Why Matt Yglesias and Felix Salmon are Wrong About A Legal Way to Circumvent the Debt Ceiling Impasse

By Joe Firestone of Correntewire

(Author’s Note; Many thanks to lambert strether, beowulf, and Yves Smith for their reviews of this post)

Well, the debt limit crisis is upon us. Treasury Secretary Geithner says the US Government will not be able to meet all its obligations on August 3, unless the debt ceiling is increased by Congress. The Secretary says he is out of moves to extend this date. I don’t think that’s true. I think he can use proof platinum coin seigniorage to supply all the money needed to spend Congressional Appropriations. I do not know if the Administration knows about this idea yet. It may, and it may simply have been unwilling to mention it for its own reasons. But just in case it doesn’t know, and also for the sake of the rest of us, I’m making another attempt to state the case for using coin seigniorage, so that as many people as possible know that the President has an alternative to the “shock doctrine,” make a deal approach to cutting essential spending and services including the social safety net, in return for getting $2.6 Trillion more in debt issuance authority.

The idea of using coin seigniorage to remove the need for issuing debt, and so to always stay under the debt ceiling, is due to a commenter (and occasional blogger) on economics and politics blogs whose screen name is beowulf. He first presented the idea in comments and then posted the seminal blog on coin seigniorage. Throughout the next six months, a number of other posts appeared at various sites (see here for links) with increasing frequency as the debt limit problem received more attention. In the last few days, as coin seigniorage itself climbed up the hierarchy of public awareness, Felix Salmon and Matt Yglesias, both well-respected, mainstream, and professional bloggers, have mentioned the proposal while taking issue with it for reasons I’ll analyze below.

Before, I do that however, here’s what’s involved in proof platinum coin seigniorage. “Congress provided the authority, in legislation passed in 1996, for the US Mint to create platinum bullion or proof platinum coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. These coins are legal tender. So, when the Mint deposits them in its Public Enterprise Fund account at the Fed, the Fed must credit that account with the face value of these coins. This difference between the Mint’s costs in producing the coins and the credit provided by the Fed is the US Mint’s profit. The US code also provides for the Treasury to periodically “sweep” the Mint’s account at the Federal Reserve Bank for profits earned from these coins. Coin seigniorage is just the profits from these coins, which are then booked as miscellaneous receipts (revenue) to the Treasury and go into the Treasury General Account (TGA), narrowing the revenue gap between spending and tax revenues. Platinum coins with huge face values e.g. $2 Trillion, could close the revenue gap entirely, and technically end deficit spending, while still retaining the gap between tax revenues and spending.

Recent Comments from the Mainstream

Here’s Felix Salmon’s treatment at Reuter’s:

Even if Treasury can still sell bonds, however, that doesn’t mean for a minute that breaching the debt ceiling is something which should be considered possible for the purposes of the current negotiation. Tools like the 14th Amendment or even crazier loopholes like coin seignorage would be signs of the utter failure of the US political system and civil society. And that alone could mean the loss of America’s status as a safe haven and a reserve currency. The present value of such a loss? Much bigger than $2 trillion. (Coin seignorage, if you’re wondering, is the right that Treasury has to mint a couple of one-ounce, $1 trillion coins and deposit those coins in its account at the New York Fed. It could then withdraw cash from that Fed account to make all the payments it wanted.)

Felix Salmon does give an acceptable one sentence overview of the proposal, but doesn’t make clear that there could be even a single coin (not a “couple of coins”) of arbitrary value produced by the US Mint. More importantly, he doesn’t make clear why using coin seigniorage would be a sign “. . . of the utter failure of the US political system and civil society,” or why using it would be “. . . breaching the debt ceiling.” He also doesn’t say why he lumps in a 14th Amendment challenge to the debt ceiling with coin seigniorage as crazy ideas.

Addressing these points one by one, first, it’s true that the Congress hasn’t been able to come to agreement on the debt ceiling, but it’s hard to see why this is a sign of “the utter failure” . . . “of civil society.” Even more, the US political system has provided the tool of coin seigniorage as a legal, if not customary, way of generating revenue in addition to taxing and borrowing. Why does this count as “crazier” idea or a failure of the political system? From my point of view the only failure here is the President’s in not using coin seigniorage, or perhaps not yet even knowing about it. But if this is a failure, I don’t see that it’s a systemic one as much as it is a failure of this Administration to look for alternative views that go beyond its own knowledge and imagination.

Second, it’s hard to see why using coin seigniorage would be “breaching the debt ceiling.” Certainly, challenging the Constitutionality of the debt ceiling and overturning the legislation mandating it might be described as “breaching” it. Also, just ignoring it on grounds that it is unconstitutional might be described in the same way. However, using proof platinum coin seigniorage with very high face value coins just spends Congressional appropriations, including paying down debt so that it’s way below the debt ceiling, or even completely eliminated, using perfectly legal means. It’s hard to see how this can be legitimately described as “breaching the debt ceiling.”

And, third, why does Felix Salmon think that using coin seigniorage “. . . could mean the loss of America’s status as a safe haven and a reserve currency. ” Why should a demonstration, using coin seigniorage, of the Treasury’s power to meet US obligations even when Congress is in deadlock, lead to a loss of confidence, making investment in the US look any more dangerous than it is at present, or disturbing the status of the US dollar as the reserve currency? Surely if Felix Salmon wants to make such a serious charge he should at least give readers his reasoning.

It is possible that if coin seigniorage were used on a continuing basis to close the gap between taxes and spending, then US Treasuries would no longer be a safe haven for investing USD reserves, simply because, if no more debt is issued, then no investment in Treasuries is possible. But even if that happened, a low level of interest paid by the Fed on USD reserves would still leave US dollar reserves as safe a haven for holding “risk-free” US financial assets as short-term Treasuries are right now.

It is also hard to see why coin seigniorage, if used, would interfere with the status of USD as the reserve currency. Why should it, since continuous use of seigniorage would result in gradually eliminating the national debt? And what other reserve currency would the world use? The UK pound? The Euro, with its great potential instability? The Yuan, which if it became the reserve currency would force China to give up its peg to the Dollar and to even acquire a bit of a disadvantage in trading with us? What about the Yen? Sounds OK to me, but the world seems convinced that Japan, with its 200% debt-to-GDP ratio might have runaway inflation anytime now. So, will the world take the Yen? Probably not.

What about a market basket of freely floating currencies? Well, that would be fine, but it’s hard to see how that would disadvantage us or cost us $2 Trillion. I also wonder where Felix Salmon got that estimate from. Also, is the $2Trillion an interest cost, a reduction in GDP? Is it over one year, or a decade? Isn’t it a fact, that being the reserve currency costs us exports and jobs? How does that get factored into Salmon’s $2 Trillion cost of not being the reserve currency?

Matt Yglesias is the second popular blogger mentioning coin seigniorage last week. Matt says:

This is an idea that’s circulating in Modern Monetary Theory circles, and I believe that it’s legally mistaken.

Perhaps it is. But don’t you owe it to readers to tell them why?

That said, conceptually it highlights a very accurate point. If you think of the United States government as a consolidated entity, it’s not possible for us to “run out of money” or “go bankrupt.” The government of Ireland owes euros, but it lacks the legal authority to create Euros. Governments of small developing countries often owe dollars, but lack the legal authority to create dollars. Under a gold standard, a government might owe gold and lack the physical capacity to create it. But the United States is owed dollars, and can create dollars, so it’s absurd to think that we might not be able to pay our bills.

Matt understands this very basic point of MMT, and that puts him miles ahead of most who pronounce on solvency. But it’s also important to emphasize that Governments like our own can become insolvent voluntarily. That is, if Congress fails to raise the debt ceiling, or if, in the event they fail, the President fails to use coin seigniorage or another Treasury tool to create a positive balance in the Treasury General Account (TGA) at the Fed, then we can become voluntarily insolvent – a self-inflicted wound caused by a collective failure to understand our fiat currency and monetary system.

Now what might happen is that people lose willingness to lend us dollars in the future. We also might have inflation. Money was lent in the past on the assumption that dollars would be able to purchase real goods and services. Monetization of debt would reduce the real purchasing power of dollars, and might call into question the wisdom of agreeing to lend dollars in the future. But these are different issues.

First, if, as Matt recognizes, we can’t “run out of money” then why do we need people to lend us our own currency in the future? Why can’t we use coin seigniorage indefinitely for “deficit spending?” (From a technical point of view continuous use of proof platinum coin seigniorage would end deficit spending because it would close the gap between spending and taxes with miscellaneous receipts, a class of revenue. However, the gap between taxes and spending would remain and that “deficit” represents a surplus for the non-Government sector.) If we did that we’d avoid, as time went on, most spending on interest costs projected by CBO over the next 10 years. Indeed, if we project out to 15 years based on CBO 10-year numbers, we’d avoid nearly $12 Trillion in projected interest costs. Why borrow our own money back at all? The answer is we don’t need to. So, we don’t really have to care whether people want to lend us back our own money, or not.

Second, why would coin seigniorage in itself cause inflation? Coin seigniorage creates money to spend Congressional appropriations. As long as those appropriations are not so great that they exceed the potential productive capacity of our economy — and right now our output gap is around 30%, and there is no sign of Congress deciding to spend enough to close that gap — there will be no demand-pull inflation.

Would there be cost-push inflation? Not from coin seigniorage. The coins would just go into a Fed vault forever, and again the spending will be only what Congress appropriates. Coin seignorage will add to aggregate demand whenever spending exceeds taxes; but it will not cause cost-push inflation. That is caused by suppliers or speculators who are distorting markets. And the remedy for that is criminal investigations, price controls, rationing, and a thoroughgoing belief that markets must be very closely regulated by independent adversarial enforcers if they are to remain free.

Third, “money was lent in the past on the assumption that dollars would be able to purchase goods and services in the future.” But, again, why should the simple fact of using coin seigniorage debase the currency? Matt needs to explain the transmission mechanism from using seigniorage to spend Congressional appropriations and pay down debt, to currency debasement. Saying that “we also might have inflation” is easy. But one really has to show that the likelihood of inflation is greater if we use coin seigniorage than it is if we issue more debt instead. My view is good luck with that, because there are very good reasons for thinking that coin seigniorage would actually be less inflationary than issuing debt to close the gap between taxes and spending would be.

Fourth, “monetization” is a term that is frequently thrown around whenever the Government wants to use its Constitutional power to deficit spend and create money in the process. But “monetization of debt” has a strict meaning in modern economies. It refers to the purchase of debt instruments by the Central Bank from the Treasury. That wouldn’t be happening here.

