Joe Firestone: Stop the Kabuki: It’s About “the Great Betrayal”

By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from New Economic Perspectives

MSNBC continues on with its campaign to cast the Tea Party Republicans in the role of principal villains in the imminent Government budget/ government shutdown crisis and the likely coming debt ceiling crisis. The teabots, you see, are using the Republican majority in the House to demand more austerity in government and defunding of the Affordable Care Act (ACA). They’re using their bloc of votes in the House, along with the Hastert rule requiring a majority of the majority Republican caucus to veto any possible compromise vote of the whole House on a budget or a continuing resolution that would get bipartisan majority support keeping the government open past October 1.

Speaker Boehner is coming in for his share of the blame, being called feckless, spineless, weak, a failed leader, and unpatriotic for his decision to respect the Hastert rule, give into teabot “lunacy,” and help them pass a budget implementing further budget cuts and defunding the ACA. MSNBC’s thrust is clearly to call the Republicans bad names while painting the Democrats and the Administration as the adults in the room, willing to compromise to keep the Government running and prevent a default which could crash the world economy. The Washington Post is also reflecting this Party line in its wonkblog Posts with Ezra Klein leading the charge supporting the Administration’s adulthood and the Republicans perfidy at both the Post and MSNBC.

I think this campaign is hiding the real story here, as it is designed to do. Let’s stipulate, to begin with, that the tea party Republicans are mean, evil, stupid, and crazy dudes and gals funded by Ayn Randian billionaires whose primary interest is to replace society with a state of nature in which life is nasty, brutish, and short for those of us who don’t have private armies. It’s still true that they do not bear the sole blame for this crisis, because it is simply not the case that there is nothing the Administration can do to both short circuit the crisis and defuse its impact. It has a number of options it can pursue to completely defuse the debt ceiling crisis and at least a few to create even more pressure on the Republicans to avoid a Government shutdown.

TINA does not apply in this case, and the President’s choices are not limited to just refusing to negotiate or giving in to defunding Obamacare. By framing things in this way, the media are echoing the Administration’s framing of the situation and absolving the President of his share of the blame for the crisis. They are also preparing the way for a compromise, that if it doesn’t defund Obamacare, will, almost certainly, result in hurtful cuts to Government spending including renewed consideration of the Great Betrayal, also known as the Grand Bargain, and probably passage of the chained CPI cuts to Social Security over the objections of a large majority of the American people.

In my last post, I mentioned the following five options the Administration can use to lessen the impact of the Republican thrust:

1. A selective default strategy by the Executive, prioritizing not paying for things that Congress needed, and perhaps not paying debt to the Fed when it falls due and working with the Fed to get the $2.05* Trillion in bonds that it was holding canceled;

2. An exploding option involving selling a 90-day option to the Fed for purchasing some Federal property for $ 2 Trillion. Then when Congress lifts the debt ceiling, the Treasury could buy back the option for one dollar, or the Fed could simply let the option expire;

3. Using the authority of a 1996 law to mint proof platinum coins with arbitrary face values in the trillions of dollars to fill the Treasury General Account (TGA) with enough money to cease issuing debt instruments, and even enough to pay off the existing debt; and

4. Using the authority of the 14th Amendment to keep issuing debt in defiance of the debt ceiling, while declaring that the debt ceiling legislation was unconstitutional because it violated the 14th Amendment in the context of Congressional appropriations passed after the debt ceiling mandating deficit spending.

5. Beowulf has offered yet a fifth option for getting around the debt ceiling by issuing consols. Consols are debt instruments that pay a fixed rate on interest in perpetuity, but never promise principal repayment at a maturity date. The debt ceiling law is written in such a way that what counts against the ceiling is the principal repayment guaranteed by the instrument. Since consols provide no principal repayment, one can have unlimited consol issuance without increasing the debt-subject-to-the-limit.

Yves Smith used the list in this recent post to make the point:

“. . . the larger point is that this budgetary Battle of the Titans is a phony war. Obama can finesse the Republicans if he needs to. . . .

So hang tight for way too much unnecessary melodrama over the next month. It’s another round of watching the two parties play chicken, with each posturing that it won’t be the one to steer out of the impending crash. The fact is that Obama really wants his Grand Bargain. All of this high drama is necessary for him to pretend to his base that he was forced to do what he’s been trying to do for years: sacrifice old people since he perversely believes that “reforming” Social Security and Medicare will get him brownie points in the presidential legacy ledger. . . .

We agree on that. The Administration is raising the zombie Grand Bargain, Great Betrayal again. In addition, she thinks:

Of all the items on the list, option 1 looks far and away the most likely, although an Administration with more guts might try a bit of option 2 along with it. Unlike a platinum coin, which just sounds too weird to people who haven’t heard about the idea (and the Administration would need to be selling it hard now to see if it could legitimate it in the court of public opinion), options are something the public hears about regularly and sounds less gimmicky.

This is a brief analysis of the relative likelihood of the various options. Let it serve as an introduction to this more detailed analysis.

Option 1: I agree that this is a pretty likely option. It allows the Administration to prevent default for a time with both skillful management of cash flow from tax collections and some risk (increasing over time), and to pressure Congress with partial government shutdowns. It also keeps the risk of default in front of people, and is consistent with the President’s likely goal of getting that Grand Bargain through, at last. The first part of Option 1 is classic shock doctrine, so it’s likely the President will select it. However, I don’t think the parts of this option relating to the Fed allowing the Treasury to default temporarily by not paying back the debt it owns when it falls due, or the Fed canceling part of the Treasury debt it owns, will work.

First, the Fed is prohibited by law from giving the Treasury any appreciable credit facilities, and letting Treasury be late in their bond principal and interest payments would be extending it credit. That’s what prevents the Fed from buying Treasury securities directly from Treasury in the first place.

Second, nor can the Fed just cancel the debts the Treasury owes it. The reason why not is that the actual debt instruments are owned by the Fed regional banks, which, in turn, are privately owned. The Treasury bonds are assets of the Fed regional banks. If they just canceled those assets, then they would be violating their fiduciary duty to their stockholders.

Option 2: I think this is less likely than Option 1. I don’t agree that it is less “gimmicky” from a person in the street point of view. People have heard of “options,” of course, but relatively few people could explain what an option is, or how one works, or have ever used an option. And the idea of options generating Trillions in reserves for the Treasury would sound at least as “gimmicky” to the lay public as minting a platinum coin will.

Just from a personal point of view, the idea of the Government minting a platinum coin with a particular value is very familiar to someone like myself who has worked widely in political science, and the social sciences and more recently in economics. I can easily understand the idea applied to a coin with a $60 Trillion face value, as long as I think that minting such a coin is legal.

So, to me the coin idea is not “weird,” so long as it can be shown that it is legal. I think that “it’s the law,” even though it has never been used before is the sound bite that has to be endlessly repeated to the public to get it legitimacy. And I think the President can make that claim and explain his authority to have it minted under the law in a speech announcing that one has been minted. If people get mad about it, then the proper answer is “This is a democracy, repeal the law if you don’t like it.”

Second, I also think Option 2 may be legally more questionable than Option 3. After all, the Fed is prohibited by law from simply creating money and giving it to Treasury without due consideration. But what is a $2 Trillion option redeemable by the Treasury for $1.00 other than a gift of $2 Trillion to it? Certainly, substance over form governs here, and such an effective grant of $2 Trillion to the Fed would be considered a violation of the law, and certainly a financial manipulation “gimmick” by the Fed and the Treasury.

Option 3: As people who read my posts know, I’m very much in favor of Option 3. But I wouldn’t say it’s the favorite Modern Money Theory (MMT) option. I think MMT economists, by and large, would rather the current crisis were resolved by repealing the debt ceiling law, or getting rid of it by exercising the 14th Amendment option. It’s true that many MMT writers have mentioned the platinum coin in the past in a favorable context, but MMT views reserves, currency, cash, and government securities as all debts of the Government, so the general opinion is that if the platinum coin has any special value over other expedients for facilitating deficit spending, that value is political, rather than economic or financial.

Also even though Option 3 is the one I favor. I agree that it is not very likely the Administration will use it. However, I don’t think its “weirdness” is the main problem with it from an Administration point of view. Instead, I think their problem with it is that if they use it, it will be very hard for them to explain thereafter what they mean by saying that “we need a Grand Bargain” or long-term deficit reduction, because “we’re running out of money.”

In any event, I’ve discussed the pros and cons of Option 3 voluminously in my e-book Fixing the Debt Without Breaking America, including the issue of “weirdness.” So anyone interested can read about the pros and cons there.

Option 4: My view of the 14th amendment option, is that a decision to continue issuing debt appealing to the 14th amendment, may very well work because the Supreme Court refuses to grant standing to the House to challenge it. However, if the Court does allow a challenge then I think it will find that the debt ceiling isn’t unconstitutional as long as Congress allows PCS and consols, because those can be used to get credits to pay off securities as they fall due.

I also think that using the 14th amendment option is a more likely move from the Administration, then using the coin, or the exploding option, because the balance of advantages and disadvantages will appeal to the President’s constitutional lawyer side. The 14th amendment option has the following advantages. 1) It makes the President look strong by standing up to the Republicans; 2) It continues current practices, so no one will say it’s “weird,” just illegal; 3) It maintains the air of crisis the President would like to have to go after the Grand Bargain, but also decreases economic risk by putting the debt limit problem on the back burner; 4) It has a good chance of surviving a Court suit through a denial of standing to the House; and 5) It carries with it the chance of getting the debt ceiling law invalidated by the Supreme Court.

Its disadvantages are a few. Unless the Court actually declares the debt ceiling unconstitutional, the House will probably impeach the President, claiming he acted illegally; so this option is risky. If something unexpected happens on the surveillance state front, the risk might unexpectedly increase through a sudden alliance of the left and right against the President.

Of course, the risk of impeachment increases even more if the Court both grants standing and upholds the debt ceiling law. All that said, I think the likelihood of the disadvantages happening is low, and it may be the kind of risk the President is willing to take because, as a lawyer, he will assess its likelihood as low.

Option 5: The advantage of Option 5 is that it would be quick, clean, and easy to implement. There is precedent in other nations for it as well. The UK has issued consols from time-to-time in its history.

The disadvantages are, again, a few. First, it takes the pressure off people to come to the Grand Bargain. Second, the interest on consols will likely have to be higher than the interest on standard debt instruments. Third, this option is a bit “gimmicky,” but not a really strange idea, and only slightly “clever” as a way of getting out of a debt ceiling impasse.

On balance, I’d say this option is very likely if the Administration knows about it, especially after an initial use of Option 1 and possible strong resistance to compromise from Republicans. In that case, as the Administration sees increasing cash flow difficulties in coping with the debt limit, it may ease the way by using consols, and once their use becomes commonplace, then proceed further with a negotiation to get rid of the debt ceiling, since it will have been shown to be of little use anyway.

