficit significantly, but those proposals never get any oxygen).

        What they're looking for--now on both sides of the aisle--is a state of continual financial panic which will justify them making any cuts they want, including cuts that the American people deeply oppose. Which makes the discussion as it's currently held, not only hostage-taking, but hostage-taking with a powerfully undermocratic (small d) aim.

        If we can use PCS to subvert this attempt to essentially bully the American people with financial threats  into accepting policies they don't like, then I'm more than willing to take what risks that involves.

        if necessary for years; if necessary, alone

        by SouthernLiberalinMD on Wed Jan 16, 2013 at 12:04:10 PM PST

        [ Parent ]

        •  Not only that (2+ / 0-)
          Recommended by:
          SouthernLiberalinMD, Calgacus
          What they're looking for--now on both sides of the aisle--is a state of continual financial panic which will justify them making any cuts they want, including cuts that the American people deeply oppose.
          The bankers and their elite friends want to force debt on the public so they can force the sale of public assets to decrease the deficit that they forced on the public. It's the shock doctrine again and again and again...and who will be around to pick up those fire sale public properties?

          First during Raygun, the deficit was created by lowering to ridiculous levels marginal taxes on the rich. They used that to put pressure and achieve welfare "reform". Going after the poor was the first. Now they are going after what's left of the middle class. They are rapacious and must be stopped.

          The Universe is strange enough, you don't have to add hocus pocus

          by rsie on Wed Jan 16, 2013 at 04:53:54 PM PST

          [ Parent ]

  •  The Magic Coin is a set of problems. (0+ / 0-)

    What backs it up?

    Did Congress in passing its seignorage legislation dealing with commemorative coinage ever believe - ever even consider - that such a coinage would trump its debt ceiling law? No.

    Does Congress's intent or lack thereof in passing a statute govern? Not necessarily (Harvard's highly respected prof. Tribe thinks the statute is clear enough on its fact that there need be no resort to intent). But there would be litigation and any court considering upholding the seignorage law to defeat the debt ceiling law - or, for that matter, the authorization and appropriation powers of Congress - would have to deal seriously with legislative intent.

    Who declares the value of the coin? The Fed? Hah! The Treasury? In either case, it would be an independent agency or  the Executive not only ignoring powers of Congress, but arrogating them to itself. Constitutional confrontation, anyone?

    What's the impact of relying on a Magic Coin on the world market? On the credit rating of the US? Who thinks it would be viewed by creditors as anything but a sham and a gimmick? It's Wizard of Oz thinking. Adults see through it.

    Is the Magic Coin the worst alternative? Well ... there's the 14th Amendment, which isn't really a power, just a directive to whichever branch will listen. That would be my preferred defense, because it would ostensibly allow the Executive Branch to continue to borrow. But politically ...

    ... I think President Obama has chosen the best course.

    Congress authorized the expenditure. Congress is, in effect, commanding the nation to renege on debts it undeniably owes. It is 100% Congress's problem. If any government irresponsibility causes furloughs and missed payments, government shutdowns, shortage of capital, lower credit ratings, higher cost of borrowings in the future and turmoil in the financial markets ... those are at the feet of the GOP-controlled House and any Senate counterparts who enable this ongoing fraud on the public.

    2014 IS COMING. Build up the Senate. Win back the House : 17 seats. Plus!

    by TRPChicago on Wed Jan 16, 2013 at 12:37:46 PM PST

    •  To answer you, I found that I had written what (0+ / 0-)

      amounts to another complete diary.  I'm going to publish it shortly.

      "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

      by leftreborn on Wed Jan 16, 2013 at 02:42:22 PM PST

      [ Parent ]

    •  IDGI (1+ / 0-)
      Recommended by:
      Calgacus

      Printing dollar bills and "borrowing" them from China is perfectly acceptable.

      Minting coins, like it says in the Constitution, is "Wizard of Oz" thinking.

      Huh.