Here’s how coin seignorage works: Legal tender, money, in the form of proof platinum coins, not legally viewed as debt, is being exchanged for USD credits in the US Mint’s Public Enterprise Fund account. The money goes into the Fed vaults, the USD credits go into the Mint’s account. The profits from seigniorage go into the TGA. This is an asset swap, between the Fed and the US Mint, of money in the form of a coin, for money in the form of bank reserves. Both sides of the swap are money; so there is no “monetization of debt” involved.

[UPDATE] I now think this might be legal after all, provided the coin is made of palladium.

Palladium coins won’t do; we need coins that can be legally given an arbitrarily high face value. The palladium coins are specified by Congress at $25 in face value. The platinum coins being discussed in the coin seigniorage proposal are proof platinum coins. The face value of these coins is arbitrary and has nothing to with the value of the metal. Platinum proof coins are strictly fiat money, and they can have as a large a face value as the Mint likes. Just like the USD reserves the Fed creates for quantitative easing, or to increase the money supply.

So, after months of blogging, commenting, and tweeting about the coin seigniorage option, it seems that enough activity has been generated in the blogo- and twitter-spheres to have attracted at least the passing attention of well-respected bloggers such as Felix Salmon and Matt Yglesias. It’s pretty clear from my analysis, however, that both of them are offering conclusions about coin seigniorage that aren’t based on careful analysis of the literature that’s developed on the subject.

Put simply, they don’t seem to have thought things through, and they don’t seem to be in a position to guide their readers in learning about the coin seigniorage option. It’s good that they’ve recognized that coin seignorage is, at least, analytically sound enough to merit attempted refutation, and have opened the door to discussion of it in the wider discourse. Thanks to both of them for that, and especially to Matt for pointing out that involuntary solvency isn’t a problem for the US. Exposure for a policy proposal is always better than just continued burial in the non-visible portion of the blogosphere. Nevertheless, it would be so much better for all of us if well-known bloggers who take up a new proposal would investigate it with care before they pronounce a verdict on it.

What harm would have been done if Felix Salmon and Matt Yglesias had just mentioned coin seigniorage and admitted that they still had to research it before deciding on whether it would work, and that they were keeping an open mind pending that research? Certainly, the potential of coin seigniorage as a solution to our revenue problem merits that kind of consideration. How important is it?

The Importance of Coin Seigniorage to the President

I’ll end this post by showing how important it is through an examination of our present situation with respect to the debt ceiling and the potential obligation of the President to use coin seigniorage to cope with it.

1. Congress has appropriated Federal spending for FY 2011 which the Executive is mandated to spend.

2. These appropriations exceed the tax revenue the Government is collecting. This was expected at the time the appropriations were passed. So Congress appropriated deficit spending.

3. Congress has mandated that whenever the Government plans to deficit spend, it must first issue and sell debt instruments in an amount a least equal to the planned deficit spending. In this connection, the Treasury is prohibited from having an overdraft in its TGA at the Federal Reserve Bank.

4. Congress has mandated a debt limit such that the Administration must stop issuing debt when that limit is reached. (The limit was reached in early May). Given the Congressional requirement that deficit spending must be accompanied by debt issuance, the debt limit, in the absence of other countervailing factors puts a stop to deficit spending, until the limit is increased. There is a very important countervailing factor. But it is not recognized or used. So, for the moment, at least, the debt limit has stopped any further deficit spending

5. The 14th Amendment, section 4, requires that the validity of the “debts” (broadly construed) of the United States never be questioned, and since the President has sworn an oath to uphold the Constitution, he is obligated to do all he can to see to it that these “debts” are paid. In fact, he’s obligated to see to it that these debts aren’t even “questioned.” His suggestion that Social Security and other key payments won’t be made on August 3, isn’t living up to his obligations. Of course, he’s not alone in this, since many law makers have been warning about the likelihood of a default for many months now.

6. If used routinely to close the revenue gap, coin seigniorage would eventually reduce the national debt to zero, and remove it as an issue in US politics. In addition, the existence of platinum coin seigniorage as an option, removes the tension between the mandated debt ceiling and the 14th Amendment. It is the countervailing factor I mentioned earlier, because it provides a way to spend Congressional appropriations without issuing further debt.

7. The President has sworn to uphold both the Constitution, which prohibits a default, and also the laws of the United States including the mandates just mentioned.

8. These mandates, along with the platinum proof coin seigniorage authority, make using seigniorage, or another option like it that allows the Treasury to create revenue without either taxing or borrowing, the only viable options to: continue spending appropriations without violating the debt limit; fulfill all the other mandates, both legal and constitutional; and still be able to spend the money Congress has appropriated.

9. So, if no action by Congress raising the debt limit is forthcoming, it will be the President’s sworn DUTY AND OBLIGATION to either use platinum coin seigniorage, or some other revenue creating tool legislated by Congress in past years, to make the money necessary to avoid default, since his failure to use an available way of creating revenue for continuing to spend appropriations, which he is mandated to do, would be a violation of his oath of office.

So, coin seigniorage isn’t some crazy idea. Instead, it is a legal instrument that the President may, depending on how things work out, have to use in a bit more than two weeks to comply with his oath of office. It may be the only way for him to avoid breaching one of the laws which he is supposed to enforce. As such, it has to be taken seriously, and treated with more than just a few dismissive conclusions, accompanied by a lack of explanation.

Many writers on the current debt ceiling crisis have been taking the view that the 14th Amendment constitutional challenge route is the best thing for the President to do if there is no agreement on the debt ceiling. In e-mail communication yesterday, beowulf offered the following opinion on why this will not work, given the existence of coin seigniorage.

. . . No federal judge — Supreme Court justices included — will take the extraordinary step of enjoining an Act of Congress if the President who asks them to had an opportunity to sidestep the constitutional issue lawfully but neglected to do so. . . . .

. . . The moral of the story is if the Court thinks there is no alternative to breaching the debt ceiling, it probably would find it unconstitutional (or rather, it would decline to hear the case on Standing grounds, leaving the President’s decision to ignore the debt ceiling in place). On the other hand, if the Court thinks the President had a lawful alternative– like coin seigniorage– but neglected to use it, they’re not going to bail him out.

This argument is compelling to me given the history of the Court. The Court defers to the legislature if it possibly can, and prefers the President to avoid constitutional challenges if he has a means of doing so. In this case, he does, and the means is platinum coin seigniorage.

(Cross-posted from Correntewire.com – Updated 23/5 with the correct link, and thanks to Felix Salmon).

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  1. MyLessThanPrimeBeef

    The US code also provides for the Treasury to periodically “sweep” the Mint’s account at the Federal Reserve Bank for profits earned from coin seigniorage.


    If you just minted one coin but haven’t sold it to anyone, where is the profit?

    Wouldn’t it be easier to say the accountant at the Treasury basement discovered an error, misplacement of a few zeroes?

    1. Cedric Regula

      If they made the coin thick enough, and they stamped the denomination of it on the outside edge, then whenever neccesary someone could just stamp another zero after the number. Maybe make it ring shaped with a big hole in the middle. Wouldn’t need much platinum that way and it’s good to think ahead and get enough cicumference now so we don’t have problems later.

      From there everything just works electronic as usual!


        1. Cedric Regula

          I better stick with beer. Never know when an MMTer is gonna pull a fast one on ya. But d’ya think the aussie platinum coins are real? I may want some of those.

          1. MyLessThanPrimeBeef

            I hate to melt it down to make a flyswapper with it, but hey, that will show those who cliam gold is an essentially useless metal.

            A flyswapper is NOT essentially useless.

            IT’S VERY USEFUL!!!

          2. F. Beard

            Never know when an MMTer is gonna pull a fast one on ya. Cedric Regula

            Actually, MMT is brutally honest and typically those who would like to keep money creation mysterious object to the light of day.

            An old scam is the counterfeiting of government money with PMs. The gold-bugs are trying to get US to buy it one more time.

          3. lambert strether

            Cedric’s value add here comes, I can only think, from the day care-level hilarity he brings to the discussion. It’s interesting to see, for example, how all his jokes are about the substance, platinum. The confusion between money and its representation is an old wheeze, and no doubt whatever joke book Cedric is cribbing from has an earlier version, with “platinum” replaced by “paper.”

            Anyhow, smarter trolls, please. Cedric, isn’t it nap time?

    2. Joe Firestone (LetsGetitDone)

      I covered that in the post. The “sale” comes in when the Fed credits the face value of the coin to the US Mint Public Enterprise Fund. This is an asset swap. But in recognizing the face value of the coin, the Fed implicitly recognizes the difference between face value and production value. The Treasury then sweeps the PEF for this difference which is “the profit” from coin seigniorage the Treasury.

    3. Marshall Auerback

      That’s right, “Anonymous” When in doubt, invoke Weimar, even though it has ZERO relevance to Joe’s proposal. If we think about the Weimar Republic for a moment, the problems for them began long before the hyperinflation, which really went off in 1923. Following World War I the reparations payments required under the Versailles Treaty squeezed the German government so badly that they eventually defaulted. The Treaty was just a bloody-minded pay-back by the victors of the war and brought so much subsequent grief to the World in the 1939-1945 War that you wonder what was going on in their heads.
      Anyway, for historians, you will recall that the French and Belgian armies then retaliated after the German default and took over the industrial area of the Ruhr – Germany’s mining and manufacturing heartland. The Germans, in turn, stopped work and production ground to a halt. The Germans kept paying the workers in local currency despite limited production being possible and you can imagine that nominal demand quickly started to rise relative to real output which was grinding to a halt. The crunch came when the export trade stalled and the only way the German Government could keep paying their treaty obligations etc was to keep spending. The inflation followed.
      A little more historical detail is in order here: it is important to remember that German production capacity was either significantly damaged by WWI, or redirected toward output required by the military. The Allied blockade further restricted imports well into 1919, and in 1923, French and Belgian troops occupied the Ruhr valley which held a good deal of Germany’s manufacturing base. All of these measures significantly restricted Germany’s capacity to produce, fueling the distributional conflict that fed the hyperinflation.

      This time around, the real net capital stock growth in the US has been slow, on the order of 1-2% per year, and the manufacturing sector is currently operating with one third of its capacity idled. Plant, equipment, and labor have not been physically destroyed – rather, reinvestment rates have remained low. While trade has been inhibited by credit disruptions and some protectionist responses, import prices are falling as export driven economies struggle to reverse declining shipments.

      Second, Weimar Germany faced large foreign claims from war reparations, as well as exploding budget deficits. By 1919, it is reported the German budget deficit was equal to half of GDP, and by 1921, war reparation payments represented one third of government spending. Projected fiscal deficits are as high as 12-13% for the US and the UK in 2009, so the scale of the fiscal responses, though large, is not nearly as large as the undertaken by the Social Democratic Party as they attempted to quell social unrest following the Revolution of 1918 with a variety of social benefit programs.