So, from the likelihood point of view, I think the most likely option is the first half of Option 1, followed by Option 5 (consols); then Option 4 (the 14th); then Option 3 (the coin); and last, Option 2 (the exploding option), which I don’t think can withstand a legal analysis.

The option I prefer is Option 3, because, especially in the case of High Value Platinum Coin Seigniorage (HVPCS), it has the most positive effects relative to public purpose, including educating people about fiat money and MMT, and in addition, its political/economic impact over time is likely to be, by far the most favorable of all the options,because the size the reserves in the TGA and gradual repayment of the debt will be a source of constant political pressure on Congress to seriously consider solving our mounting problems regardless of whether the policies required will involve deficit spending.

And, finally, whatever the options one thinks are likely or one prefers, I think it’s very important that the blogosphere start debating the options once again, as it did in 2011 and during the fiscal cliff/sequester periods, so the President will find it more difficult to plead TINA when he wants to slip through his Grand Bargain. The TINA/kabuki game he is playing is the enemy of the economy, the safety net, and the public purpose.

In addition, the Grand Bargain, along with the upcoming Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TAFTA) are three more nails in the coffin of the middle class. We must not let him, the corporate partisans in both parties, and the cable networks drive the first of these nails home by getting people to accept their narrative about the issues involved here.

To stop it from coming about, the first thing we must do is unmask (as Naked Capitalism and many others have been trying to do) the news networks, the cable media, and the village progressives like Ezra Klein, as actively attempting to constrain debate by ignoring the options the President has, apart from a simple “I will not negotiate, or I must cave stance.” Let us make them come to grips with the alternatives and, in doing so, spread the news that there are a number available, and that whatever unpalatable compromises the President proposes, are his choices and his fault; not necessary expedients, he is being forced into because he has no effective weapons to use in countering the Republicans using the debt limit law to take hostages.

*Previous versions of this item on the list of options used the figure $1.6 Trillion in Treasury securities owned by the Federal. The revised $2.05 Trillion total is current as of close of business 09/18/13.

(Cross-posted from New Economic Perspectives.)

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. pretzelattack

    coincidentally, i was just watching george carlin explain “they want your social security back, they are coming for it, and they are going to get it”. hope he’s wrong.

    1. NotTimothyGeithner

      He’s not wrong. Our tax code, the effects of high wealth disparity, and certain cultural values support grabbing as much as one can. The American middle class is dead. Oh sure, there are some bourgeois and middling classes left, but the quality of life that was possible because of the leverage the American worker possessed for a variety of reasons is gone.

      Where is the money for the growing legions of MBAs*? The answer is public schools and social security. The truth is its easier to just take the money through lobbying than trying to come up with a product in an over-saturated environment.

      The biggest advantage they have is the perception the Democrats and Republicans are political parties instead of team sports in the same league. People get involved instead of watching this. The head of the Democratic Party in Virginia until he didn’t get a promotion for a for-profit “education” scam. Terry MacAuliffe is the Democratic candidate for governor. These men have no business representing likely Democratic voters in any capacity.

      1. sgt_doom

        Thank you!

        Indeed, Americans (Ameritards?) don’t read, or can’t read, and the few who have bothered to read a book during any given year recently is soooo infinitesimally small as to be completely neglible!

        Credit derivatives are “exotic financial instruments nobody understands” — or so claims corrupt politians who claim to be dems, like the chronically simpleminded Maria Cantwell (D-Wa.), or Hank Greenberg, in his testimony before congress (AIG, Starr Foundation, reserved spot in Hell) but when questioned by GAO auditors in the late 1990s, Greenberg claimed he was an expert on them!

        The “Nobel laureate” economist, Stiglitz, would have us believe that “mistakes were made” leading to the global financial meltdown, which reaped billions and trillions of profits for the super-thieves — is Stiglitz really that stupid?

        Or just another of the fraudsters?

        Read Yves’ book, Econned;

        read Ellen Schultz’ book, Retirement Heist;

        read Michael Durbin’s book, All About Derivatives;

        read Satyajit Das’ book, Extreme Money;

        read McTague’s book, Crapshoot Investing;

        read Derber’s and Magrass’ book, The Surplus American;

        read Michael Perelman’s book, The Invention of Capitalism; and,

        read on….

        Then act….


  2. John F. Opie

    Interesting, as always. The real problem with taking the 14th Amendment route is that while it clearly states that the debt of the US cannot be called into question (excluding the debt of the CSA), it also leaves it clearly up to Congress to enforce this.

    Not the President.

    This would I dare say, indeed trigger impeachment proceedings: given that the legal precedent for the grounds for impeachment is whatever the House of Representatives thinks is an impeachable offense (since the SC decided it wasn’t it’s business to make that decision) based on “treason, bribery, or other high crimes and misdemeanors”.

    Fundamentally, it’s a clusterfuck of monumental proportions, largely the result of decades of passing legislation without funding. Talk about chickens coming home to roost…with a vengeance. Congress richly deserves it current popularity (or lack thereof).

    And to be deliberately contrarian: aren’t the President and the Democratic leadership putting their own partisan interests over the good of the country by not agreeing to delay the ACA, even if it is the Law of the Land, as it was passed through Congress without proper funding? Is it as simple as placing a long-term partisan goal (passed purely by Democrats) over the credit-worthiness of the US government?

    1. Joe Firestone (LetsGetitDone)

      Right but Congress has passed legislation to enforce it. Specifically, it has passed a criminal mischief statute. (h/t beowulf) The USC reads:

      “Criminal Mischief statute
      18 US 1361. Government property or contracts

      Whoever willfully injures or commits any depredation against any property of the United States, or of any department or agency thereof, or any property which has been or is being manufactured or constructed for the United States, or any department or agency thereof, or attempts to commit any of the foregoing offenses, shall be punished as follows:

      If the damage or attempted damage to such property exceeds the sum of $1,000, by a fine under this title or imprisonment for not more than ten years, or both; if the damage or attempted damage to such property does not exceed the sum of $1,000, by a fine under this title or by imprisonment for not more than one year, or both.”

      Congresspeople are not immune from violations of the law. So, if they question the debt outside the venue of their parliamentary immunity, which they do every day, they are subject to prosecution under this statute if the Attorney General were not so feckless.

      Yes, I know that would cause an uproar. But just one little example made would put an end to all this debt ceiling BS. The 14th amendment is there and it deserves to be enforced. People like Lindsey Graham have violated ir so many times in public speeches I can’t even count them.

      1. John F. Opie

        Questioning whether we should go so deeply in debt is not equal to questioning the debt (i.e. whether US debt will be paid back at all). The statute referred to can’t be applied here: criminal mischief is against property. That’s really reaching. Otherwise you could construe that statute to be applicable to any and all criticism of US government spending, i.e. functionally equivalent to censure.

        On the other hand, given the absurdities of US law, I wouldn’t be surprised.

        The fundamental problem is that the debt ceiling exists as an act of Congress to ensure that spending remains under control, but the institution that is responsible for setting that level is also incapable of getting its spending under control. Yes, it really is that dysfunctional. Getting rid of the debt ceiling doesn’t deal with the real problem: government debt that is increasingly out of control.

        Consider this: if the interest rate for 10-year government bonds were to double from their current rates, within a relatively short period (three years or so for the effects to be fully felt) the interest payments for US government debt would start crowding out virtually all non-entitlement spending, ceteris paribus.

        Something has to give, as you’ve pointed out. Either the ceiling has to go, spending has to be cut to match revenues, revenues have to be raised to match spending, or we have to be all capable of believing that a magic solution is possible that avoids dealing with this mess.

  3. s spade

    The platinum coin would make the Executive effectively omnipotent financially. Couldn’t we just merge with England and have a parliamentary system?. We could replace Obama with their King (or is it a Queen these days?) The elite would climb on board once we have titles of nobility, and we could sell them to recapture some of the trillions these guys have stolen over the past 30 years.

    I keep thinking our problem is that we lost by winning the Revolutionary War.

    1. Benedict@Large

      I’m sorry, but Bernie Sanders says the platinum coin is “some sort of magic bullet” that doesn’t exist. So we don’t have to worry about that anymore.

      1. DanB

        The platinum coin would expose the myth of scarcity in received economics, which in turn could logically upend wealth, status and class distinctions. But from an ecological perspective, the earth’s resources, particularly oil, are the source of wealth and income. So mint as many coins as you like; it’s a very temporary fix which will not create one more barrel of oil or fresh water or restore ravaged ecosystems.

        1. GusFarmer

          Platinum coin or not, the real issue underlying this is the fact our national bank is PRIVATELY owned. Who in their right mind sets up a system where the Constitution gives the PUBLIC entity (Congress) the power to print money, then requires it to BORROW that money from people who profit from ensuring the public NEVER gets out of debt? We shouldn’t have to pay a cent in interest on federal debt; by accepting interest charges (money that does not exist), we’re essentially giving Congress’s legal responsibility to the private banks. It’s long overdue time we disposed of the Fed and replaced it with a PUBLIC bank at the national level.

          1. psychohistorian


            I wish the public understood this perspective so we can get to a sovereign based financial system.

            I would go with Joe’s point 2 and say to the plutocratic holders of Fed debt, sorry but employing folks is a higher priority than keeping your investments viable….suck on this….

        2. looselyhuman

          _IF_ PCS, and the assoc. understanding that public debt is actually a good and necessary thing, were used to fund an all-out WWII-style mobilization to reduce dependency on fossil fuels, carbon emissions, even other projects like water waste… then it’s not really a short-term fix.

    2. craazyboy

      The big problem I see is the huge fight we will get over who gets their face stamped on the $60T coin. No one will let Obama put his face on it because the coin is supposed to last longer than a mere presidential term, and also besides free market, democracy, capitalism.

      I think Pete Peterson would be a major contender, since he’s worked so hard over the years for responsible government. What better symbolism could there be than to have the coin proudly displayed in the Smithsonian with Pete’s stern face preserved in Platinum forever.

      Plus, being a philanthropist, Pete may even offer to donate the $1800 of platinum to make the coin. ‘Course he’ll make it a package deal where he sells a $60 trillion insurance policy with the coin (with insurer option to replace the coin), for a small nominal percentage policy creation charge. Everything has to be insured in the Smithsonian, cause casualty, theft.

      Then again, the Koch Brothers won’t sit idly by. Perhaps some family infighting here as Dave and Charles argue about who gets to be heads and who gets to be tails!

      Where this could all lead just boggles the mind.

      1. craazyboy

        Then Jamie Dimon may jump in and demand the Jamie $90T coin so his derivative counterparties can all be safely backstopped!

        All hell could break loose with rich people clamoring for their own coin. They may have to build a new wing at the Smithsonian just to keep all the new platinum coins. But hey, jobs.

        1. craazyboy

          Not to say it can’t happen.