      •  Yup! (1+ / 0-)
        Recommended by:
        Calgacus

        We put US bills, notes and bonds out for purchase in a free market. China can buy them, like anyone else. Yes, it's perfectly acceptable. Want to prohibit that?

        Why react with indignation that China buys our debt? That's nothing new and nothing startling to people who know how nations' debts get sold and to whom.

        As for "printing dollar bills", Yes, the print shops are called the US mint, which also issues US coinage. Minting commemorative coins is fine, too, like the quarter series, so that the Danbury mint doesn't get all the action from collectors. Again, this does not shock people's conscience. Want to return to the gold standard?

        But a high value platinum coin, minted solely to evade Congress's debt ceiling? Magic thinking. Fictive talk. Alluring sci-fi stuff fooling no one. A magic coin isn't shocking, it's just a gimmicky sidetrack.

        2014 IS COMING. Build up the Senate. Win back the House : 17 seats. Plus!

        by TRPChicago on Wed Jan 16, 2013 at 04:52:00 PM PST

        [ Parent ]

        •  Paper money is only not a gimmick... (1+ / 0-)
          Recommended by:
          Calgacus

          ...because you're used to it. In economic terms, it's not that different from PCS. Either way, you're taking something materially cheap (because the amount of platinum is proportionately minimal) and saying "Hey, this is money! We have money now!"

          One is not more magical or gimmicky than the other.

          •  Yes, you have it right! (0+ / 0-)

            In day to day, practical, the-way-the-world-really-works terms, I'm used to paper money and the standard denominations of bills and coins. I believe in that, and faith in our currency and credit is what makes the US debt strong.

            Now you're gonna argue that the extraordinarily high value Magic Coin what will solve all the debt ceiling problems a GOP Congress wishes upon us, we can just wish away?

            Because, you say, faith in it is just the same?

            Nope.

            2014 IS COMING. Build up the Senate. Win back the House : 17 seats. Plus!

            by TRPChicago on Thu Jan 17, 2013 at 04:31:00 PM PST

            [ Parent ]

            •  Money is not based on misty faith (0+ / 0-)

              But it is not a vague, mystical belief or faith that causes US debt to be strong.

              It is rational knowledge that the taxman is coming, that the US has a huge economy, and collects a humongous amount of taxes - too much - that causes the US debt that so many need to pay taxes with, to be strong.

              The direct effects of the magic coin are if anything deflationary. It would just remove a tool from people trying to destroy the US economy. It would just allow business to go on as usual, as it does in all the rest of the world, that has no bizarre "debt ceiling".

              It would change nothing that actually gives value to US money and debt; it would clearly increase faith that the USA was behaving in a grown up manner, and used a weird workaround to its self-imposed weird legal problem.

              •  But the Magic Coin would change something. (0+ / 0-)

                Many things, in fact. The debt rating of the US and the rate we pay on the future debt we issue, for starters.

                Do you believe that "weird workaround" would have no impact except to free up spending and release us from a hostage-taking GOP Congress?

                We don't need a weird workaround. (Great phrase, by the way!) The choice is for the President to ignore Congress and just spend the money, a constitutional confrontation that recognizes it's immoral to use the debt ceiling to disavow US debts or patiently tell the childish pouts in the GOP caucus that it's their problem and he and the public will hold them accountable. Each time they try to pull it off.

                2014 IS COMING. Build up the Senate. Win back the House : 17 seats. Plus!

                by TRPChicago on Fri Jan 18, 2013 at 05:01:03 AM PST

                [ Parent ]

                •  I didn't forget about you or that IOU an answer. (0+ / 0-)

                  I wrote another diary and I didn't publish it because I see some comments that indicate people are missing the point.

                  For your list of concerns, I can summarize by saying that there aren't legal or financial challenges to the legitimacy of platinum coin seigniorage.   The challenge is political.  

                  The US Treasury can issue a $60 trillion dollar coin as someone called out.  It can't spend the coin.  The Constitution authorizes only Congress to appropriate money for spending and the President must sign.  Just look at the current Congress.  