      Undoubtedly, the Reichsbank had a hand in the Weimar hyperinflation, having become accustomed to “monetizing” German government debt during the WWI after gold convertibility was severed. However, while price levels quintupled between the armistice and February 1920, currency in circulation only doubled, leading many politicians to blithely claim monetary policy could not be blamed for inflation. An increase in money velocity must have played a role, although the monetary arrangements of the Reichsbank became increasingly suspect.

      The Reichsbank had pegged the discount rate at 5%, and accepted private commercial debt for discounting under what was known as the real bills doctrine of the time. Money creation to finance production was not believed to carry an inflationary impulse. Direct loans to businesses were ramped up by the central bank after December 1921 when private financial institutions began to withhold credit as inflation accelerated. The assassination of Foreign Minister Rathenau in 1922 set off a selling spree by foreign investors of German bonds, and the central bank was once again forced to offset the run with more purchases of German government obligations.

      Central bank mayhem aside, the final culminating chapter of the Weimar hyperinflation does appear closely related to the response to reparation demands. The May 1921 so called London ultimatum required annual installment payments of $2b in gold or foreign currency, in addition to a claim on just over a quarter of the value of German exports. Germany attempted to accumulate foreign exchange by paying with treasury bills and commercial debts denominated in marks, but the mark simply went into free fall on foreign exchange markets as this ploy fell flat. The January 1923 occupation of the Ruhr by Belgian and French troops seeking to secure reparation payments in goods – since the mark was nearly worthless – was the final straw. German production was lost as workers employed a passive resistance response, and money was printed by the Weimar government to continue to pay workers despite their production halt. Within months, the German monetary system collapsed.

      But, hey, why let facts get in the way of a good story?

      1. lambert strether

        Copy edit: I don’t think “Weimar” is meant here.

        Rather, “ZOMG!!!!!! Weimar!!!!!” makes the analytical level so much more clear.

        Ditto “ZOMG!!!! Zimbabwe!!!!” These locutions reflect the internal anxieties, fears, and projections of the adolescents using them far more than reality or history, as Auerbach points out.

        1. Life is Reflective

          Oh the irony. Here is lambert strether that accuser of childish responses giving a ‘zoink omg’ to a a serious statement.

          I am on to your hyposcrisy, lambert. It’s always the truly childish ones who take offense at childish behavior.

          Next time, how about a reasoned response to the content. Or does that only apply to those you disagree with?

  2. Dave of Maryland

    How is this different from an arbitrary IOU / Get Out of Jail Free card? The fact that it’s a circular metal disk capable of being pocketed? What is special? Aside from having been accidentally enabled by Congress, that is?

    1. PianoRacer

      What is “special” about this concept is that it allows the government to LEGALLY issue currency debt-free, which makes a hell of a lot more sense than allowing private banks to create it out of thin air for the government to BORROW.

      Unfortunately, it always ends the same way, and it will happen whether we borrow the money from the “Federal” Reserve or create it ourselves. A cursory examination of history is all that is required to see how this ends:


      “There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.”

      1. andrew

        “A cursory examination of history is all that is required to see how this ends…”

        Really? So now we are 18th century France after their Revolution? A less cursory examination might be less thoroughly unconvincing.

        1. PianoRacer

          There are many, many other examples throughout history, I just find this to be the most compelling. My point is that these ideas are not radical or new, and the outcomes have been extremely consistent.

          1. PianoRacer

            A very American response; you’ll be happy to know that this particular document was written in English, though it was written over a century ago. Speaking different languages is no reason not to learn from the experiences (and mistakes) of others around the globe and throughout history, lest we repeat them.

            I really encourage you to read the entire document, as I found it extremely enlightening and relevant to our current situation.

            “History does not repeat itself, but it does rhyme.” — Mark Twain

          2. andrew

            first of all, the two situations are totally different.

            second of all, if you’d read the document that you link to you’d know that.

            third of all, as ridiculous as most people who frequent mises.org are, they usually recognize irony when they see it.

            and finally, striking a $trillion coin would not in and of itself be inflationary, as explained here:


            “6. The increase in reserve balances is not inflationary, as Credit Easing 1.0, QE 1.0, and QE 2.0 already have shown. Banks can’t ‘do’ anything with all the extra reserve balances. Loans create deposits—reserve balances don’t finance lending or add any ‘fuel’ to the economy. Banks don’t lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its target—that’s what it means to set an interest rate target. Widespread belief that reserve balances add ‘fuel’ to bank lending is flawed, as I explained here over two years ago.”

            and here:


            “Many in the financial press have noted the rise since September 2008 in the Fed’s reserve balances from about $20 billion to more than $800 billion today. A number of well-known economists have expressed concern that this will be inflationary.

            However, fears that these are inflationary are misplaced, even inapplicable, as they apply only to a monetary system operating under a gold standard, currency board, or similar arrangement, not the flexible exchange rate system of the U. S.”

      2. Birch

        A cursory examination of the history that has been thoroughly vetted by the bankster’s history stooges. Often, even in those examples, the inflation was driven by the banksters and speculators for personal profit, with the extra spin-off that they can pretend it was government that did it.

        Or to put it another way, when the banksters decide it’s time for crazy inflation, it behooves them to allow some governmental discretion in money creation so they can say “oh, it wasn’t us, it was the government.”

        Ellen Brown has been collecting examples of government creation of fiat money that hasn’t led to hyper-inflation, while at the same time illustrating examples where government created its money all right but the speculators destroyed the currency with inflation out of spite. Or examples where reparations or debt payments had to be paid in foreign currencies and the only way to do so was to inflate the local currency.

        We have to do away with the lie that government created money necessarily leads to hyper inflation. It is utter bullshit, and it has been deeply written into the history books and compulsory education curriculum. It was written there to assure the banker monopoly. Indeed, it is probably the one most damaging lie in our entire indoctrination.

        Think about it: the government creates money, or the bankers create money. What’s the dif? Are banks less self-interested than government? No. Banksters and speculators continually screw around with valuations for their personal profit, and are accountable to no one. They have imposed continuous creeping inflation on us, and have taught us from childhood that it is a good thing. They continually play with the cost of money (interest) so we are never certain how much money will cost when we need it. They do nothing to create it, but profit handsomely from the interest.

        Banks always work in their personal self interest. That’s what they’re supposed to do. Governments vary. There have been some very good ideas for how to arrange government money creation with a certain amount of intrinsic accountability. Edward Kellogg pops to mind. Heard much about him in the bankster history books? No, because then someone might give it a serious go and then they’d have to go through all the effort of erasing it from history. Again. And again. And again.

        1984 and holding.

        1. PianoRacer

          “Think about it: the government creates money, or the bankers create money. What’s the dif?”

          Why does anyone need to be given the right to “create money”? Creating money is the whole problem; increasing the supply of money is what causes inflation, which I agree is a devastating phenomenon, not to be blithely accepted. The whole reason I like gold and silver is because it is a known quantity that cannot be “created” by anyone; it exists in the earth’s crust in a known quantity, and we know generally how much of it is above ground and how much can feasibly be pulled out of the ground every year. It has nothing to do with some grand scheme by the bankers to convince me that it has value; I KNOW it has value (at least to me, which is the only way value can be assessed) because of its rarity. I value that rarity, and historically the rest of the world has too. I hope for that recognition of rarity and value to return one day (soon!), but if it doesn’t I don’t really mind waiting years or decades, or even if I have to pass my rare and special items down to my kids. Worst case scenario, it’s a bitchin’ family heirloom.

          I agree that the bankers can, and have, manipulated the price of gold, silver, and currencies to rob the masses. We need look no further than Thomas Jefferson’s famous quote on the matter to recognize that the problem has plagued man for quite some time. But given the choice, I’d rather take my chances with a medium of exchange that, while true that the bankers can manipulate, at least they cannot create it out of thin air!

          Thank you for your honest discussion, I appreciate different perspectives.

        1. PianoRacer

          Coconuts are no good; remember, we need something that the Powers That Be cannot create out of thin air. While it’s true that they would be constrained to only what they could grow, I feel confident that they would find a way to ramp up coconut production very quickly. If we go to a coconut-based medium of exchange, soon enough they’ll outlaw private coconut farms, and they’ll wall off entire swaths of the equatorial zone for coconut production.

          Plus coconuts are missing another key aspect to what is typically considered “money”; portability. Coconuts are quite cumbersome. No, I think we’re probably better of with the mediums of exchange that have served us so well for the better part of six millenia.

          1. Cedric Regula

            But we could carve “$1 trillion US dollars – US Legal Tender” on a few dozen coconuts or so.

            Congress would have to pass the law making it legal, but then Obama could execute the law and announce the Coconut Re-capitalization of The United States of America!

            Now, bananas…that would be embarrassing for prez, I would think.

          2. PianoRacer

            Well I think the point of the article is that there are already laws on the books that will let us do it with Platinum. Otherwise I agree that in the paper / electronic world, what’s written on a coconut/banana is just as relevant as what’s written on a hunk of metal.

            Sometimes when you stand back and really look at our fiat paper money system, for a brief instant, it’s utter absurdity can become self-apparent.

          3. Cedric Regula

            I’m sure I’ll be chastised for not reading/understanding the article.

            But someone did ask about coconuts, so I wanted to pursue that as a solution too.

            Seems like almost anything would work.

      3. F. Beard

        Unfortunately, it always ends the same way, and it will happen whether we borrow the money from the “Federal” Reserve or create it ourselves PianoRacer

        Not necessarily. Scripture –Matthew 22:16-22 (“Render to Caesar …”) – implies the need for separate private and government money supplies but how common is that in history? The English and their Tally Sticks is one example I suppose.

        1. PianoRacer

          I think that could work if the private medium was specie, or whatever people choose freely to use as a medium of exchange (gold/silver/copper/platinum/wheat/faberge eggs/whatever).

          Personally I think just about anything would be better than the nonsense that we have now; that’s why it’s so frustrating to me that nobody ever even talks about changing the monetary paradigm, which I personally believe is responsible for much of what ails us. I do not believe the problems can be solved (merely delayed) in our current paradigm, but unfortunately it appears that our current system must suffer a catastrophic breakdown before people will even be willing to consider questioning some of our fundamental assumptions.

          1. F. Beard

            I think that could work if the private medium was specie, or whatever people choose freely to use as a medium of exchange (gold/silver/copper/platinum/wheat/faberge eggs/whatever). PianoRacer

            I’m thinking that without the government backed counterfeiting cartel to borrow from that corporations would be forced by competitive pressure to use their common stock as money to purchase capital, including labor.

    2. Cedric Regula

      “metal disk capable of being pocketed? ”

      This is an important safety feature. If someone does steal the coin and emigrate to Brazil, they can only get $1772 an oz for the US Treasury!