          We can always apply our “household or not test” criteria to see if this is viable.

          Q: What is NOT like a household?


          a) The US government
          b) The Greek government
          c) The Smithsonian
          d) A teepee

          Answers a and c are correct.
          Answer d is just there to confuse people.

      2. EricT

        Its against the law to put a living person on currency in the United States. Put Reagen on it and watch the Republicans heads collectively explode.

    3. jrs

      Yea, really you can win on these terms but I’m not sure winning on them is worth it (no I don’t favor cutting SS, but honestly you’d do better on trying to mobilize people (as cutting SS is unpopular) than gimicks, and that’s a long shot).

      Can the President issue a trillion dollar coin to go to war with Syria next (no because congress has war making authority consitutionally – yea but it also has budgetary authority …). The 14th Ammendment is one of the few decent shots.

      1. jrs

        Of course reminding the government that SS a debt that the government is every bit as liable for as every other debt could help. Cutting SS *IS* government default.

        1. Newman's Worst

          I don’t think the courts would support that interpretation. They have held it is not funds held in trust payable to specific account holders and Congress may amend or abolish it at any time. It is not a debt instrument (bond), it is a form of taxation that is used to spread the wealth around as Congress likes. The only thing keeping it from being gutted totally are the number of guns and live rounds that are available in America.

    4. Roland

      Legislative control over the purse is fundamental to whatever may have existed of democracy in the Anglo world.

      The author’s speculations, about which devices the executive might use to subvert the role of the legislature, are all wrong.

      How could anyone, in our times, possibly think it’s a good idea for the US executive branch to further extend its authority?

      Technocratic or legalistic gimmicks are the last things Americans need right now. They have had too much of that sort of crap already.

      1. leafleaper

        When the Party in control of the legislative body in question dose NOT represent the will of the people, and did NOT win the majority of the votes for that body, and is blithely willing to starve its own citizens if it will please its masters and spite the President, and violate the the 14th Amendment, then I don’t think you can argue the sanctity of that branch.
        It is clearly powermad homicidal and unfit to govern.

      2. GRP

        The legislature cannot make inconsistent laws and expect the executive to uphold all of them in both latter and spirit. Debt ceiling under certain circumstances, such as the current one, is inconsistent with spending already authorised. In fact, by making inconsistent laws the legislature is forcing the executive to resort to tricks and gimmicry in order not to violate the laws. But once such tricks and gimicks are resorted to and become part of the governance protocols, the legislature would have permanently lost control over those items. Unless the US Congress repeals the debt ceiling or simply raises it as a matter of its responsibility as and when needed, the treasury has to resort to tricks or fail in its own obligations.

  4. F. Beard

    The best defense is a good offense? So why not point out that the government-backed banking cartel and sovereign borrowing are welfare* for the rich? That the so-called Ayn Rand individualists got their wealth via the legally stolen purchasing power of their neighbors especially that of the poor since the poor (and redlined blacks not so long ago) are less so-called creditworthy?

    The reason why not is that Progressives are NOT opposed to unethical money creation if it is so-called prudent and/or they are in charge of it.

    So we muddle on attempting to balance welfare for the rich with welfare for the poor. And busts are to be balanced with booms. Fine, if you insist. But if that’s the strategy then let’s be very explicit and upfront about it by:

    1) Admitting that our system is NOT free market capitalism. Let’s not be hypocrits.

    2) Mandating a generous income guarantee and all other needed welfare for all Americans since if the boom-bust cycle is an effective way to create wealth it is surely not a way to justly distribute it.

    3) Put absolute limits on wealth accumulation since we don’t have an honest system for accumulating it.

    That said, the above is by no means ideal since it does not abolish the destructive, wasteful boom-bust cycle but merely harnesses it for the benefit of all.

    *Joe Firestone does this to an extent and also Professor Bill Mitchell

    1. s spade

      I think you mean the government backed zombie banking casino cartel. Walter Bagehot never imagined a Fed like this one: lending recklessly at giveaway rates on worthless collateral to institutions hopelessly insolvent and continuously looted by executive con men.

      1. F. Beard

        The only ethical banks are 100.000% PRIVATE ones and then ONLY after a universal bailout of the entire population at least until all deposits are 100% backed by reserves excluding reserves borrowed from the Fed.

        But if we are NOT to have ethical private money creation then the so-called credit worthy should be harnessed for the general welfare given that they are using the general public’s purchasing power.

    2. Joe Firestone (LetsGetitDone)

      I agree we should be direct about the system we have, and that’s certainly not a free market capitalist system. In this period it seems far closer to a lemon socialist system with increasing strong fascist elements.

      I don’t agree about booms and busts though, since I think MMT policies can moderate them.

      1. F. Beard

        IIRC, Steve Keen says a boom requires accelerating debt to keep it from becoming a bust so moderating the boom-bust cycle maybe impossible, ie. we can only have boom or bust with no happy medium.

        The problem is most likely our debt-based money system which is by no means our only option since money can also be issued as shares in Equity.

  5. Sufferin'Succotash

    A Simpson-Bowles Catfood Commission with law-making authority on all taxation and spending issues.That’ll be the real Great Betrayal(not only of the middle class but of democracy itself)and I can easily see Congress and Obama stampeded into approving something like that by talk of a financial crisis if the shutdown actually takes place. See Michigan for further details.

    1. NotTimothyGeithner

      I disagree. Congress is dysfunctional at this point. Obama’s star has faded enough he can’t demand action from the “good Democrats” anymore. With his fading popularity, he has started to take good executive actions which he has failed to do for five years. He had to pull Larry Summers, and he has appointed a Republican and Bush crony to the Fed Chairmanship.

      The Republicans are experiencing the long term impacts of their farm team. They gambled to win the old Southern Democrats-types by putting them if office at the local level really starting with Gingrinch’s takeover of party recruitment in 80’s. Now the master of the party might be run of the mill crooks, but these guys are grand-standers and religious nuts. They are allied with the traditional GOP. Despite Democratic claims about the GOP not working for the Christian right, the rise of mega-churches which have morphed into theme parks, reliable jobs, and tax free havens dismiss that claim. The GOP has delivered for them in exchange for support. The Christian Right/Southern Democratic hodgepodge (the Tea Party was an attempt to recapture it) dominates enough of the GOP that I don’t think there is a workable majority for anything beyond continuing resolutions.

      If you cut domestic spending which is completely crooked, the churches will feel the impact, and they will fight back. The ministers don’t care about abortion. They care about “mission trips” which serve as free vacations.

      1. PaulArt

        You are right about the secure jobs in the mega Churches. I am often tempted to go into Pastoring myself. I attend one every week and sometimes wonder why these people keep trashing Socialism so much when every Church is nothing but Socialism in practice. They all get together, pool their money and help others in distress. Everything goes to the good of the larger Church community. The hypocrisy is deafening in these circles. The really hilarious part are the mission trips to India and Indonesia to help the poor and downtrodden there rather than the people just across the railway track 10 miles from their Church. Sometimes I am tempted to go tell them, ‘hey nitwits, the system that created the poor in India and Indonesia – its the same system here in the USA’. These people labor under this very deep myth that America is still the land of opportunity for people on both sides of the railway track. America is a great and wonderful country but the Republican Party from Nixon onward has woefully betrayed the nation and the Democrats have followed. Sterling examples like Jimmy Carter, Clinton and Obama. Unfortunately there is more to come in the form of Hillary, Rahm, Terry McAuliffe etc etc.

        1. anon y'mouse

          sideways to your point on charity, it is really noticeable that the attitude you discuss is the prevalent one in America, even outside the religious circles.

          economic losers here are sinners who brought the misery on themselves through their own bad behavior or lack of judgement. economic losers in other countries are victims.

          I believe that this is just a way of rationalizing because the emotional payout of “changing someone’s life in a BIG way” from one’s own actions ($) is so much easier in another country than here. if you hand out even meager charity in another country, those people are so far at the bottom that another cow in the shed or some school books really DO drastically improve lives.

          over here, you get trapped in the morass of drugs/hopelessness/deadzones of no businesses and no jobs/deadzones of fastfood shacks while healthy food is only -Whole Foods- discretionary spending types. it is a lot more difficult, takes a lot more money, and forces one to look at our society in a way that will create a lot of cognitive dissonance.

          so, there is a tremendous amount of inbuilt bias towards helping ours here at home. it’s so much easier to send a hundred off to Africa. if you give it to that guy in the alley, he’ll just spend it on drink dontchaknow.

        2. F. Beard

          Let not many of you become teachers, my brethren, knowing that as such we will incur a stricter judgment. For we all stumble in many ways. If anyone does not stumble in what he says, he is a perfect man, able to bridle the whole body as well. Now if we put the bits into the horses’ mouths so that they will obey us, we direct their entire body as well. Look at the ships also, though they are so great and are driven by strong winds, are still directed by a very small rudder wherever the inclination of the pilot desires. So also the tongue is a small part of the body, and yet it boasts of great things.

          See how great a forest is set aflame by such a small fire! James 3:1-5 New American Standard Bible (NASB) [bold added]

        3. participant-observer-observed

          Whoa there, halt your auto-rickshaw, poor and beggars in India are cherished and regarded as an opportunity to cultivate virtue by practing generosity and patience toward them, not despised and scorned as in American culture.

          Of course, the wicked systems that ensure millions remain impoverished are conveniently tolerated by most, east and west. Chucking a few coppers into a begging bowl helps us feel better about our laziness and impotence to make any serious structural improvements to economic culture and social welfare.

          I think it is time to do a quality of life study (not quite the gross national happiness affair), to discover if the poor in India are happier than the poor in the USA. Data from past studies have shown that relative social economic standing is ultimately more significant to absolute inequality.

          But at least in India, a sannyasin living on alms and renouncing material obsessions and addictions is regarded as a spiritual virtue. That sounds like the opposite of American spirituality!

  6. Rodger Malcolm Mitchell

    Missing from this excellent article is the answer to this fundamental question: “WHY will President Obama refuse to solve the problem? Why does he prefer the Grand Bargain?”

    Without disclosing motive, the whole plot makes no sense. Everything in economics devolves to motive

    The answer: President Obama has been bribed by the rich, to widen the gap between the rich and the rest. (See:

    He has been bribed via campaign contributions and promises of lucrative employment — great wealth for him and his family. (Call it the “Clinton syndrome.”)

    He has been bribed by the promise of a huge Obama Library. (Call it the “Pritzker syndrome.”)

    This leads to the question, “Why have the rich bribed President Obama to impose the Grand Bargain?”

    The motive: The rich do not care about their income or their wealth; they care only about the gap. It is the gap that makes them rich.

    If there were no gap, no on would be rich, and the larger the gap, the richer they are.

    Think of all the things for which the federal government spends. Social Security, Medicare, Medicaid, roads, bridges, education, the military, regulation of food, medicine, the financial markets, etc., etc..