                  Let's say we had a money spigot that could be turned on as needed without causing inflation, debasing the currency, disrupting markets, or any other negative effects.  Who would have oversight on it?  It's a bit foolish and naive, or perhaps idealistic, to think that no one would ever try to use if for the benefit of a few.

                  People jeering, "That's the system we have now," are very close to understanding me.  Everything is the same with PCS as the system we have now.  That means we have the same problems.  In fact, in the political arena, PCS gives even more power to Congress than it has now.  There needs to be reform to clean out that viper's nest and keep it clean.  That's why I say that the US is accepting a limitation that only allows it be as good as the worst among us.  

                  "Democracy is a life; and involves continual struggle." ---'Fighting Bob' LaFollette

                  by leftreborn on Fri Jan 18, 2013 at 06:48:04 PM PST

                  [ Parent ]

    •  "Wizard of Oz thinking"?? (1+ / 0-)
      Recommended by:
      Calgacus
      What's the impact of relying on a Magic Coin on the world market? On the credit rating of the US? Who thinks it would be viewed by creditors as anything but a sham and a gimmick? It's Wizard of Oz thinking. Adults see through it.
      We've been paying a portion of each year's tax deficit via coin seigniorage --- in 2011, it was roughly $10B, i.e., 1% of the deficit.

      Meanwhile, the Federal Reserve has bought up over $2T (i.e., over 10%) of the national debt through its open-market operations, and did so with magic money created on the spot out of thin air.  Quantitative easing has not created inflation and investors are still wiling to loan to us and negative effective interest rates.

      Am I not an adult.  Are those who are now buying U.S. debt at negative interest rates not adults?  Please substantiate your claims.

    •  14th Amendment gives no permission to ... (1+ / 0-)
      Recommended by:
      Calgacus

      ... continue to borrow in violation of the debt limit when there's a legal alternative provided by 31USC5112(k).

  •  Helicopter Ben has failed beyond measure (0+ / 0-)

    and no amount of " quantitative easing " will ever fix this economy ! Every dollar the " Fed " prints is an IOU for the " Fed " to collect the dollar plus interest - so printing more money is literally printing more debt for taxpayers to absorb.
     The parasite financiers who control the privately owned " Fed "
    are trying to crash the U.S. economy yet again - but they want this one to be much bigger than the " Great Depression " they caused in the !930's - they want a much larger pay-out this time. They really don't care about average Americans at all !
      Nationalize the " Fed " before they drive America into social chaos and political tyranny !

  •  Taxes give the dollar its value. (1+ / 0-)
    Recommended by:
    Calgacus

    Per Warren Mosler: "A dollar is nothing but a transferable tax credit."  And, I agree.

    "Inflation" is about the value of the dollar.  And, basically, the value of the dollar is a matter of supply and demand.  Taxes provide the only "intrinsic" demand for dollars and they reduce the supply in the private sector's "money supply."

    There are of course a couple of other reasons for inflation.  They have to do with "economic efficiency" and "social justice."

  •  Bernanke fucking lies (0+ / 0-)
    Raising the debt ceiling, which Congress has to do periodically, gives the government the ability to pay its existing bills.  It doesn't create new deficits. It doesn't create new spending.  So not raising the debt ceiling is sort of like a family trying to improve its credit rating saying, I know how we can save money, we won’t pay our credit card bills.
    Per 31USC5112(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.
    Which means that the Treasury can issue a $100 trillion platinum coin whenever "the Secretary's discretion" may please to do so.  So WTF is this "Raising the debt ceiling, which Congress has to do periodically, gives the government the ability to pay its existing bills" about?  The Secretary can issue platinum coins however big he/she pleases.  The government don't need no fucking "Raising the debt ceiling" to "pay its existing bills."  

    Per the Wikipedia, Bernanke got 800 of 800 on both the quantitative and the linguistic parts of his SAT test.  He's one very smart fucker.  But, smart fuckers forget the some of the rest of us, at least, pay attention.  So, FUCK YOU, Helicopter Ben.  Stopy lying to us.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site