    3. Joe Firestone (LetsGetitDone)

      Look, this is very easy to understand. The Congress, according to the Constitution is empowered to create US money, or USD. It delegated some of that authority to Treasury, and some to the Fed. Platinum proof coin creation with arbitrary face value was delegated to Treasury whether intentionally or not. That capability is now the law of the land, which the Executive can use to make money.

      Further, the Executive’s authority to spend USD is limited by Congressional Appropriations; but the Executive’s authority to make platinum proof coins is unlimited. So, if Obama wanted to, he could mint a single coin with face value $30 Trillion and deposit that coin at the Fed. Under current law the Fed would have to credit that account for $30T. That money can sit in the TGA for good, and parts of it can be spent if and when Congress appropriates the spending. When that happens all the Government has to do is spend the appropriations. It doesn’t have to issue debt; so Treasury Securities can become a thing of the past, along with, eventually, the “national debt.”

      Btw, the creation of $30T in coin seigniorage would have absolutely no inflationary effect, because the coin or coins just go into a Fed vault and are never circulated. Whether demand-pull inflation occurs as a result of the enabled deficit spending doesn’t depend on the use of coin seigniorage. it depends on the Congressional appropriations themselves and the amount of deficit spending they provide for.

      1. anon

        It’s an absurd gimmick.

        MMT should concentrate on developing a coherent theory of inflation, and then get on with its desired business of using bank reserves to fund the deficit.

        This sort of thing is just a desperate gambit to avoid the underlying issue that MMT is pushing, which is the legitimization of rampant monetization. The world isn’t ready for such gimmickry because you haven’t prepared them with the requisite theory of inflation.

        And please stop with the nit picky vocabulary policing. It’s a deflection from lack of substance.

        1. pebird

          This is far from absurd. Consider …

          Let’s say the government comes to some agreement on the debt ceiling – then the government will continue to spend what the Congress appropriates.

          Let’s say the President coins platinum and performs the asset swap with the Fed – the the government will continue to spend what the Congress appropriates.

          There is no difference in what happens financially – the Congress continues to budget and the President continues to execute the law.

          The only difference is the politics – the President and Congress cannot hide behind the “debt ceiling” to avoid tough political questions.

          For all the anti-government talk I heard come out of conservative, they are sure timid when it comes to doing anything. But then again, the neo-progressives are worse.

        2. Old Man Moses

          OK..we can debate the morality of the get out of debt free card nature of the idea but I think structurally this is a sound concept. That is IF congress could control themselves from creating wild inflation with it. Not a sure thing.

          BUT..given that we are looking at YEARS of (at best) low growth with huge costs associated with caring for the elderly and rebuilding our national infrastructure and that what is holding everything back is the burden of huge debts at the private and public levels..maybe it is worth a shot.

          I’m not sure that we have a choice any more. I am not convinced that we are ever going to be able to manage the debts and obligations we have. The growth we would need is just not likely to occur.

          This JUST MAY BE the RESET BUTTON we need.

        3. Joe Firestone (LetsGetitDone)

          When folks stop with the illegitimate pejorative labeling substituting for argument, we’ll stop with the vocabulary policing. Until then you’ll reap what you sew.

          Meanwhile, MMT has very good theories about inflation which you be aware of you if had read MMT literature. See, for example:




          1. lasermonkey

            I understand full well what you propose. I agree that it’s a nifty way to exploit an opportunity provided by the architecture, as well as an educational lesson the absurdity of some aspects of same. I think that for those who understand, I think it’s an understandable proposal.

            I also think its a terrible idea to implement it in the real world.

            Why? Because of the signal it will send to a huge section of the population whose cumulative confidence in the currency is about the only thing that seems to keep it going–a confidence that is already waning.

            Don’t get me wrong here. I repeat my opinion, the for people who understand, your proposal is a nifty solution. It’s the people who don’t understand that concern me. I have opportunity to travel fairly constantly nationwide, and with an affable disposition and an adventurous personality, I meet people wherever I go, from all socioeconomic strata. I make a point to interview them whenever possible.

            I listen to them describe their particular situation and I include it in my collection of anecdotes that I am contemplating writing a book about. And I can tell you one thing with confidence: A massive cross section of people are practically looking for an excuse to give up, to quit paying their bills, to quit buying things, to quit TRYING. And I’m not talking about low thinking lazy people, I’m talking about people who have worked hard, have companies, had success, but who have been put through the wringer in the last couple of years and are stung with antipathy for the elites who get bailed out at popular expense. These are people who know–even without the vocabulary to deftly articulate it–that they are being fleeced by a system obviously subverted against their interests.

            And you’re going to take this sea of frustrated people and show the government dodge a massive bullet with a patently obvious trick, a trick that will allow it to continue on its merry profligate way. Note I’m talking about perceptions here: I believe they simply won’t interpret in any other way than as a specious gimmick. I mean come on, a trillion dollar coin?

            Most people have no idea that the national government’s budget is utterly distinct in form from that of their household; most see it in terms of a familiar “spending more than you earn” understanding, and understanding that you and I know to be false. BUT THEY don’t know it to be false. And their aggregate participation is huge.

            I’m sorry to say it, but I think you dance around these confidence-based complaints, at least from what I’ve seen here and over at PragCap in the last few weeks since its been more heavily discussed. And I’m afraid it looks a bit to me like a sort of confirmation bias on your part. I think you might be a bit too impressed with your idea, or too close to it, or not out in circulation in various cities enough, to see that your idea will probably have a backlash you cannot or are not contemplating.

            I’ll say again that I like your idea personally, because I understand the system architecture, and I’m all for education, especially when its clever. I’m trying to make the point to you, that I think it doesn’t really matter if its clever; if the goal is to bypass the crisis (ostensibly to preserve fiat confidence) I think it could very well deal a vicious blow to that same confidence, at least in the mind of the average participant who we want to keep performing economically and whose confidence we are trying to improve.

            Forgive the flames, I offer them respectfully.

          2. Joe Firestone (LetsGetitDone)

            @lasermonkey, I think none of us are very good about predicting what the reaction of the public will be and I agree that psychology is important. But we are threatened with default here and a likely double-dip recession. Against this we set the possibility that people will react badly, stop working hard, and supporting the system. In my view, this possibility is just very far-fetched and I don’t see how it balances the very great likelihood that without using it there wither be a ruinous double-dip, real hardships for many millions around the world, or, if Obama makes an austerity deal w/ the Rs also very, very real harm to millions and millions of people over the next decade. frankly when I weigh this balance I just don’t find your conjectures based on your own personal interpretations persuasive.

  3. andrew

    the mechanism here seems to be very similar to the suggestion that was made last week by Dean Baker and Ron Paul that the Fed destroy the $1.2 trillion in bonds that it is holding.

    but this would be even more fun, because it would make libertarian heads explode and also help to demonstrate how their high priest’s idea really amounted to seignorage!! sweet!!

    1. Dave of Maryland

      I’ve been reading this over at Lambert’s page, where he’s been all enthused. Aside from the fact that no one at the very top of the government will do it. They’re completely deaf.

      Why mint a coin or two? If the USofA needs to create money, then let’s have a national bank to do just that. To save time, why don’t we just designate the Bank of North Dakota as America’s Bank and put them to work? There’s already enough corporations registered out that way, it would work rather well.

      1. Tom Hickey

        Dave, we already have a national bank. It is called the Federal Reserve. It is a government agency, not a private institution as erroneously believed. The reason that the US doesn’t use its full capability is that Congress has put restrictions on it, which, of course, can be removed.

        I would suggest formally consolidating the Treasury and Fed under the Treasury. They are already informally consolidated, and allowing direct issuance instead of issuing interest bearing securities, the interest on which constitutes a subsidy, since they are not necessary operationally.

        Issuance of bonds is a hold-over from the gold-standard days and is now obsolete. It should be recognized in law as such.

    2. Joe Firestone (LetsGetitDone)

      Not quite the same. Ron Paul’s proposal would require the Fed to destroy balance sheet assets. The Fed won’t do that. Coin seigniorage is as asset swap. So the Fed doesn’t lose anything off its balance sheet.

    3. pebird

      The difference is that this would not destroy the Fed’s equity, while burning the existing bonds would.

      1. bob

        Perfectly dovetailing with the “end the fed” theme.

        It would also completely destroy any effort the fed made at setting rates.

        My guess? Negative yields immediately.

  4. Adam Levitin

    Even if the seigniorage trick were legal, is this really the sort of measure the United States should revert to to solve a political impasse? Why not just clip coins or put a little less silver in the denarii? It might avoid a technical default for a while, but it looks totally bush league. Would you want to put your money in the bonds of a government that did this? It’s clever, but utterly tone-deaf to market and political reality.

    1. andrew

      “…is this really the sort of measure the United States should revert to… clever, but utterly tone-deaf to market and political reality.”


      1. lambert strether

        Given that the outcomes of accepting “market and political reality” involve accepting 10% nominal (20% real) DISemployment as far as the eye can see, as well as a rentier state, it would seem that the more pragmatic course would be to attempt to change reality rather than accept it.

        1. KnotRP

          And yet no one will propose sending every US citizen $5000/month in freshly minted US coins….so why is that?
          It’s funny how everybody wants to devalue and dilute to “change reality”, but nobody wants to cut the entire population in
          on the new reality….the new reality is just for the beautiful people.

          1. MyLessThanPrimeBeef

            Everyone needs to migrate over to Public Sector, illegally if that’s the only way, for you and your children – that’s where Nirvana is, where Paradise is…where beautiful people play all day, deficit spend all night with government issued credit cards.

            Inflation problem? Tax the other sector. The other guy. That outsider.

            It’s unconscienable we don’t suggest the mass migration. Make it mandatory already.

            In Heaven, everyone is in the public sector.

          2. Cedric Regula

            Don’t be so negative. I’m patiently waiting for the Post Office to deliver my $5000/month and I don’t even care if it’s in paper money, fake coins, or a check that I can draw on the Great Big Fake Treasury Coin.

            It’s all good!

            I gotta penney jar too, and if they say I can get $100 a penney – that works for me too!

          3. beowulf

            And yet no one will propose sending every US citizen $5000/month in freshly minted US coins….so why is that

            Congress has already granted the Secretary of the Treasury to buy back debt and mint platinum coins. What you’re proposing would require new legislation. Its a free country, so you’re certainly free to write your congressman.
            Tsy was working on a “targeted cash grant program” like that 6 years ago (at about a tenth the size and presumably using debit cards) in a valiant but failed effort to maintain tax progressivity under the proposed retail sales tax.

    2. Joe Firestone (LetsGetitDone)

      Adam, “Bush league?” “Bush league”? And holdin the budget hostage by using the debt ceiling is not “Bush League?”