    Cuts in federal spending invariably affect the poor far more than the rich. Cuts in federal spending widen the gap.

    Then there is “broadening the tax base,” that euphemism for taxing the poor more.

    Obama has been bribed to widen the gap, and like a good Chicago politician, he bends to the money.

    That is the motive.

    1. jonboinAR

      This is all true and to the point. What rings especially true is your hypothesis on motive, that the rich, consciously or not, value the gap between them and the “lesser” rather than absolute wealth. It doesn’t make them especially hateful, as its human nature at work, but it needs to be recognized.

      1. Joe Firestone (LetsGetitDone)

        Sorry, I think it does make them hateful. Consider, the CEOs are making hundreds of time more in income than the average worker in their organizations and they still want more? And they still think they’re doing God’s work (Lloyd Blankfein)? It’s pure sociopathy.

        1. F. Beard

          I agree! It does make them hateful. Why would anyone take pleasure in someone’s poverty even if only relative?

    2. Joe Firestone (LetsGetitDone)

      Hi Rodger, Thanks for going further and being so explicit about the President’s motivation. I agree that Obama has been following a long term plan to make life safe and even more obscenely prosperous for the plutocrats who have been supporting him for so long now, and that this is his motive for his persistent attempts to weaken entitlements. The man is a Reagan Republican who captured the Democratic Party through his rhetoric and the Party’s own buy-in to neoliberal dogma over a long period of time.

    3. Banger

      I’m not sure they care about the money so much. But a resoundingly large wealth gap does guarantee power in perpetuity–it’s power they want and that’s why the are willing to lose a few dollars for it.

    4. Carol Sterritt

      I like what you’ re saying quite a bit, but feel the need to point out that George Orwell said the same thing. The rich are a peculiar group of people; they enjoy the gap. I am sure if Jesus Christ came back to earth and figured out a way for everyne to wina lottery and be abundant for the rest of time, with nature being miraculously healed, the sun and wind harnessed for every conceivable need and then some, some of the rich would be suicidal. What good is money if not for the sake of seperating the “inferior” from the “ultra superior” ??

      Unfortuantely that tendency lives inside all of us. In the early 1990’s, the computer programmers let it be known that the textile workers and auto factory workers deserved to have their jobs outsourced, as if those people had really wanted a decent job they would have gone to tech schools and become computer programmers. Then when the tech jobs got outsourced, all of a sudden the programmers and techie types realized that outsourcing of jobs was wrong.

      There is a bit of this “sin” in all of us. And not an easy one to undo.

  7. Banger

    Like Firestone I distrust anything that the “liberal” media are pushing. They seem to be saying that we are heading towards a disaster and I believe it is a disaster they want. We do not have anything even remotely resembling a free and open press. Places like MSNBC, NPR, WaPost and so on are political operations primarily that happen, at times, to offer good and accurate information–but certainly not about politically sensitive matters. I don’t know what the motivations are for the mainstream media at this point but they seem to be attempting to support Obama against the Tea Party which is a threat to the mainstream as well as a substantial part of the oligarchy. The Tea Party has managed to, yes, do exactly the opposite from what they claimed initially when they were formed dufing the bailout (they were opposed to it) but they still are radicals who threaten to sabotage the national security state by insisting on having guns, be a little to fond of civil liberties, and don’t seem willing to support imperial wars as readily as their mainstream RP members or the DP members. At any rate, Obama and company are the ideal rulers to move us gradually rather than at a gallop into our neofeudal future.

    Long ago I came to the conclusion that the main problem with American politics is not right-wing Republicans, Evangelical Christians, Israel-firsters,that national security state or even corporate oligarchs but, rather, the mainstream media as a whole including their much of their entertainment divisions. Power hinges on how they cover events–it they were what they claimed to be just reporting the facts then fine they would not be a problem. But these corporations are not neutral they are central players in the political world. My analysis has been that, on important matters, these outlets create a “line” that the follow–I believe this is done informally rather than through a central committee but the process as I understand it comes to the same thing. Senior editors talk to each other as do the execs–there is, in fact, no firewall between ownership and the editors about important matters like the debt crisis or war and peace.

    There are a million examples of the media piling on and I will name two unambiguous situations where the media is clearly in collusion to keep the truth from the American people. First, of course was the lead-up to the Iraq War. Senior editors knew the government was making up facts and if they didn’t they were idiots. All major media outlets banned Scott Ritter who said, rightly, that 99% of the WMDs were accounted for. Second, as we speak there is a campaign for Mayor of New York one candidate has been blacked out by ALL local media outlets in the NYC area by the name of Randy Credico–why? He wants a Wall Street sales tax and if he won (which he could if he was covered by the media) that would not only upset the New York City based oligarchs but send shock-waves throughout the world so the mainstream will airbrush the guy out of history before history even happens.

    If anyone is an activist on the left the first target for activism is not Wall Street or the Tea Party but the mainstream media. Slowly, very slowly the internet is undermining their lock on power–their first defeat was not being able to bamboozle the public into a major war in the Middle East and that pressure came not from the left but from the right–so we need to join the Tea Party critique on the controlled press.

    1. James Levy

      Join the Tea Party critique of the media? Oh, that it’s “liberal”, “socialist”, and run by the evil Jews? That critique? Are you fucking insane, man? Their view of the media is complete horseshit. They don’t see at all that the media ARE massive corporations completely committed to the status quo of oligarchical rule and the reign of capital. Sure, most media types don’t want to see gays sent off to reeducation camps in the desert West or blacks locked up in ghettos at night like the Jews of medieval Europe. But that’s about as “liberal” as most of them get.

      Attack the MSM, certainly. Support the Tea Party critique of the media–not on your life.

    2. Marc P

      Actually, the opposition came from all sides. It was universally hated and really underminded Obama’s standing in what is called his base!

    3. Jim

      Banger argues:

      “My analysis has been that on important matters these outlets create a “line” that they follow..”

      Building on the above insight about media outlets creating a line—it seems possible to perhaps broaden this concept a bit to the point that media outlets often create major themes which tend to be synchronized and carry a similar emotional message.

      The consequences of the blending of the message and the emotion may be the attempted creation of a various types of collective hallucinations of unity.

      Through these media/emotional themes, in conjunction with the activities of the national surveillance state, we tend to end up being in constant state of alarm— a type of collective madness.

      It almost seems to become our duty as patriotic citizens to elicit the appropriate emotional excitability.

      The first step out of such opportunistic psychoses may be a type of mental succession from their messages and their emotional manipulations.

  8. PaulArt

    The only way to take SS off the table is to individualize the accounts. India has a Provident Fund where you and your employer contribute. The Government pays a 8.5% interest on the funds and you cannot mess around with investing it here and there. There are no options for investing it anywhere period. End of Story. Now lets see if the politicians will try meddling with that.

    I am basically SICK and TIRED of having an unending bleeping battle with corrupt politicians about whether I am going to have money when I retire.

    The whole problem comes out of trying to make some kind of a progressive taxation system out of SS at one end of the scale to the other extreme of enabling Wall Street to loot it under every kind of ‘sucker born every minute’ scheme.

    On the Left we are basically trying to subsidize workers who are not making enough to put money away for a retirement but this comes at the expense of other workers who are contributing. On top of this we have SSDi and a host of other ‘lets do charity with other people’s money’ benefits. This is what gets traction for the GOPers.

    If you want to provide a true safety net then do it with progressive taxation, that’s what its for. Let the Government subsidize the retirement accounts of those who do not make enough money to fund retirement.

    1. Don Levit

      Paul Art:
      You seem to have an excellent idea about keeping the Wall St. looters out of the equation. Over the years, the Treasury has looted the Social Security trust fund (and 28 other trust funds), using the proceeds for Social Security beneficiaries to pay for other general expenses, instead.
      Yes, the Teasury provided bonds as collateral for the loans. But instead of indirectly paying for other general expenses, the Treasury should have directly issued bonds to the public, instead of indirectly, leveraging the SS trust fund to pay for expenses it was not set up to pay for.
      Don Levit

      1. F. Beard

        the Treasury should have directly issued bonds to the public, Don Levit

        No! The most a risk-free investment should return is ZERO percent. In fact, the rich should PAY for the risk-free storage of their fiat with perhaps a penalty cause for money hoarding.

        I sure wish you’d use another name. Anti-antisemitism will once again rise in the Time of Jacob’s Trouble and your insensitive statements are not helpful wrt to certain stereotypes.

        1. ian

          What investment actually is 100% risk-free – if you count inflation as a risk as I certainly would? Just because it doesn’t seem to be happening at this exact moment doesn’t mean there is no possibility of it in the future.

          1. F. Beard

            Well, there’s treasure in Heaven:

            “Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where neither moth nor rust destroys, and where thieves do not break in or steal; for where your treasure is, there your heart will be also”. Matthew 6:19-22 New American Standard Bible (NASB)

            We could also set up an ethical society so that even beggars lived well because of the vast productivity/efficiency resulting therefrom.

      2. LucyLulu

        “instead of indirectly, leveraging the SS trust fund to pay for expenses it was not set up to pay for.

        This is a widely held myth. SS law specifies that all surpluses MUST be lent to the government and used to finance the deficit.

        “Additionally, the Government Trust Funds are required by law to invest accumulated surpluses in Treasury securities. The Treasury securities issued to the public and to the Government Trust Funds (intragovernmental holdings) then become part of the total debt.”

        “By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are ‘special issues’ of the United States Treasury. Such securities are available only to the trust funds.”

        Can’t find a link right now but it’s also specified that Treasury funds from sale of trust securities may be used for expenses authorized by law, though this is implied above by statement that the funds become part of the national debt.

        1. Don Levit

          The surpluses were not invested in Treasuries. If they were, then, conceivably, those securities could have been set aside to provide for future payments when the cash flow was negative (as it has been for several years).
          Instead, the surplus taxes were loaned to the Treasury to pay for general expenses, and the bonds were issued as collateral.
          The proof of this is that when the bonds are redeemed, general revenures are needed.
          This is because the surplus cash has been spent, rather than set aside as you wrote, “according to law.”
          If they were set aside, there would be no budget expenses realized when the bonds wee redeemed,, for the money was in “safekeeping” for specific expenses.
          Don Levit

      3. LucyLulu

        I’m confused about how your plan would differ from the current plan other than ensuring money paid in was returned to the same beneficiary making payment, i.e. preventing redistribution.

        Otherwise, the government would still have received the same funds, which it would have used to finance the deficit. When bonds were redeemed, general funds, from current taxes, would still be required, as now.