      I don’t think this is a matter of name-calling. The constitution forbids default on US obligations. The simplest way to comply with the Constitution is to use coin seigniorage. It gives the Executive the power to fulfill all his legal mandates including his mandate to spend already appropriated funds. What’s bush league about that?

      What’s bush league is a Congress that won’t take responsibility for its actions. Congress already passed those appropriations and bound the President to spend them. So, now it comes along as says we won’t take responsibility for our previous appropriation votes. We need another bite at the apple which we’re insisting on by playing games with the debt ceiling.

    3. Old Man Moses

      Yes Adam.

      We may not have a choice. Ten or fifteen years and 2/3 of the national debt ago we had choices. Thirty years ago we could have prepared for the Boomers retirement, taxed more and done a better job of maintaining the nations infrastructure. We could have redone healthcare. We could have been more careful about free trade.

      We could have done a lot to avoid getting here. But..here we are.

      We face cuts to social security and medicare at a time when the Boomers are ill prepared to retire and they are going to live a lot longer than their parents.

      We have military obligations that are not going away any time soon.

      We have thousands of bridges and tunnels that are falling apart. Never mind roads, rail and ports.

      We have obligations that we are not likely going to be able to grow anywhere near fast enough to deal with and the alternatives are very very ugly. Perhaps even a threat to social stability over time.

      So..I agree with your general sense of the thing BUT we may not have an alternative. Sometimes you just gotta suck it up and do what you have to in order to survive regardless of it is distasteful.

  5. jck

    “Platinum Eagles, with their unique United States Government
    backing, can be sold for cash at coin and precious metals dealers worldwide. They’re also legal tender. Their face values are largely symbolic, because platinum’s market price — which is reported in the market pages and websites of
    major newspapers — has historically been higher.”
    U.S. Mint

    1. MyLessThanPrimeBeef


      The coin will have a face value and it will trade around whatever market value it has.

      There is no profit to be swept until you have sold it for it’s metal content plus the value of a coin that exhibits government attempt at folly (may not be the first nor the only one, so that diminishes its numismatic value).

    2. Dave of Maryland

      Actually selling coins for what the market will bear ain’t gonna hack it, the debt is too vast for that.

      On the other hand, mandating that corporations of a certain size buy the things at hugely inflated prices would be a backdoor way of taxing them. You could slap it on as a tariff, for example. Those bringing goods into the country required to buy the coins to get an entry stamp, etc. Or the purchase of SuperCoins as a Tobin tax.

      The rich have all the money & a lock on all known sources of money, so, one way or another, we will either tax them, or we will declare their loot null & void and introduce some other.

      Or, penniless and destitute, we, like the mythical boiling frogs, will end up as lunch for the rich. Me, I’m back to eating garlic. I hear it makes the meat taste dreadful.

    3. lambert strether

      Anyone who actually reads the post will see that jck’s claim has nothing to do with the actual statute cited. The same goes for the choral distractions in the responses to jcks’s false claim.

    4. Tom Hickey

      Non-issue, jck. The platinum coin is purchased by the Fed for its account in exchange for reserves, and it stays in the Fed vault and appears on its books in perpetuity.

      1. Cedric Regula

        Well, when inflation starts rising, the Fed will have to sell the coin back to the treasury. The treasury will have to mail out a surprise $1 trillion tax bill to everyone because we can’t have them borrow the money.

        1. F. Beard

          The treasury will have to mail out a surprise $1 trillion tax bill to everyone because we can’t have them borrow the money. Cedric Regula

          Wrong. Inflation could be precluded by putting the banks out of the counterfeiting business or at least restricting their ability to do so.

          The ability of the banks to create so-called “credit” is the root of ALL our economic problems.

    5. anon

      This is about balance sheet monetization of a phoney coin – not about selling coins to the public.

  6. Paul Niemi

    Coin seigniorage would be monetizing the debt. It would be printing money to fund the government. Inflation is a tax, and this would be a very bad idea.

    1. lambert strether

      On monetization, it “would be,” except that it isn’t. The post presents and refutes this point. May I suggest that you give consideration to the idea of actually reading it?

      1. Paul Niemi

        Of course it is monetizing the debt. It’s nothing new, it has happened in the past, and it is legal in some form or other. It is just a very bad idea.

        1. F. Beard

          At some point all the debt has to paid off with debt-free money or repudiated so why is it a bad idea to do so now?

          But if creditors object too strenuously then the entire national debt could repudiated. No less a libertarian than Murray N. Rothbard said the national debt was morally illegitimate and should be repudiated. The more complaints I hear, the more I favor Murray’s solution.

          I guess creditors won’t be happy till they lose their heads ala France 1793. Alas for their families.

    2. MyLessThanPrimeBeef

      There is no profit to be swept until after you have sold the coin.

      The only buyer for that coin is the Fed, I believe. My guess is the Chinese would stay on the sideline for that one.

      I know I can’t afford that coin.

      1. Cedric Regula

        Japanese too. In fact, Ben is probably the only one that might go for it, but he’ll probably buy the shopping malls first.

    3. Tom Hickey

      The Treasury issues interest-bearing securities. The Fed issues reserves. The tsys offset the deficit expenditure and the Fed auctions off the tsys to get the reserves to give to the Treasury to clear its checks.

      Do you see what is happening here? At the macro level, deficit spending is providing the funds that purchase the tsys. There is no borrowing from the private sector. The government put in the net financial assets that then get saved at interest in tsys.

      The platinum coin gambit shows how this is operationally unnecessary and just provides bankers with the interest unnecessarily. The interest paid out is a subsidy, which constitutes payment for a risk-free parking place. What a deal. Get a risk-free parking place and get paid to occupy it, too.

      Can you smell a rip-off here?

      1. Cedric Regula

        You are describing central banking as invented (or adopted – it’s been done elsewhere before) by the honorable Ben Bernanke.

        That would be the last 4 years or so. So when considering the problems with tossing out the world’s monetary system and coming up with something completely different (and everyone in the world voting on it), we could just consider if the more immediate problem is with central banking, or the people running it.

    4. Tom Hickey

      President Lincoln stiffed the bankers when they wanted high interest to lend money finance the Civil War by just printing notes, called “greenbacks.” Worked great, reserved the Union, and save the country from having to pay the bankers the interest. And it did not result in hyperinflation.

        1. Cedric Regula

          Now all we need is a war to pay for. And how could we have inflation when no one knows how much tanks cost? And anything else expensive just disapears in wartime anyway. Can’t buy it – no inflation. It’s brilliant!

      1. pebird

        And he was assassinated, just as the last President to issue US Notes, not that I am saying that is why they were assassinated.

  7. Ransome

    The problem with spreadsheet money lent at interest is that retains the disadvantages of gold. Paper money was created out of thin air (backed in part by gold) and lent at interest so someone could live without working, the aristocracy. Entire countries are now gutted so a few can live without working, because of debt with compounding interest (Latvia). Interest is a relic along with gold. The government does not need to earn interest on the money it lends, money pulled out of the air, back by nothing. There is no reason men should live, and live better than most, without working. Better we all work less.

  8. vlade

    What this would equal is the infamous printing money scare.
    While it would be perfectly ok in the MMT sense, what MMTers seem to miss is that money is just another word for trust. They got half-way there, but they still treat money as a semi-real asset.

    Money is means of exchange, and on a desert island no money (fiat, gold or whatever else) has absolutely no use whatsoever – as opposed to a real asset, say a fishing rod.

    Money, as means of exhcnage, is both asset and liability. In fact, if I were to choose which way to think of it, I’d pick liability. Money expresses someone’s liability in future – it has value only at the moment when that future liability is extinguished. Until it is used to extinguish a liability, the “value” can be whatever, go up or down.

    What this seignorage idea does though, is and equivalent of
    opening cheat console in Doom and running around immortal with a unlimited-ammo BFG). So whatever I value my liability at any given time, they can give it to me, which kills the whole game-balance (oops, stability of the system).
    While under MMT, it may make sense, the receiver may, at his/her leisure, entirely irrationally, decide that they don’t like it, and as such stop accepting (again, possibly entirely irrationally) the medium as money. Better people than me (Keynes, gold) despaired over it, yet I doubt anyone will be able to do anything about it – for any exchange of future values (thus the liability) will be always fundamentally based on trust, and when that is gone, poof, no exchange happens, no matter how irrational it is.

    1. Tom Hickey

      According to MMT, US currency and tsy securities are government liabilities that are provided to non-government as tax credits (assets). State money gets its value from the necessity for non-government to meet its financial obligations (taxes, fines and fees) to the state, since the state only accepts its own liabilities at its payment offices.

      1. vlade

        That’s why I say MMT is further along than a number of other wiews. But they still ignore the psychological aspect of money=trust – and trust is irrational almost by definition (you believe that in future someone will place your benefits over theirs).

        MMT is the best monetary theory there is if you consider trust in money as given. But I do not believe you can take trust out of the equation, which then automatically brings in irrationality as well.

  9. okie farmer

    Matt and Felix must be oppositional to the proof platinum coin seigniorage because they are perturbed by the idea of what they see as a ‘gimmick’ fix, as opposed to a ‘real’ fix, of our ‘debt crisis’. Even Brian Williams on NBC nightly news two nights ago, said the President may have to solve the ‘impasse’ by using the power granted to him under the 14th ammendment (yes, I was shocked – first and only time I’ve heard an alternative mentioned in MSM). Maybe tonight Brian will mention coin seigniorage!! Matt and Felix don’t want this problem to be easy to fix.

    1. Cedric Regula

      There are other explanations floating around. Calculated Risk says ignore some of the proposals floating around this week – they are for show. Next week the debt limit will be increased.

      ZH says there is a “negotiation” plan that does basically nothing and they will pass that, then increase the debt limit. But ZH is always so cynical.

  10. Tom Hickey

    Excellent post, Joe, and a strong argument. What you did not emphasize is that Congress gave the Executive the power of coin seignorage through minting platinum coins. Therefore, this should not be seen as either a gimmick or a bending of the law. The law is quite clear here and Congress obviously intended to pass exactly that law as it is drawn up.

    President Lincoln financed the Civil War through a similar means, that is, the issuance of notes called “greenbacks.” This proposal happens to be coins rather than notes, but the same principle applies. Congress had provided the means, and the president then relied on those means when circumstances required him to meet his constitutional obligations.

    Strike the coin.

  11. SpeakerToManagers

    Am I the only paranoid here to wonder if this whole situation is a plot to get rid of Obama? If in fact it’s his Constitutional duty to prevent even an attempt to default, if he allows a default on August 3 then there is an excellent reason to impeach him. And even if he isn’t in fact impeached the hearings will damage his chances of re-election and prevent any actions that might improve the economy, also impacting his chances of re-election. And if he’s actually impeached, or even removed from office, think of the triumphant shrieks of the Tea Party!

  12. Anonymous Comment

    Wow. Ok. We really have to spell these things out don’t we? I just thought certain ideas were obvious. But all right… let’s explain.

    The reason a one trillion dollar coin would not solve this problem is that there is not now, nor never will be, a $1 trillion coin. You may say – “Well that’s a failure of imagination because after all, no where is it forbidden for the US to create a $1T coin.” {Can you say Weimar, boys and girls?]

    It is not forbidden for me to do back flips either – but I still can’t do them. Just because something is legal, does not make it possible, practical, or realistic. Who is gonna believe that coin is worth $1T? Uh, I’m guessing no one. That is why the credibility will be lost… preposterous proposals do not foster faith.

    1. Anonymous Comment

      LOLz. Maybe the coin will be more valuable if we make it out of unicorn horn? I hear that is considerably more likely to be worth a trillion dollars than platinum.

      But that would upset the ‘Save the Unicorn’ lobby. Gotta respect that. I mean if suddenly unicorn horn slices were going for 1TUSD suddenly unicorns would go extinct, I reckon.

          1. Anonymous Comment

            Actually… I had an actual response. Which comes down to a question that you would absolutely have to answer in order to pass this plan.

            Here’s the question, for the win: “Who will believe that coin is worth $1 trillion?”

          2. Clonal Antibody

            Anonymous said


            Who will believe that a coin is worth a trillion dollars.

            It is an exchange between the US Treasury and the US Federal Reserve Bank — that is all that matters. Nobody else has to believe.

            But as a response to your question, why should anybody believe that a piece of paper is worth $100, $1000, or a piece of paper (stock certificate) worth anything more than the value of the paper?

            All the same considerations apply as before. It is all about accounting entries and nothing else. the coins, pieces of paper, promises to pay, are nothing but representations of that.

      1. lambert strether

        The value is arbitrary. That’s what the law says. Smarter trolls, please.

        * * *

        I mean, it’s like the thread’s been invaded by 16-year-old Randroid gold bug gamers with Austrian accents…

        1. Anonymous Comment

          If the value is arbitrary, how does the credibility in the system remain?

          As far as 16-year-old thinkers is concerned… come on, get real.

          An arbitrary 1TUSD coin is the solution a 16-year-old would come up with. Grown ups would point out that it’s not a realistic plan because people need to believe in the system they participate in.

          It’s not a believable solution. That’s why you are getting the laughs.

    2. pebird

      At least you would have a coin made of platinum.

      If Congress decides to increase the debt ceiling, all you will have a lot of hot air.

  13. Benedict@Large

    The whole thing is smoke and mirrors. The liabilities of the federal governemnt DO NOT INCREASE when it borrows in its own currency. These are simply debt swaps, as the liability was actually incurred when the currency borrowed was first issued.

  14. ArkansasAngie

    For most of us working stiffs … inflation is bad. Wages never keep up. It is regressive. And the “sin” of it is it nets out that you are taking money from debt holders and giving it to borrowers.

    Of course … that’s perhaps your intention. If I may … how much money do you owe?

    Personally I don’t owe a nickel.

    Of course … that perhaps why I’m against this kind of wealth distribution.

    Under normal conditions I’d say … just go ahead and raise the dad gum debt ceiling. But … today when I see Washington and Wall Street as co-conspirators … well … it isn’t normal times.

    The threat of people will get hurt is offset by people are getting hurt now.

    Cutting to the chase … I reject debtors not paying their debts and not having to give up the asset either. I believe in moral hazard.

    Net, net, net I reject new coinage whether it be paper or arbitrarily valued platinum.

    Geez ….

    1. pebird

      Unfortunately, during a deflation, debtors pay far more than creditors pay during a normal boom cycle. In fact, creditors make out in both booms and busts.

      And, some of them happen to be the reason why we have a bust in the first place.

      So, thank you for illustrating how the other side thinks.

    2. F. Beard

      Net, net, net I reject new coinage whether it be paper or arbitrarily valued platinum. ArkansasAngie

      That’s too bad. You have been suckered by the banks into the phoney saver vs debtor divide.

      The truth is that new, debt-free fiat could be used to bailout both borrowers and savers without significant inflation risk either if the banks were simultaneously put out of the counterfeiting business.

      You had best start honestly voting for your pure self interest and not be fooled by hypocritical “moral hazard” arguments.

  15. Skippy

    I’ll pull my head out of the bucket, to inquire.

    Why all the hub bub about price, when seemingly, its all about value.

    Skippy…individualism (SCOTUS person-hood / Neoliberalism thingy) or societal (Humanity thingy).

    PS. has a species ever committed so much of its self, too a number set_consisting mostly_of_*zeros*…barf. Better insert head back into bucket now[!].

    1. psychohistorian

      I read the posting and all the damn comments and want to ask a simple question;

      Will all our wars stop if the debt ceiling isn’t raised and if not, why not?

      I just might warm to the prospect of not getting my SS check if we can stop killing people in my name for the same time period as my SS check is delayed.

      Do we have a deal?

      GFL with that….

  16. joebhed

    Way to go, Joe.

    Reading through your reply comments, you point out that the platinum measure is somewhat of a theater play on the already existing power of the government of the sovereign to create the nation’s money debt-free, with the further advice that the FED be brought under Treasury as a proper administrative legal structure.

    But ALL OF THIS, and I mean all of this, is laid out to exactly the same ends, including the liquidation of government debt, in Congressman Dennis Kucinich’s NEED Act of 2010.

    While admitting that the Act is not law, and that the plausibility of this particular discussion lies in the language of unlimited currency denomination, an amendment to the laws on paper currency denomination could have the same effect.

    So, we have the Kucinich Bill proposal, which lays out the reform structure necessary to accomplish what has gotten the whole of the blogosphere’s financialists near high as a kite, and we’re discussing palladium and platimum.

    The principal that an operating, truly sovereign monetary system is capable of solving all of the problems created by a hundred years of the parasitical debt money system should be well established within the week.

    The thing that is needed to clarify the legality of doing so is the adoption of the Kucinich monetary reform Bill.
    Nothing more, and nothing less.
    Platinum, or no platinum.

  17. F. Beard

    Too bad for you goldbugs and debt-pushers but debt-free fiat is the ONLY ethical government money form.

    The problem is not that government money is cheap fiat (it SHOULD be) but that it is required one way or another for private debts too.

  18. Matt Franko

    You’ve exposed Salmon and Yglesias as the empty suits they are…either there is NO DEPTH to either of them or they are intellectually corrupt.

    As Salmon and Yglesias have wiffed on this issue of coin seignorage, the other side will probably trot out Ivy League fossil Laurence Tribe again to produce a BS legal analysis like they did a few weeks ago wrt the 14th Amendment issues.

    Thanks for having the fortitude to advance this issue in a professional and scholarly way.


    1. Joe Firestone (LetsGetitDone)

      Thank you, Matt, glad it sits well with you.

      I’m not drawing any conclusions about either Felix or Matty. Popular bloggers are used to just giving opinions off the top of our heads about things. They blog too much to really study the stuff carefully, and become more like newspaper columnists after awhile. For me, the issue is what happens with them now. Are they open to reconsidering. I get the feeling Matty may be because he seems to accept the impossibility of involuntary insolvency, so perhaps he would be open to learning about some other MMY perspectives.

      One can always hope.

  19. roaring mouse

    These ideas are creative, but ignore the point that coin seigniorage is another way to conjure cash. It might be legal, but may also (logically) accelerate a confidence crisis in US debt. Applying this creativity to balancing the US budget may be a more productive use of time.

    1. F. Beard

      Applying this creativity to balancing the US budget may be a more productive use of time. roaring mouse

      A balance budget is the last thing needed now. The population, including savers, needs to be bailed out from onerous debt to the government backed counterfeiting cartel, the banking system.

      The bankers don’t like that the government can create debt-free money. That’s too bad because debt-free fiat is the ONLY ethical government money form.

  20. scraping_by

    As Tyler Durden over at Zero Hedge has also pointed out, the other result of the debt limit Kubuki is to strip all the cash assets out of the government. Pension funds, revenue sharing funds, even the Treasury’s lizard fund, all disappearing to replace the tax revenues, which are kept below the functional level.

    Soon, real deficit followed by fire sales of public assets, ruinous interest rates on public debts (being paid to TBTF banks), paralysis and retreat from solving the nation’s problems.

    Politics doesn’t explain this. Anti-government terrorists running the government explains it well.


  21. Hugh

    It’s late but I wanted to say this is an especially clear exposition of the ideas. Politically, it is completely beside the point because the point of the debt ceiling debate is precisely to create a Shock Doctrine moment to justify further looting of the American people by their elites and for the two parties to score points off each other in the process.

    1. Joe Firestone (LetsGetitDone)

      Pehaps you’re right, Hugh. But I have to give it a try. The one thing about “shock doctrine” situations that may be helpful is that Black swans occur in these situations. The President hopes to manipulate the crisis towards his own ends; but unexpected things can happen, and if he’s faced with no agreement on July 31st and Warren Buffett on the phone, I think he’ll take the only way out.

      “Never waste a crisis.”

      Maybe we can leverage this into the end of debt issuance. That would be great for the political future.

    2. beowulf


      you’re right, of course, about the Shock Doctrine. Was anyone surprised that when Mitch McConnell gave the President a golden bridge last week– a debt ceiling hike with no budget cuts– Obama turned it down?
      He wants to do “big things” but, apparently, pushing unemployment under 9% is too big.

  22. Eureka Springs

    While I couldn’t agree with Hugh more, I find this and recent posts and threads on the whole seigniorage idea all around the net to be met with considerable resistance… it seems like the idea holds up much much better than the various arguments against it.

  23. Sundog

    I admit my eyes glazed over shortly after coming across “update” in this post. Haven’t read previous comments.

    My issue is that the US is dependent on imported petroleum, and increasingly on imported manufactured goods not produced here.

    Joe does offer a reason that others would wish to exchange energy and manufactured goods for paper created under the auspices of a government neither willing nor able to tax the population, and incapable of coping with the real long-term threat to its solvency which is the cost of health care, and unable to cope with the security threat posed by dependency on energy imports which has been cited by umpteen presidents going back decades.

    The dollar may well be the least ugly among freely-trading fiats. I wouldn’t dismiss the Chinese yuan so casually, nor would I dismiss the possibility that many interests are becoming aligned in using gold as a bridge from the US dollar to the yuan.


    Ernest Hemingway described the process of going broke as “Slowly at first, then all at once.” MMT strikes me as a leading indicator of the latter and I’m not encouraged that coin tricks are gaining attention.

      1. Anonymous Comment

        Simply put: Creating a $1000 coin and arbitrarily placing it’s value at 1TUSD is inflationary. You are inflating the value of the coin, and spreading that inflation to pay off debts out of thin air.