        SS is a PAYGO system, always has been, always will. No, the trust fund is not empty, and the bonds must legally be paid to beneficiaries upon redemption (or defaulted upon, with all consequences of a bond default). What makes it PAYGO is that benefits are first paid from current payroll taxes. Then, any deficits come from redemption of these trust fund bonds, and the funds for these redemptions are derived from current general taxes. Effectively, any surplus has been merely a means of subsidizing (progressive) general taxes with (regressive) payroll taxes. And the proportion of payroll taxes vs general taxes has dramatically increased since Ronnie (with a decline in corporate taxes, starting prior to Ronnie).

        To the extent that any Grand Bargain increases or extends a SS surplus represents a further weighting of payroll taxes on paying our general bills. It does nothing to improve solvency in a low worker:beneficiary scenario.

        1. Don Levit

          I am not suggesting a plan. That was suggested by PaulArt.
          The surplus should not be used to subsidize taxes; rather, it should be used strictly to pay Social Security beneficiaries, as it clearly has not been used for many years.
          The trust fund is empty from a cash flow standpoint, for cash does not flow out of the trust unless debt held by the public is increased. This is the same “cash flow” mechanism the government uses for any expenses that exceed revenues, whether in trust or not.
          Being in trust, the surpluses should have been treated more like in a fiduciary way, rather than an indirect way to fund general expenses. This is why FDR insisted on the Social Security program be self-suporting, with no use of general revenues.
          Don Levit

    2. PaulArt

      The long long discussion below proves my point as to why the accounts should be individualized. The crooked pols want people to keep having these endless debates about whether SS monies are here or there or nowhere ad nauseum. Make them individual and seal them hermetically in terms of a fixed rate of return. No options, period. Nobody will then complain about ‘Socialism’. At the most they will whine about ‘I can get 500% from my Wall Street buddy’. Well, there are not too many people like that around – at least not after what has happened to 401K accounts in the last 20 years. It’s an insane idea to try and manage a retirement nest egg. 401Ks remember were a self-serving Wall Street idea. Government pays x% interest and everyone has an individual account and every pay check they get, they can go look into that account and see the money added there. That’s the best model. Lets do charity with 90% marginal taxation.

  9. Samuel Conner

    Methinks consols is a highly attractive option, especially in the present circumstance of Fed ZIRP at the short end and significant influence on rates at the long end. Perhaps primary dealers could be induced to purchase consols at a reasonable price and immediately flip them at a small profit
    to the FED. Voila, effectively eternal monetization of public debt with minimal change in current law.

    Doubtless, this solution will enrage those who want to use the crisis to outlaw private banking, but I think it’s a sensible achievable approach to getting past the current impasse without a “Grand Betrayal”

    1. Samuel Conner

      IIRC, yields on TIPS are considerably lower than on regular long-term Treaury bonds. How about an inflation protected consol? The inflation protection is pointless since the instrument never matures. But in analogy to the price premium on TIPS, it would provide cover for issuance of non-maturing debt at zero percent interest.

      Sadly, the primary dealers would make a few basis points on the trade as they flipped them to the Fed, but that seems a small price to pay for avoiding the various disagreeable alternatives with which we are faced.

    2. F. Beard

      Oh yea, let’s have the monetary sovereign be PERMANENTLY indebted to the rentier class.

      Fiat should simply be spent into existence and some of it taxed out of existence again. THAT’S IT!!! PERIOD!

      If you want interest or profit then go earn it in the private sector!

      As for the old, the monetary sovereign should provide them with pensions should they need them.

      0% interest you say? Over normal household limits, the rich should PAY for risk-free storage of their fiat with perhaps a hoarding penalty added to boot.

      1. Samuel Conner

        Consols never mature, so the issuer never repays them.

        Zero coupon consols pay no interest, so the purchaser receives no income.

        Do you seriously think that zero coupon consols would permanently indebt the government to the rentier class?

        Then, the Central Bank monetizes them. They aren’t even owned by the rentier class (unless you consider the shareholders of the Central Bank, who will be receiving no income from these instruments, to be dangerous rentiers. But the profits of the Central Bank are repaid not to the shareholders, but to the Treasury!)

        This proposal simply instantiates your preferred mechanism of fiat creation using present laws and institutions. You ought to be able to discern that.

        Your objection is not coherent.

        1. LucyLulu

          Profits from the Fed are first used to pay a 6% dividend to shareholders. All profits above that amount are paid to Treasury.

          The Fed, or 12 regional Feds, are private banks. I don’t believe they could be forced to pay for worthless instruments, but I could be wrong. The bonds would have to pay some reasonable interest rate, even if never repaid, just as Beowulf suggested.

          And Beard, I’m coming from what is politically possible. I don’t object to your plan, only believe in the current environment, it won’t happen. Nor the platinum coin, or even using 14th Amendment privilege. We’re going to get stuck with a Grand Betrayal.

          I previously published a link reporting that prioritizing payments, given the IT structure and massive number of daily payments made by the government, is logistically impossible. If it were possible, and I was president, I could have some real fun with it……. who got paid and who didn’t. Congressional pay and programs for wealthy donors would be #1 on the list to be written off. It would be the last time there was a threat of default. (Guess that’s one reason (of many) I’m not president.)

          1. Samuel Conner

            Thanks, LucyLulu, for this correction.

            So 2% inflation-protected consols would result in annual 0.12% of cumulative public deficit in profit (or whatever portion thereof was absorbed onto the Fed balance sheet in this way) to the rentiers who are shareholders in the US Central Bank system. That doesn’t trouble me as an alternative to the Grand Betrayal.

        2. F. Beard

          Like I said, the rich should PAY for the risk-free storage of their fiat. Even 0% interest is too much; it should be negative!

          Plus, it’s the camel’s nose under the tent since it lends credence to the concept of the monetary sovereign borrowing.

  10. LillithMc

    Obama is not Superman. The House is the result of illegal gerrymanders. The rogue Supreme Court is a revolution against the Constitution. The US has never had an effective “progressive” party. Johnson helped the “welfare state”, but he knew he was in the White House for the neo-con Vietnam war.
    Making war every 20 years has been a mandate for the US since WWII when the weapons industry was major profit. Wall Street came next with the biggest sucking sound in US history. Instead we focus on the supposed powers of the patsy in the White House marking time until another Bush comes along to complete the empire and use those little slaves for their private prison/school/guns/drugs industries.

      1. LillithMc

        Remember Henry Kissinger who remains a criminal according to the European International court? Vietnam was as profitable to Dow Chemical and others as Iraq was to Halliburton and the Carlyle Group. The Bush family invested in the planes that Germany used to bomb London. War is money.

      2. Banger

        Actually the neocon agenda did exist long before the 90’s. It started with Henry Luce’s famous essay and book called *The American Century.* The PNAC writings were just a re-statement of the same basic idea: i.e., the USA should be the dominant power in the world because it is more moral, more just, and more creative than other societies.

        This notion was particularly important to the Dulles brothers who dominated U.S. foreign policy. There has always been internal opposition to the imperial ideal within the foreign policy establishment which kept Vietnam from expanding into a major league war. The “limited war” in Vietnam was a compromise between the two factions.

    1. PaulArt

      “..Obama is not Superman. The House is the result of illegal gerrymanders. ”

      That was a nice try and might pass on HP but not here. The illegal gerrymanders you speak of happened after the 2010 elections which Obama handed on a plate to the GOPers. He accomplished this via two methods.

      1.Dicking around with the ACA bill by handing it over to Max Baucus who pretended it was a Dinosaur Egg that needed hatching and hence sat on it everyday naked from waist down whilst meeting with big Pharma and big Insurance lobbies in secret.

      2.Maintaining a complete silence over the import of the census and 2010 elections and the possibility of gerrymandering.

      Please don’t tell me that people like our dear Barak and Rahm did not know the result of losing the 2010 elections. I would argue that they did know what was going to happen and they in fact welcomed it. Having a Democrat majority in all three branches was something that frightened them and so they spent all their time counting their future shekels from K-Street as they wined and dined all the way through the ACA and 2010 elections.

      If a Neocon or Neoliberal jumps out the window, follow him. He is onto something.

      1. LillithMc

        The Texas gerrymander was deemed racial and reversed by a court until the gang of 5 on the Supreme Court jumped in and said it is legal causing Holder to file the case again. GOP strategy is to do the dirty deed and let them sue hoping the case will go to a GOP packed court. So much for US democracy.

    1. craazyboy

      They are building a bigger liquidity vacuum cleaner. What God Giveth, God Must Be Able To Take Away.

      Plus this keeps them from losing there ass (and getting a unwanted super steep yield curve) selling long term treasuries and MBS into a spooked primary dealer market, whenever they deem comes the time to raise short rates. It’s like a supersized version of the Fed paying interest on reserves because they are making the deal open to more “non-bank” sources of cash whom may want a low risk place to park cash for a little bit of yield.

  11. Banger

    For some reason my comment got lost and didn’t register–whatever, just as well. My interest is in two things–the demonization of the Tea Party and just what the heck these Dems are up to in this crisis. First, the DP has used the right-to stampede the left to support Republican-style policies; OMG, they cry everyday, the barbarians are at the gates so you must make sure gramma eats a little less next year to appease them–maybe we can keep them from actually eating gramma.

    Ok, as for what the DP and Obama is up to is deeply confusing–and, as far as I can tell, it the answer is “nothing much but the same old-same old” which is just another way of saying corruption. The Dems want their finger on who gets what from the Treasury and what careers they have after they leave “public service.” As far as I can see there is no overriding idea or set of policies other than mainstream Republicanism and catering (mainly rhetorically) to various voting blocks–lots of talk no action.

    A few things about the media. If people want to be activists don’t fight the Tea Party, or the RP, or the War Party or the corporate oligarchs–it is the mainstream media including the progressive favorites, MSNBC and NPR that need to be lobbied and influenced–they are the ones that spread misinformation and misdirect the public and are, in many ways, the chief political actors on the national stage.

      1. LucyLulu

        Me too!

        Though, a year or so ago, Democrats were pretty much united behind not allowing any cuts to SS and Medicare. Since then they’ve backed off to “having to consider making difficult choices”. I see it as a combination of feeling obligated to support their Democratic president, pressure from corporate donors, and being too apathetic to fight for their beliefs.

        I do see some of these TP legislators as dangerous. I know some TP’ers and listen to their rhetoric. They don’t want to reform our government, they see it as an evil to be destroyed (unless it benefits them, but even then they are special and deserve what they get, unlike the majority of recipients who are freeloaders). It’s becoming the new norm to hold the debt ceiling hostage to getting their favored legislation passed…. and they’re ignorant enough to follow through. The only way to end this strategy is to refuse to negotiate, but Obama will back down and offer the Grand Bargain, ensuring the next debt ceiling we will see a repeat. Otherwise, we have a do nothing Congress that can’t/won’t pass legislation with broad bipartisan support and defers to special interests. It’s easy to see why we’re becoming a joke in other countries. Between this and Obama’s recent foreign policy missteps, we are losing respect and credibility.