        How is this not obvious?

        1. Andrew

          No more $20 bills for you. Perhaps burning the paper to keep warm in the winter or trying to remake the cotton into a T-shirt would make you happy?

          1. Clonal Antibody

            No dollar bills, no checks, no credit cards, no debit cards, no dimes, quarters, half dollars or dollar coins for him/her. I wonder how he/she survives in this age? Barter?

            Cost the US Mint
            # Dime – 4 cents
            # Quarter – 10 cents
            # Dollar (Coins) – 16 cents

            Also from the Wikipedia, the cost of printing any note ($1, $5, $10, $20, $50, $100 ……) is only $0.04.

            So where does the value in all these come? Ah! From all that gold sitting in Fort Knox! Gold backs these dollars! Well it hasn’t for the last three quarters of a century for the average US citizen.

  24. mock turtle

    let the printing presses..or the coin presses… roll

    inflation, if any would be a feature not a bug

    banking and finance has mostly been about ponzi all along

    that the elite and their minions are so very against this means that it must be a better deal for the serfs

  25. bob

    I do love how the teabaggers who crow about “sancitity of contracts” and long for the return of debtors prison are now on the side of “strategic default”.

    They have been planning this for a while, they knew the money was going to have to be paid. None of their “assets” lost half of their value, and their “ability” to pay has not changed.

    It’s strategic default by teabagging house republicans. Their balls are swinging in your face.

  26. YankeeFrank

    I like the hopefulness of this thread in that it proposes a real solution to our problems… unfortunately this will never happen in our current system. The truth is our “leaders” would rather kill us all then give up the power of the super-wealthy to control governments through debt financed government money creation. If government didn’t have to sell bonds to rich people to pay for the things the govt does, the rich would lose their power; and that is not likely to happen without a huge fight. In fact, if its was a real possibility at all the MSM would be alight with threats of communism and fascist takeover etc…

    The rich, in this context, are referred to as “the bond markets”. They gave up the gold standard, but not the elite control of government coinage. So we get plutocratic control of the money supply with no limits on how it can be distorted for the benefit of the few. As Michael Hudson continues to point out, we had $13 trillion for banks (the wealthy) and can’t come up with $1 trillion to cover social security over the next few decades. Money is created for the wealthy, not for the people, and so we do not live in a democracy where the govt operates for the good of the people. In fact, we don’t even elect presidents — its apparent if you just look at it that the corporate media selects our president, or more accurately, deselects the candidates the wealthy don’t want, and leave us with the remaining option. And if that doesn’t work there is enough jobbing of the election results to make the desired outcome stick.

    Those who don’t like the ideas presented in this post are either billionaires or fools… often they are fools who think they will not benefit from a society where there is enough quality food, shelter, education and health care for all. They may have lived a pinched and narrow existence in service to the puritan “virtues” and they’ll be damned if anyone else gets to be less miserable than them. In either of these cases, those against these ideas on coin seigniorage and printing money without debt backing are not worth listening to — a responsible govt that understands the true causes of inflation would have no trouble implementing a true fiat currency regimen. And if they screw up and cause inflation then it is obvious and they can be removed for incompetence. But all that assumes real democracy, and perhaps after the inevitable crash and default of this bankrupt system we live in the beauty of MMT will be here for those who pick up the pieces to make a better world.

    1. Matt Franko

      Frank great comments to Joe’s work here,
      “often they are fools who think they will not benefit from a society where there is enough quality food, shelter, education and health care for all.”

      This is amazing to me that people can be so irrational that they cannot see how we ALL (businesses included) will do much better under a system that delivers those types of results… Resp,

  27. Mondo

    The idea is certainly interesting and could be made to work, if Obama would be willing to do so. Others have pointed out already that politically there are many obstacles.

    I am surprised however that none of the comments I have seen have pointed out what seems pretty obvious to me.

    – Once the US government starts to go down that path, there is no limit to financing all expenses by depositing nice and shiny platinum coins with the Fed. I.e., tax rates can be reduced to zero from that point onward, and everybody will live happily ever after. In my book this is equivalent to full scale monetization even if technically may not be.

    – I am not sure however if I would be willing to exchange goods and services for something that so obviously has no inherent value, I am pretty sure however I would want to trade out of USD in that case. Clearly we have been living in a world of fiat money for a while, however the concept has always been somewhat hidden which I think is essential to maintaining trust in currencies that are based on fiat money. Once it is becoming blatantly obvious that money, in this case USD, is just a shell game, I think we will need not just a new currency but a new concept for a monetary system, in short order.

    I know this comment is way down, however I would be interested in further comments to restore my confidence in the proposed debt ceiling circumvention.

    1. joebhed

      The implication of your observation is that there is no limit to the use of debt-free money to meet the government’s public purpose goals. Thus, we can end taxation.
      Far from it.
      There is a limit.

      Once we have achieved our economic goals of full employment (at WHATEVER wage) and general price stability(stable buying power of the currency), the addition of more debt-free money would promote inflationary impacts due to more money chasing the naturally-limited, achievable GDP.

      The “affordable wage” under full-employment is the real lynchpin of the success of a plan such as this. And that wage is determined by very real limiting factors in play in the national economy.

      The reason the $Trillion obviously makes sense is that we are more than a $Trillion short of even maintaining today’s level of (un)employment.
      Relative full capacity utilization and employment would be the mark for removal of $$ from the economy through taxation. I don’t know if Joe spelled that out or not.

      This is the reason why the Kucinich Bill is still superior.

      It lays out that mandate of achieving GDP potential without inflation or deflation in determining the amount of money in circulation. That is the sole role of the federal monetary authority.

      1. Joe Firestone (LetsGetitDone)

        Just a note on whether or not we can go without taxation. The currency derives its value from the fact that it is needed to pay taxes. That’s the first reason why we can’t go without taxation.

        Second, we need taxation for leveling. The level of economic inequality in the US today is clearly a danger to our democracy, even more so now that the Court has ruled, essentially, that the use of money in politics by corporations is a form of speech that is constitutionally protected. Today we have wealthy individuals and corporations funding other corporations to manipulate and control politics. We need to tax to remove that capability from the extremely wealthy.

        And third, we also need taxes to control demand-pull inflation. When it occurs we need to be able to quickly impose new taxes to drain off excess demand.

  28. Leverage

    Joe, inflation is, too, a psychological effect. There is sufficient liquidity in markets to trigger inflationary spiral and make people reject the use of USD.

    It happened a lot of times during middle ages kingdoms, when there wasn’t such thing as ‘bond’ market and kings could just coin money at their pleasure. It has happened too in the current ages, in a more similar environment.

    Problem is people won’t understand that one trillion jumbo coins are not inflationary, and they can act as if they were inflationary. There is a tail risk there, were people just stops using money and paying taxes, etc. And I think people like Bernanke know it, and have to be careful.

    Damn, I’m sure the sole existence of ‘debt ceiling’ even if it’s an anachronistic mechanism, it’s based in assumptions like this.

    This is something that people in MMT should have in mind. After all, most people thinks that “if I have a straitjacket for spending, and must run a balanced budget, why should the government have a free lunch?” It just does not look right that government can just “print money” even if it’s an operational reality. And if results are not seen for that “money printing” things can get ugly, and fast. And in the current case (which is just a swap between assets which won’t circulate into the market), it’s pretty much the same, no one can guarantee that hedge fund managers understand how QE works (most don’t) and the rise of inflationary expectations itself could trigger a panic run from the dollar, for example.

    1. Joe Firestone (LetsGetitDone)

      Sorry, this is a nightmare scenario fairy story, People are simply not going to fly for the dollar when they see no additional spending coming out of the Federal Government. Remember making money, is not spending money. The fact that Treasury has the money to pay all its obligations will restore confidence, not undermine it. Yes there might a short-lived psychological reaction to the move; but I’m afraid I believe neither in the “confidence fairy” nor the “panic fairy,” when there is no real basis for either of the fairies to appear. No confidence without demand! No inflationary panic without spending beyond full employment!

    1. Cedric Regula

      I was just thinking about the worldwide televised announcement from the President of the United States of America where he announces that the United States has solved its budget problems by minting a $1 Trillion dollar

      1) Platinum Coin
      2) Coconut
      3) Banana

      My gut tells me “banana” would be embarrassing because of all the jokes and sneers one may get about “Banana Republics”.

      But I admit I could be wrong about that.

      1. Andrew

        I like an apple doll enscribed “1 trillion”.

        No banana. They don’t age particularly well. Coconuts start smelling too if you don’t drain and dry them.

    1. beowulf

      Err, the only journalister named (Matt Yglesias) and I don’t think Joe could have made his thesis any plainer that Matt disagreed with this approach. Having said that, apparently Matt changed his mind this morning (about its legality, he may still think its a bad idea for aesthetic, or spiritual reasons).
      “It sounds insane, but I’ve come to believe that Section 31 § 5112 clause (k) of the US Code authorizes Tim Geithner to mint platinum coins in any quantity and denomination he wants and get around the debt ceiling.”

  29. Rodger Malcolm Mitchell

    All the scoffing seen in the comments is based on ignorance of Monetary Sovereignty. The public has been trained that:

    1. “Debt” is bad.
    2. “Surplus” is good.
    3. Federal finances are the same as personal finances.

    Who is to blame? I point to the old-line economists — the University of Chicago and Harvard Nobel winners, who haven’t had a new idea since 1971, the end of the gold standard, when the entire world of economics changed.

    Today, not one person in ten thousand understands that federal deficits = private saving, so when deficits are decreased, saving decreases.

    In a sense the platinum coin idea is a gimmick, but it is a gimmick to get around far worse gimmicks, the federal debt and the federal debt ceiling, both of which are unnecessary and obsolete.

    The public does not understand any of this. So every blog is treated to comments filled with incredibly ignorant, uninformed, smug nonsense that passes for common sense. It’s flat-earth religion that has found its ultimate expression in the Tea Party.

    In short, if you don’t understand Monetary Sovereignty, you don’t understand economics, so stop braying like a donkey and at least open your brain to receiving facts.

    Rodger Malcolm Mitchell

    1. Jim Haygood

      ‘If you don’t understand Monetary Sovereignty, you don’t understand economics.’

      Economics being a ridiculous pseudo-science populated by vacuous poseurs, my understanding of it, or lack thereof, doesn’t particularly concern me.

      But to paraphrase the errant economist A. Greenspan,

      “There are errors in MMT. I do not know where they are. If I did they wouldn’t be there. But with close to two hundred thousand words my probabilistic mind tells me some are wrong.”

      1. Joe Firestone (LetsGetitDone)

        Greenspan is a long-time believer in Ayn Rand. My likelihood-based mind tells me that it is likely that he has no clue about MMT. Can we please not listen to someone who has been so profoundly wrong in his basic Randian-based judgments that he has caused the whole world to suffer. The only thing worthwhile to say to him at this juncture is: “In the name of God — Go.”