        1. Banger

          Living in the South I feel a little more connected to the sentiment that is often expressed by the Tea Party types. First, it is a reaction against what we could call “modernism” and cultural relativity which is psychologically difficult for most people and for people that come from a non-liberal culture this is a very trying matter. Second, what is going on in the power centers particularly Washington is so deeply confusing (to anyone) that it is easy for them to get caught up into weird and highly irrational notions that will always seem saner than what is going on in the power-centers.

          My own sense is that there is a weird wisdom to some of their positions–yes, they do appear to want to destroy the Federal government and I can’t say they are far wrong. The left which traditionally favors a strong central government has not made a case that it truly benefits citizens. More and more of us see it as an enterprise whose main job is to keep the status-quo intact, i.e., the corporate oligarchy. The liberal establishment just has not shown us either a vision or a willingness to fight for that vision. Washington operatives are more interested in their own wealth and careers and I can say that from direct observation, particularly striking is the corruption in the Democratic Party which is increasingly attracting operators, hustlers, con men/women and so on just as the Republican Party attracted that type when Reagan came in so that by the 90s it began to dominate the RP.

          The Tea Party movement, in some ways, is a cry for “help” that the left is not hearing and instead is intent on making it into some deviant mass murdering-monster which it is not at least not at the grass-roots.

  12. Eureka Springs

    For dawg sakes, please shut it down. Let the baggers do what we the people, even in the so called center or left should be demanding with general strikes and such – Shut it down! Agree with the baggers on that shut down point, whilst making clear your reasons… Criminality, corruption, looting, abrogation of rule of law, bribe based elections, health care as a human right, jubilee and so on.

    Please, please, please defang Obamney not care, including, especially the mandate for citizens to buy private for profit insurance and outrageously priced drugs while leaving tens of millions without care at all…. even more millions mired in a lose lose scenario while trying to do what they’re told.

    Always point out neither Dems or Republicans would ever defund the mandated looting. And neither FOX nor MSNBC will ever frame it accordingly for the same reasons. Which is why both are blocked on my DVR forevermore. (A small easy act of delegitimization)

    While I find these posts informative I also find them to be an act of expectation – legitimizing an entirely corrupt criminal enterprise in need of a complete reboot. We must delegitimize first. The long running single digit ratings of the entire body of congress says there is no better time than the present.

    And I think the term b

  13. docg

    Logically it seems to me Obama’s best recourse would be to challenge the constitutionality of any attempt by congress to limit the federal debt whenever more debt is needed to avoid federal default.

    According to the 14 Amendment, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

    The problem is that his objection would probably not be upheld by our activist Supreme Court, controlled by conservative zealots. But he could at least try, no?

  14. anon y'mouse

    don’t let the coin idea die just because it is not well understood. think of it as the teaching moment it is.

    the main problem with the coin it that it is easy to trivialize (thanks, John Stewart) and its legitimacy is not apparent to the peasant class who has been totally brainwashed into the idea that “gov’t budgets are like household ones”.

    so, keep the dream alive and keep telling people about WHY IT WORKS. eventually, they’ll realize what the overlords don’t want them to know—that nearly all of the money in anyone’s pockets is the result of our gov’ts largess, and not some vaunted bootstrapping entrepreneurialism.

    1. Don Levit

      Could you explain how the coin is not additional government largess, but, instead, is entrepreneuralism?
      Don Levit

      1. F. Beard

        Can you explain why government-backed banks are not thieves of purchasing power that drive the population into onerous debt and why the government should not provide the fiat to payoff those debts as well as compensate non-debtors since they’ve been cheated too?

        Can you also explain why the government should pay usury to the rich for what it can produce interest-free? Given that sovereign-debt is a form of fiat itself wrt price inflation?

      2. Banger

        Look, everything is, in a sense, government largesse. It is the USG that sets up the structure we live under without which not much would happen–we’d have motorcycle gangs fighting latino gangs and the rest of us hole up in fortified towns. Money today is arbitrary enforced only by government fiat, ultimately. I think the trillion dollar coin is one of the most exciting prospect to fundamentally change our understanding of money and economics when applied to the current situation.

    2. Joe Firestone (LetsGetitDone)

      I offered this comment at NEP in reply to a comment by Paul, saying that he found the option idea one that would be more familiar to people than the platinum coin.

      Thanks Paul, I know a lot of people don’t go blank when someone mentions taking an “option” on something. But, I also think that the vast majority of people do. Off the top of my head I’d be surprised if more than 5% of the people know what an option is,or understand how you do one, or could understand how it is that the Treasury could get $2 Trillion from the Fed at the cost of a $1.00 option.

      Picture the President making an announcement explaining how he used an exploding option to defuse the debt ceiling crisis. Now picture him explaining that he defused it by using a law passed by a Republican Congress in 1996 allowing the Executive to mint a legal tender platinum coin of unlimited face value, and that he chose a coin of $60 Trillion to end all debt ceiling crises and to pay off the national debt, and then deposited that in the Treasury’s account at the Fed, which was then credited by the Fed. What would be the reaction?

      I think the first reaction would be well, I understand what you did, you created a coin and then deposited it at the bank which credited the Treasury’s account, but can you really do that? And the answer then would be: “It’s the law.”

      “Go read its plain language, there is no limit on the face values of platinum coins we can mint, so I decided to use this never before used legal power of the Treasury to end all this chaos and restore the normal functioning of Government.”

      Many people won’t like this and will be very loud in their opposition. But the ideas of 1) the Government creating a coin with a particular value, and then depositing it in its account; and 2) “It’s the law” are very simple ideas that people can easily understand.

      In contrast, the ideas behind the exploding option, consols, and the 14th amendment challenge are all more complex and harder to explain. Maybe not to financial types, economists, or businesspersons, but to the 95% of the population with little financial sophistication. What makes the idea of the platinum coin so “weird,” is not the basic notion itself, but just the extreme values of the coins that could be minted, coupled with the fact that the law authorizes minting them.

      So, in my view, confusion over the coin which would ensue if it were used, can be easily cleared up by constant reiteration that “it’s the law. If you don’t like it, then repeal it,” followed by quick use of the proceeds to pay down the debt subject to the limit as it falls due.

      In short, insisting “it’s the law,” and then coupling that with uses that the vast majority of the people will approve is all that is needed to legitimate the coin, and to dispel the view that it was “a trick.” On the other hand, the exploding option, the Fed canceling Treasury debt, and to a lesser degree issuing consols, all look to me like mere tricks.

      1. anon y'mouse

        narrowing things down to an “it’s the law” easily-digestible explanation is the flip-side of the coin I mentioned above.

        it does the public an incredible disservice to win them over with slogans rather than educate them. I know that you also do both, so can’t criticize on that end. but the tendency to win at any cost seems disturbing.

        granted, I guess time and short attention spans are a constant foe.

        1. Joe Firestone (LetsGetitDone)

          Well, I think it depends on whether the slogans are the truth, or not. It’s the law is true, unless and until the SC decides to intervene and offer one of its way out interpretations. So, I have no problem explaining the coin to people and reiterating, It’s the law until I’m blue in the face.

      2. Banger

        It strikes me as insane not to use the method you described. It is legal it would work and it would change the way we looked at money. The general public has no idea what modern money actually is and using this technique would invite them to find out. The problem is not with the policy but with the regressive and reactionary attitudes of the mainstream media who will treat the idea with panicked misinformation a la one the more annoying pro-establishment hacks around–Jon Stewart.

      3. psychohistorian

        The reason I warm to the coin idea is because it is a sovereign act of government, not funds from private individuals. ….it would break that strangle hold.

        For that very reason, anyone attempting it would immediately become the focus of plutocratic assassination like Lincoln and JFK.

      4. Samuel Conner

        According to current law, consols don’t count against the debt limit, so they are as much, “it’s the law” as is PCS.

        1. Joe Firestone (LetsGetitDone)

          I agree, but consols are a trick, because they involve borrowing money in such a way that it doesn’t count against the debt ceiling.

          The coin doesn’t involve a contract borrowing someone else’s money, so doing that won’t be borrowing money in the eyes of the public, and will be less objectionable politically among most people, though not the FIRE sector of course, both in the short and long runs.

    3. ian

      You’ve got to be kidding. The trillion dollar coin legitimate?
      Pick someone completely representative of middle America – say a midwestern small business owner (eg a tire shop owner in rural Indiana) – how would you explain this to him? “The government needs more money so they’re going to mint a trillion dollar coin out of platinum”?
      It is something so stupid only academics, bloggers or pundits could possibly believe in it.
      It’s asinine – there is no other word for it.

      1. Lambert Strether Post author

        A fool throws a stone into the sea, and a thousand wise men cannot find it. Truer words….

        What you’re really saying is that there’s nobody, nobody at all, who can explain the truth of fiat money to the public. Balderdash.

      2. Joe Firestone (LetsGetitDone)

        I think you miss the point. He’s not going to ask permission. he’d just do it say with a $60 T coin and force the Fed to accept it as an asset. Then he has $60 T in the TGA. Then he reduces the debt subject to the limit by roughly 6.8 T in the first week using the reserves at the Fed. So, what’s illegitimate, the reserves? Everybody uses reserves all the time. They’re good US money. The public never even sees the coin. It stays in the Fed vault. All it is is an order to the Fed to credit the Treasury for $60 T. is this legitimate? Well, it’s the law. If you don’t like it, then repeal it. After all you can elect a Congress that will do that. Can’t you?

  15. Adam S

    I do have a couple of questions about the platinum coin idea. But it’ll take a second to explain.

    So, let’s take the scenario where the platinum coin is minted. It’s deposited in the treasury, and suddenly the government gets an influx of money on its balance sheet such that it can start reducing its debt.

    So the treasury goes out and starts buying back debt, which is largely held by private parties. Those parties no longer have a secure debt instrument in which to stash their money. Private parties suddenly have a huge surplus of money sitting around that they don’t know what to do with. They certainly aren’t going to give it away.

    What do they do?

    Do they…

    1. Buy capital assets like crazy. Wouldn’t this fuel an asset inflation boom like no one had seen before?

    2. Buy securities. Wouldn’t this fuel a risk bubble that would cause security prices (and the stock market) to climb exponentially?

    3. Offshore funds. Wouldn’t companies be encouraged to move money offshore to cheap investments to have buying wars over cheap assets?

    I could probably think up a host of other things that companies would pour cash into. My point is that we already seem to be at a place where liquid money has no where to go for safe investments. At this point, the risk of the casino of wall street seems like a good idea, because its the safest option available.

    What happens when the casino dries up?

    1. F. Beard

      My point is that we already seem to be at a place where liquid money has no where to go for safe investments. Adam S

      Risk-free investments should return 0% at most else someone is being looted. But if you say the real return might be less than zero then I say:

      1) If the poor are not protected from price inflation then neither should the rich be protected.

      2) The so-called private banks are the source of most price inflation since they create most of the purchasing power.

      1. Adam S

        Look, I’m not saying that anyone deserves special protection. I’m just saying that the monied interests have tended to act towards maintaining/increasing purchasing parity while seeking the lowest risk available.

        Right now the lowest risk (and return) available is government debt. Get rid of that by having the government unload debt, and the only thing left is higher risk investments. And unfortunately, it seems that everyone gets hauled in to the same risk pool when a private party pursues a high-risk vehicle because of how the government has been securing private assets.

    2. craazyboy

      I think they may buy a lotta platinum.

      And the BRICs will make their own money. Oil will be priced in gold. Europe will make a E60T coin, 30% better than ours. Britain takes the Star Trek route and declares there is no money – everything is free!

    3. LucyLulu

      Why would the government be required to buy back debt?

      They might, for example, choose to buy back foreign debt but not debt owned by private citizens. And use the money to redeem intragovernmental trust bonds as they come due. They might even continue to offer (higher) interest-bearing bonds to keep funds in the US and/or for retirees who had saved money (and alleviate pressure on retirees who rely on low-risk fixed income securities….. I like this idea!).

      1. Adam S

        Well, I suppose they wouldn’t be required to buy back debt. But considering how political the debt has been in the recent past, if the administration was to mint the coin, despite all the challenges that the opposition party is going to throw at them, I don’t see how the treasury could keep the debt and deficit hawks away.

        1. LucyLulu

          I don’t understand why politicians would have a problem with a few trillion in debt if the government had $60T in assets.

          But then, I don’t understand a lot of the other logic used in DC. Like why Ted Cruz is trying to ramp support to filibuster the House bill to defund Obamacare when brought to the Senate floor.

          “Until now, McConnell has been largely quiet as Cruz has been ramping up his calls on Senate Republicans to filibuster the funding bill when it comes up for a vote this week. The measure, passed by the House Thursday, would do two things: fund the government past Oct. 1 and defund President Obama’s health care law. Since Democrats control the Senate, and since they’ve already vowed to strip out the Obamacare provision and only hold a clean vote on funding the government, Cruz is urging Republicans to vote against bringing up the bill at all — and be willing to risk a government shutdown. On top of that, Cruz has argued that anyone who even votes to bring up the bill is, in effect, voting for Obamacare.”

          Talk about squirrely object. So, IOW, rather than risk the outcome of a vote on defunding of Obamacare (which is primarily mandatory spending so can’t be cut, and Obama could pull the rest in from other sources, so in essence, can’t be defunded……. part of the con of the populace), he’d prefer to shut down the government. Can we make sure the Capitol and Rayburn Bldg’s janitorial staff are furloughed and there’s no toilet paper in the bathrooms. Also furlough Capitol security and then start a rumor there was a person with an AK-47 seen running in the building and mumbling “praise be to Allah”. THEN we can hold a vote on background checks, assault weapons, and high capacity magazines!

    4. steelhead23

      Adam – You are jumping to conclusion. Let us imagine the U.S. Treasury mints a trillion dollar coin and gives it to the Fed in exchange for FRNs – or their bookkeeping equivalent. Why would Treasury instantly redeem outstanding debt? Rather, Treasury would then have a very strong balance sheet, making it more credit worthy. So, the gov. could continue along, issuing debt when prudent – and paying as it goes when that made sense. In fact, paying down the debt dramatically would be a very bad idea. It could unhinge the fixed-income/bond market – and of course, as you suggest, liquefying a trillion dollars of debt overnight would be inflationary.

    5. Joe Firestone (LetsGetitDone)

      This is addressed here:

      Summarizing some salient points. The first debt paid off is the intragovernmental debt and the Fed debt about $6.8 T. This involves no additional input of reserves into the economy. The $10 T or so gets paid off only when it falls due, gradually over time, so there’s no all at one time influx of reserves into the economy. In addition, there’s no evidence in the literature that reserves are more inflationary than bonds, because even though bonds are not quite as liquid as reserves, they very liquid compared to other assets, and they can be leveraged in loan deals more than once as collateral. MMT economists actually think that getting rid of the debt in the economy and replacing it with reserves may actually be deflationary, because Treasury interest payments will decrease and eventually disappear over time.

  16. Fiver

    Nowhere in the piece, or in comments, do I see any thought given to how the rest of global financial markets react to these various schemes. I would suggest the answer is “Not good. Not good at all.”

    The only reason the US dollar is not already dead is the US/Saudi pact to price oil in dollars (later to be extended to other commodities). For the US Fed or Treasury or both to wave a wand or mint a Fabulous Coin claiming that coin represented some huge sum of dollars would virtually guarantee a major collision with the BRICS and others, conceivably including Japan and Germany. While the US had a million times the power required to destroy or effectively neuter those very weak Arab/Muslim countries (particularly Iraq, Libya, Syria and Iran) that sought to sell their oil and other commodities in non-dollars, the US in no way has the power to enforce trade in dollars against the will of most of the world’s power centres. But not only does the US have access to the enormous amounts of producing-country oil money parked in its banks and markets, but since every country without oil has also had to amass huge reserves of dollars to pay for oil et al, any move away from the US petrodollar would instantly eviscerate the US economy’s key advantages. Nor would it matter how the US move to simply erase its debt, or create money to finance a full recovery was dressed up, no matter how proof from error the scheme appeared on paper, in the real world investors, creditors and nations will balk when they’re told their dollar reserves may entitle them to a Coin, or a Doiley maybe.

    No matter how often we are told that markets are now global and integrated in highly complex ways, discussions of US domestic policy options invariably ignore the simple facts that the US represents only 5% of global population, and now only 25% (at best) of the global economy. But for serial demonstrations of maniacal US military power, this move would’ve long since already taken place – however, as we’ve seen again, and again, and again, the US military has the power only to dumbly destroy, while mixed-market economies require cooperation, good-faith negotiations, compromise, and above all a desire for peaceful co-existence, i.e., what the rest of the world desires.

    Even if the policy is well-intended, it must nonetheless be seen to be good from a global perspective, not just what’s best for the US Empire – the unstated presumption underlying virtually all discussions of policy within the US and client elites.

    1. Banger

      You certainly put your finger on a problem that was not considered and should be. But I don’t think there would be a serious global problem. The fact is that the globalized world has pretty much settled on the U.S. dollar as the permanent world currency–it makes matters simple and, in exchange, the U.S. has agreed, with the tacit approval of most major countries, to be the imperial sheriff of the world. No one, in my view, will attack or undermine dollar hegemony and risk global insecurity. The current system is working very well for the global elite–should the U.S. use one of tactics outlined above you can be assured that “the world” will go along with it with various side-deals of course.

      1. LucyLulu

        “The fact is that the globalized world has pretty much settled on the U.S. dollar as the permanent world currency–it makes matters simple and, in exchange, the U.S. has agreed, with the tacit approval of most major countries, to be the imperial sheriff of the world.”

        I wouldn’t bet too much money on the “permanent” part of that statement. For the time being, there is no good candidate for an alternative reserve currency, but other nations are becoming increasingly disgruntled over the US’s control. Some of the Asian countries, particularly China and Russia are trading in their own currencies, and I read editorial type pieces advocating for a move off of the US reserve status, or talking about using a basket of currencies.

        Every so often I sit down and spend a morning reading international papers. I see more talk about moving away for the dollar reserve than I used to. Our popularity in general, after seeing a dramatic boost when Obama was first elected (they bought into the hope and change too), has been on a downward spiral. Another three years of Obama and Kerry, and they may have had quite enough of the US and its shoot ’em and loot ’em empire.

      2. participant-observer-observed

        USD is agreed as a default for int’l casino economics, but not domestically abroad!

        My bank in Kathmandu will pay you 1.25% for your USD savings, and will pay 3-5% for your Nepali Rupee savings (or up to 7% if you want a fixed deposit account).

        THAT is how much the USD is valued domestically!

        1. jb

          You don’t understand, the reason you get the higher rate on rupee deposits is because the rupee has been getting clobbered over the past several months because speculative capital has fled India.

    2. Joe Firestone (LetsGetitDone)

      Please try to keep in mind that the coin doesn’t go anywhere and the reserves produced by the coin don’t go into the economy except in the normal course of events as debt payoff and deficit spending appropriations of Congress. Why anyone should get excited and upset at debt payoff from the financial soundness point of view is beyond me. And why they should get upset as deficit spending that finally brings full employment and a US economy that’s roaring is also beyond me. Since such an economy here will life the rest of the world out of its depression. The BRICS won’t be complaining because their exports will be booming.

  17. steelhead23

    Option 6. Mr. Obama could fly around the capitol and zap feisty Republicans with his ray-gun.

    My thought is that Mr. Obama does not really wish to defuse this crisis – it is useful to him and other neo-liberal thinkers. The goal is the grand bargain – including a diminishing of the social safety net, a debilitating reduction in federal spending, etc. Obama WANTS to do these things, but he does not wish to APPEAR to want them. The debt-ceiling crisis is his vehicle to accomplish this. I expect that he will take none of your proffered remedies and will instead, at the 11th hour, offer up, entirely against his will (wink, wink) the grand bargain – and those besotted tea-bots will graciously (or not so graciously) accept.

    And I think you think so too, so I don’t quite understand your purpose in writing this essay – to gather an army of dissent to argue with the media – the “he said”, “she said” valueless media of the day? You’re kidding, right?

  18. mpinco

    The Establishments worst enemy:

    Blue collar people like Victor Head of Pueblo, Colorado. A predominantly Democrat city/county.

  19. Tim

    The reason the platinum coin is not an option is because “Full FAITH and credit of the United States” is the most importance sentence within the federal government.
    Quantitative Easing is not money printing unless they cancel the debt held at the fed.

    If people loose FAITH in the fortitude of the united states government to pay back it’s debts owed the interest rate goes from single digits to double digits in a hurry and at 1 Trillion a year with a maturity less than 5 years things could snowball real fast.

    Just because something is possible doesn’t mean it’s going to work okay.

    I realize the government is capable of creating money out of thin air and extinguishing it later for the benefit of our country, but that is so risky from a bondholder faith perspective, and with ~100% debt to GDP I don’t want our government to be doing anything to shock us closer to that “bondholder loss of faith” event horizon.

    1. F. Beard

      Borrowing by the monetary sovereign is a GIFT to the banks and the rich of unnecessary interest even at 0% since the risk-free storage of fiat should cost something beyond normal household limits.

      “The US government issues its own currency and, in intrinsic terms, never needs to fund its own spending in US dollars. The issuing of public debt is an entirely voluntary act by the US government and provides the bond markets with “corporate welfare”. Just imagine what the uproar would be from the bond markets and investment banks if the US government announced it was cutting off this source of corporate welfare.