        1. Life is Reflective


          However recognizing what others have done wrong does not automatically mean that you have the answer.

  30. hermanas

    Sounds to me like the argument is not one of economics but sociality. Some want,”Liberty and Justice for all”, others prefere an antisocial wage-slave economy.

  31. JTFaraday

    “Put simply, they don’t seem to have thought things through, and they don’t seem to be in a position to guide their readers in learning about the coin seigniorage option.”

    The point of Matty and Felix’s babbling is not that they’re trying to understand, the point and their mission is to render anyone attempting to devise a means of interrupting Obama’s slow dance with the tea partiers a part of the REAL nutter fringe.

    Given that they’re out to paint you as part of the nutter fringe, you’re probably better off emphasizing the constitutionality of this arrangement rather going on about one single $30 trillion dollar “coin,” which opens you up to the nutter charge, readily spun as such on Fox News and easily printed up on a bumper sticker:

    “Look, this is very easy to understand. The Congress, according to the Constitution is empowered to create US money, or USD. It delegated some of that authority to Treasury, and some to the Fed. Platinum proof coin creation with arbitrary face value was delegated to Treasury whether intentionally or not. That capability is now the law of the land, which the Executive can use to make money.

    Further, the Executive’s authority to spend USD is limited by Congressional Appropriations; but the Executive’s authority to make platinum proof coins is unlimited. So, if Obama wanted to, he could mint a single coin with face value $30 Trillion and deposit that coin at the Fed.”

    But, more to the point, why would Obama sign off on this work-around–which opens him up to easily spun charges of absurdity– if he wouldn’t even accept the Republican offer of a temporary extension of the debt ceiling?


    And here, we have the surrealistic scene of McConnell appearing as the defender of Social Security and Obama playing street tough:

    “”If we are unable to come together, we think it’s extremely important that the country reassure the markets that default is not an option and reassure Social Security recipients and families of military veterans that default is not an option,” McConnell said before traveling to the White House for the Obama meeting.

    The Social Security comment was not accidental; Obama, in an interview with CBS News, said he could not guarantee that Social Security checks would be mailed if the Treasury Department loses borrowing authority after Aug. 2.

    “I cannot guarantee that those checks go out on August 3rd, if we haven’t resolved this issue,” Obama said. “Because there may simply not be the money in the coffers to do it.””


    The real issue is not whether or not the Treasury can mint $30 trillion dollar coins, which is to say it’s not a technical issue, the real issue is the political priorities of the lunatic right occupying both parties and stumping for them in blogland. As you point out, Matty knows the dollar bills don’t run out on Aug 3.

  32. Anonymous Comment

    OK… Pardon the directness, but since it has been pressed repeatedly…

    What the MMT-ers miss is that money is not only a two-surfaced concept with only two distinct sides. There is a multitude of meanings for & relationships with money. It cannot all fit in one page, nor in one coin. Each financial culture [including socio-economic, as well as financial, gambling, even law-breakers] have their own ways of looking at and dealing with money.

    I hope they [proponents of this idea] can admit, that it’s not enough to prove that something is ‘legal’ to be in the best interest of the most honest and law-abiding people. Look at all the many apparently legal activities that drove our country, nay the world, to this cliff’s edge. This coin, ladies and gentleman, will make all that vanish.

    Let’s demonstrate the usefulness of this proposal by serious analogy. Because, apparently the more humor-inducing analogies like unicorn horn, pixie dust and bananas are not getting respect as legitimate analogies.

    Let’s take something topical, like, for instance, mortgage bonds. Shall we?

    So let’s use the analogy of this coin whose value we are gonna inflate by magnitudes to solve the problems of going into illegal wars on credit, etc … we are gonna make the coin a mortgage bond, and instead of putting the value of the houses in there we are gonna put the value of just arbitrarily what we want it to be worth. And we are gonna wipe away all the devastation the housing market/mortage fraud-people put on all of us. Housing problem solved = financial alchemy. #Wipe our hands and walk away. No harm no foul.

    That could totally work, don’t you think? Wouldn’t you want them to do that, right away? It seems the logical thing to do… from the perspective of helping the greater good – let’s just solve this problem with whatever we legally can as quickly as possible. I admit it, it sounds delightful.

    But be warned, the unintended psychological consequences of going that far into arbitrary valuations at a time when the world financial system needs to come to realism about their valuations… regarding the whole array of missteps leading to now… Well it seems to come out of backwards-land as a doubling down on improvable valuations from people who really don’t get the bigger picture at all… a different kind of bail out.

    It gets snark as a response because it seems like snark to those who are hoping at keeping some credibility in the system no matter how it all unfolds, because ya know – they currently have something to lose. My guess is, this would instantly destroy all credibility in the system. Clearly that doesn’t matter to the MMT-ers, who I can only guess are prepared for the madness that would ensue.

    This gesture would be perceived by the world as a gift to those who took us all into this mess from multiple angles… and further doubling down on the idea that TPTB all think we are idiots or that ‘you can fool all the people all the time’. It would be the equivalent of an ‘Emperor has no clothes’ moment. Maybe that’s what they want. The truth is, the MMT-ers don’t know enough about how things really work at the macro level in the negotiations of valuations moving forward to see that this is [hopefully] a non-starter. If this is not a non-starter, I reckon it’s a system-ender.

    And please do not accuse me of being a childish solution-hater. I reasonably believe this is not a realistic solution.

    1. Andrew

      Is the value of a coin any more arbitrary than the value of any bill? The value of a treasury security? The value of the CONCEPT of the numbers that make up your checking account? The value of a tulip bulb or or beanie baby?

      I love beanie babies — thank you Mr. Ty Warner.

      1. Anonymous Comment

        Like I said, the MMT-ers don’t understand the basis for monetary valuation. It is not as free-floating and arbitrary as they would like to think.

        1. Life is Reflective

          As for those who say that it doesn’t matter who believes in the value of the coin… and that it only matters that the Fed and Treasury mark it in their books at the convenient arbitrary value… Fine, but who is gonna believe those books?

          It’s maddening that they will argue this gimmick so fervently, demonstrating on-going evidence they don’t understand how valuations work.

          There is a real stubbornness on the part of the MMT-ers to get to the other side of the thought that valuations matter. The mocking of the supposedly ‘helpful’ ones doesn’t really get us anywhere… and kind of adds to the whole 3D kabuki theater feeling.

          As a back-up…I’m going long unicorn horn. No offense.

        2. Andrew

          It’s not as free floating as “we” think? Nobody is saying that the value of a dollar is arbitrary – it’s based on what you, I and the rest think it’s worth. Period. We’re saying the the thing that we call a dollar is arbitrary.

          In addition, the notion that issuing a trillion dollar coin for the Fed to put in a vault would make the world collapse because of psychology is absurd. People like systems that they can count on. Some silliness at the Fed impacts nobody. Life goes on as it has.

          If someone questions the “reality” of a dollar, why not question the right of a child to inherit the real holdings of their parent? Why not question the sense in made-up lines we impose on land that we call “countries”? Why not question the right of a single person (or even a few persons) to “own” any real resource that happens to be available on this earth.

          It’s all a human-created system. Its existence depends on the willingness of people to live within it. Money is just part of the system, and is no more or less arbitrary or fair than the rest of the system we humans have created.

          1. Anonymous Comment

            Re: “it’s based on what you, I and the rest think it’s worth. Period.”

            That’s the part that demonstrates you don’t understand the truth of valuations.

            This is a nice little statement, but it doesn’t tell the whole truth.

            Additionally if the dollar is based the credibility given by those who use it, doesn’t it then stand to reason that an unbelievable coin will not stand up to the credibility test and therefore not solve the problem.

            You say that nobody is saying that the value is arbitrary – well perhaps you should tell that to lambert strether… cuz he keeps saying so. Also, if it’s based on what we believe – period – isn’t that arbitrary?

            The problem is that those who believe this would work, don’t understand [or are not willing to understand] why it would not. However, nonetheless… It would not. Period.

  33. MyLessThanPrimeBeef

    The more I observe it, the more it looks like a religion.

    If you believe it, you believe it.

    If you don’t believe it, you don’t believe it.

    And unless we leave people to believe and disbelieve what they want, we will just have endless religious debates, battles and wars.

    1. skippy

      I’ve seen this economic movie before…too, see:


      Skippy… societal / environmental wellness vs. metaphysical randian religious emotional catecholamine neurotransmitter guess work…barf…head back in bucket…pronto.

      PS. a world built on…the mental engineering premise[s* (*Aristotle / prae-missus liability law thingy…lol) of pyramids and moi…shezz…where is the *ownership* in economics, as the very bedrock of it IS ownership based.

      I smell a epic class action law suit…cough…all the destitute and diminished should sue the pants off these folks! Running out of buckets!

  34. financial matters

    It just seems to be a matter of presentation. If this is something Obama believed in he could get the media to explain this. It’s functional just complicated. And the banks rely on complexity working in their favor…

    from the blogpost

    “”Indeed, if we project out to 15 years based on CBO 10-year numbers, we’d avoid nearly $12 Trillion in projected interest costs. Why borrow our own money back at all? The answer is we don’t need to. So, we don’t really have to care whether people want to lend us back our own money, or not””

  35. Francois T

    This is just money we are talking about here; not cancer, Alzheimer’s disease or an extinction-level event like the explosion of the Yellowstone caldera.

    So…may I ask why so many posters appear to suffer from a case of hyper-stimulated thalamus?

    It’s only money…and fiat money at that!

  36. Nathanael

    Only one error in this post: the assumption that the President has any interest whatsoever in either resolving the “crisis” or in obeying his Oath of Office.

    Apart from that, it’s right. It describes what a sane government would do given the crazy Republican legislature.

  37. Adam_Smith

    What follows also appears as an update to my own blog at A http://wealthofnotions.blogspot.com/s

    The blogs are alive with discussion of an idea credited to to blogger “beowulf” that the debt ceiling could be side-steped by Treasury coin seignorage. In most of these commentaries, (although not in beowulf’s original blog post), there appears the assertion “In this connection, the Treasury is prohibited from having an overdraft in its TGA at the Federal Reserve Bank.”, overwhelmingly in just those words and with the same bold type emphasis. There seems to be a lot of cutting and pasting going on. What I can’t find is any reference to the actual law prohibiting such an overdraft. The closest to it that I could find was THIS document that “Treasury seeks to maintain a balance in the TGA large enough to protect against an overdraft and attempts to keep the balance stable to avoid interfering with the Federal Reserve’s monetary policy.”, although at another point it states that the Fed is “not authorized” to lend directly to the Treasury, (but doesn’t quite say it is prohibited).

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