      It happened in 2001 in Australia when the Australian government had virtually caused the official bond markets to dry up when it used the surpluses it was running to run down outstanding debt. The Sydney Futures Exchange led the charge and demanded that the Government continue issuing debt, which gave the game way – if debt-issuance was to fund net government spending
      (deficits) then why would they be issuing debt when they were running surpluses?

      Answer: it was patently obvious that the outstanding debt was private wealth and its risk-free nature allowed the private investment institutions to price other risky assets and maintain a safe haven when uncertainty rose (by holding bonds).” from http://bilbo.economicoutlook.n… [emphasis added]

    2. psychohistorian

      You must be a holder of bonds. It must be nice to have money like that .

      I would rather have faith in a sovereign government than the plutocrats who could give a fig about the rest of us.

      The plutocrats have abused their power and the holders of bonds are attempting to ride on their coattails…and I hope you lose everything you invest in the plutocrats war against the rest of us, sorry but many of us are real humans with intrinsic value and not value associated with fraud, corruption and an entitlement class system of power and control.

      1. participant-observer-observed

        ” I hope you lose everything you invest in the plutocrats war against the rest of us, sorry but many of us are real humans with intrinsic value and not value associated with fraud, corruption and an entitlement class system of power and control.”

        Wishing harm on others will not help anything.

        Citizen’s United has already established the value associated with fraud and corruption and the rest.

    3. Joe Firestone (LetsGetitDone)

      Who cares about bondholder faith if the Government is issuing no more bonds.But also, why should gradual payoff of all securities shake the faith of people in the ability of the US to repay its debts. The very thought is ridiculous, and shows that you don’t understand the full implications of the $60 T coin idea. Read my book.

  20. bluntobj


    Here there is “kabuki theatre.” The solutions posed are within the framework of “kabuki theatre.” The solutions are “kabuki theatre.”

    It’s all in the same stadium, with the same players, same teams, colors, etc., and the owners are still in the owners box counting gate receipts and sipping Dom together.

    In short, all options here result in:

    Higher commodity prices
    Higher volatility in all prices
    Asset inflation
    Increasing authoritarian control over behavior.

    So my question is why are you still in the damn stadium? Attempting to change the game rules still leaves you in the stadium, with the same teams and fans and owners.

    You have the option to leave the stadium, or attempt to riot. The first one is in the spirit of MLK and Ayn Rand, and the second will get you droned or swatted, which is why no one will speak or write of such options, especially in this day of TIA.

    You are still free to think it, for now. If you sneer at that, you aren’t paying attention to anything:

    I truly suggest that those that are still trying to change the game in the stadium consider opting out; it takes courage to actually do something instead of talk about it.

    1. Joe Firestone (LetsGetitDone)

      “Higher commodity prices Higher volatility in all prices Asset inflation Increasing authoritarian control over behavior.”

      I’d be interested to know what causal mechanisms you think will produce these effects; because all I see here is a BS statement having no basis in any theory you’ve stated or any facts on the ground.

      As far as opting out is concerned; where do you want me to go? Mars? Where am I going to opt out to?

      1. bluntobj


        Thanks for the flame! Let me just courteously say that your favored option #3 is simply creation of money, and that is exactly what has been occuring with ever greater amplitude over the last several decades.

        All the options you mention, and especially the one you favor, are simply proposing to do more of the same economic activities in greater amounts.

        And yes, indeed, we see higher commodity prices, more volatility in those prices, more asset bubbles that are growing closer in frequency and amplitude, and the associated fear of unrest in the minds of those charged with governance, who are indeed clamping down with authoritatian tactics that would have had leftists screaming for their heads two decades ago.

        Finally, your stipulation in regards to one of the teams in the stadium is carried through quite well into the last sentence, where you basically absolve your team of any fault due to the play of their opponents.

        This merely reinforces my theme: you are just another fan, dressed in your team colors, screaming for the blood of the other team, and you cannot even be bothered to look and see that the stadium you are in is a completely artifical construct. The rules you propose to change with your options will always advantage the team owners, and you will never be aware of this fact, no matter that you rationalize it away.

        As for opting out, please don’t pre-emptively eliminate the concept with proposing an absurdity.

        Opting out means stop doing the shit that benefits the owners of the stadium. That means a lifestyle change which you are going to reject out of hand as whacko or insane.

        Typically this is a debt free, cash basis, job downsized, tax minimized, non-idustrialized food, media minimized, civilly disobedient lifestyle that will cause all your relations and friends on the upscale lifestyle track you’re on to think you’ve gone insane.

        And yet if you do so you will be happier, more free, and will have a greater net worth, community connections, and resliliency than they will.

        So enjoy your season tickets to the kabuki theatre.

  21. Paul Tioxon

    Shutting down the government, in the full sense being discussed would be the equivalent of a general strike by labor, whereby nothing would get done, unless there was some set of managers to operate what little could carry on minus the workers to run things. This does happen in an attenuated scale, e.g. in retail stores where so many cashiers and store clerks call out sick, and managers are on the register.

    But this in not what will happen. If it was the case, then the government shutting down would also mean the entire North American Aerospace Defense Command, NORAD, would cease operations, leaving the continental US open to air attacks, aka missiles from N Korea. But, this will not happen because military personnel are under orders to work, and to be paid later when funding is released by Congress.

    What Congress controls in this political exercise is funding. Congress can stop the flow of money from being disbursed for any and all purposes due to its statutory budget powers and authority. It can not stop civilian or military from working without pay. So, does the government really face a shutdown, a halt to work from being done? No, the personnel in Afghanistan will not put their guns down and be overrun by the enemy. They will fight back, even though they don’t get their direct deposit. Similarly, the rest of the government could show up for work and do as much as they can that does not require the disbursement of funds, since there aren’t any. But, they can do their jobs as far as the resources immediately available to them allow.

    Here is an option for the president. Order everyone to keep working, without pay but do so because he wants the people to know that it is people that do work, not money. Money doesn’t stop the government, people do, republican people. And people and the resources of the federal government are all that constrains the ability to complete most tasks. He can ask suppliers to extend credit terms for resupplying. He can talk about all the money in the world appeared for bailouts, without talk of shutting anything down, but now, money is nowhere to be found, despite the ability of people to show up for work without pay. Like the people at the Washing DC Navy Yard will do, even in the aftermath of a massacre. Most of them will no doubt be ordered to appear for work, civilian and military uniform personnel alike. Let the Tea Party explain how freedom winning soldiers fight like slaves for no pay and get shot at, while they shut down the government.

    1. Joe Firestone (LetsGetitDone)

      Sorry, Paul, but I call BS. I wouldn’t keep working for the Government if they refused to pay when the President could could use Platinum coins or consols to get the reserves to pay me, but is too stupid or too stubborn or too intent on screwing the weak and the old to do that. Why would I? Why should anybody else?

      1. Paul Tioxon

        Shoulda woulda coulda, if you worked for the Federal Government, you wouldn’t be Joe Firestone. You seem to call BS on yourself with an impeachment threat that will engulf the entire remaining time Obama has left. If Congressman Issa can travel to Benghazi to find the proof that Hillary and Obama personally murdered our State Department people, instead of Vince Foster, obviously, every hired Economic Hit Man from the right wing institutes and lawyers from the Federal Society will train their sights on impeaching and trying Obama for Grand Theft Counterfeiting and run that show over and over til over half the country believes he is a Secret Kenyan Organized Crime Forgery syndicate. I try not understand why your reasonable argument will be countered with lies, hysterical claims of counterfeiting and general unreasoned attacks. But by admitting to the impeachment threat, you acknowledge the political push back to delegitimize your solutions would come pouring forth.

        We seem to agree on the unhinged element of the right has no basis for a claim to legitimate political policy making. But resting on hope beyond hope that truth and law will prevail in the face of a stacked Supreme Court, and rabid pit bull cadre of political hatchet men will somehow lose out to the platinum coin, consols or some other legit and legal means to resolve this issue, is no more unrealistic than my Frank Capra Hollywood fantasy of people working for the government, like many already have in the military and other departments, until they get their back pay paid to them. People already have worked for the government with paid delayed, not for no pay at all. Please read my link. They have to go to work and wait to get paid. The money is budgeted but not released to pay them. But the cash flow interruption can cause damage with mortgages going 90 day late and into the foreclosure process etc.

        I believe that your argument that consols or legal machinations are not weird is correct. It is made weird by the Hatchet Men and attack media. People know that Wall St billionaires make money out of thin air, they also know that lawyers spin gold out of crap with legal technicalities. There is a resignation that the rich and powerful do as they please and their wizardry is pure lies. But somewhere in there, legal tricks and financial tricks are the way things actually work. Not because of the laws of nature and god but because of the laws of men.

        1. Paul Tioxon

          Take a look at this. Border Patrol will go to work, without pay. You know, they are a very big agency since they beefed up the Mexican border due to illegal anchor baby hysteria. Not to mention all of the other Homeland Security hysteria at other checkpoints. Last time around, 1995, retroactive pay, this time around, who knows? Maybe it times for a general strike by the government workers who are sequestered into furloughs and now face the prospect of work without payday. How about no work at all until the Congress kills the budget ceiling voting provisions of Congress while we’re at it?

  22. Narukami

    As one who holds a PhD, you should realize that what is going on in Washington bare absolutely no resemblance to the Japanese theatrical art form known as Kabuki.

    What is going on in Washington is certainly Roman Farce that may become a Greek Tragedy, but Kabuki it is not.

    Kabuki, through its dramatic conventions, tries to illuminate the human condition. The players in Washington seem to care not a wit for either the human condition in general or even humans in particular.

    Kabuki is a wonderful art form. Washington Politics, as they are currently practiced, are but a sad commentary of how low man will sink in order to satisfy their greed.

    1. Lambert Strether Post author

      Kabuki, as words will do, has mutated in the american political context to mean something like a scripted drama with a preordained outcome.

      The more au courant use the word kayfabe, which has some advantages over kabuki, one of which you point out.

  23. different clue

    The Grand Catfood Bargain is why I voted for Romney in 2012. I figured that since Obama wants to be the historic Democrat who pulls a Nixon-goes-to-China against Social Security, and since the Wall Street Democrats (especially like Durbin in the Senate) want Social Security attrited and degraded only if a Democratic President can get the credit for “hard choices”; that the Democrats (even the Wall Street Democrats) would vote against the Catfood Plan if Romney were President so as to deny a Republican President that victory.

    And that’s why I voted for Romney. To keep my SS semi-safe from the Simpson-Bowles Catfood Obamacrats.

  24. mike

    George W. Bush and his Neo-Con puppeteers had the right idea to fix this country: War + Tax Cuts for the Wealthy.

    It worked once and it can work again. If only that spineless, elitist, power-mad, racist, Kenyan, secret Muslim, Secret Commmunist, tree-hugging, lesbian President of ours has the guts to the do the right thing.

    Q: Has anybody ever seen John McCain’s Birth Certificate from the country of Panama? I’d really like to check that out.

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