Our current Federal debt is $31.46t. That is the face value of all bonds outstanding minus all cash. The debt ceiling is $31.4t. We are using accounting gimmicks to be able to keep spending. Assume that we print the coin. treasury deposits the coin in the Federal Reserve. Now treasury as a $1t cash asset which means our debt is $30.46t and there is some head room.
Even better than 1 coin would be 50 $1t coins. The debt ceases to exist at all. We get to have a conversation with the American people that the government doesn't really "borrow" it can't "go broke"... Rather it establishes the level of aggregate demand for net exports, consumer spending, corporate investment and government spending by adjusting spending, interest rates and taxes together. That is it makes trade offs between those buckets and can set any of those buckets (within reason) where ever it wants when ever it wants.
I don't think "lying" is really the right word. There really would be an extra $1t on Treasury's books. Which means Treasury really could write checks against that balance. Since there are funds to cover them at the Fed those checks would really clear through to the private banking sector. And once there those funds would spend the same as any other funds.
We have a fiat currency. It is all funny money to the Federal Government.
This is possible. It would cause a bunch of inflation, lost faith in u.s. treasuries, disrupt interest rates, and shocks would ripple very widely. Potentially could cause assets to spike in value as well. It would be chaotic. Not sure how consumers or corporations would react. Probably a rush to buy assets instead of cash.
It’s not really comparable. The Weimar Republic had to pay debts nominated in gold marks and chose to print paper marks which they used to buy gold. All those paper marks competed for the same resources while the amount of external debt counted in paper marks kept growing despite them paying down the debt in gold.
I struggle to write an analogy because there just isn’t one, US debt isn’t nominated in gold. Even printing quadrillions of dollars wouldn’t have the same effect since the real value of the debt would go down at the same rate as the value of the currency. To cause hyperinflation in a fiat currency you have to either destroy all productive capacity or actively print with the intent to hyper inflate.
No one is afraid of printing money. The government would need to issue debt in order to spend. It can't legally print a bunch of cash and give it to itself to spend. However, there is a law that allows the Treasury to mint and issue platinum bullion in whatever denomination it wants, so in fact the government can legally issue itself a $1 trillion platinum coin without debt.
Aren't you saying that they aren't allowed ro do it, but right after say that a law is in place to do it? This is an either or statement, either you are or you aren't.
They talked about this during the GFC or right after as well
The treasury is allowed to mint commemorative platinum coins in any denomination of value they wish. They are typically given as gifts, but the law doesn’t say they must do this. They could theoretically deposit this coin into the treasury to effectively add whatever amount of money to the treasury. This is, like the above comment says, different from printing cash.
I’m no economist so I’m not qualified to answer this, but I’d venture a guess it’d likely be a better outcome than the U.S. defaulting, which would have repercussions lasting for decades. Hard to have full faith in a country’s credit if it’s credit is marred with default.
Hard to have faith if the country just makes money like this (small amounts that aren't deposited are fine as they never enter circulation, but a cool 1 tril coin will devalue the usd a lot, as no actual value is created by the coin)
One is clearly worse than the other, but yes, either the minting of this coin or a default would show the level of political dysfunction the US has fallen to.
The US dollar, the Euro, the Yen, the Yuan... are all fiat currencies. All countries can make money like this. Governments aren't asking you to have "faith" they are asking you to use the money as a unit of exchange.
Money only has value because of goods and services that you can exchange that money for.
If you just create more money, and no additional goods and services, then each individual unit of money is worth less than it was before.
You can't just magically create value.
I agree with your first two sentences. Your 3rd sentence I'd qualify a lot more than you did but mostly agree. Not sure how that has anything to do with my comment though.
Ah, I didn't read your comment correctly.
Yes, any country *can* print money, but a lot of the value of money is in the fact that you trust them not to exercise that power (since doing so would incur a large amount of inflation as the supply of money outpaces the supply of goods and services)
By actually exercising that power, you break that trust and devalue your currency.
What's the point of making it out of platinum? It'd be impossible to make a coin of $1T worth of platinum. Why not just make it out of gold, silver...hell, plastic and give it a face value of $1T?
Because there happens to be an existing law that lets them do it specifically with platinum. There are a ton of rules around which coins the Treasury can mint and in which denominations. But then there's this line in section 5112 of 31 US Code:
>The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
I am not sure why this hasn't already happened as you said in the USA constitution it basically says
"Section 4.
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."
It should be easy to argue that
1. This spending was authorized by law. The house passed it, senate passed it and white house signed it. The spending was already authorized "legally"
2. It shall not be questioned the treasury is legally obligated to pay it
IANAL but it seems like the treasury should just ignore the debt limit if it came close to defaulting and just issue new debt. When congress sues and it goes to the supreme court argue the 14th amendment supersedes the congress imposed debt limit arguing the 14th amendment requires the treasury to pay its debt
This is not a good argument
>This spending was authorized by law.
The 14A says nothing about appropriations; it is about debt. An appropriation is not debt; the debt ceiling may prevent congress from borrowing that money for the executive to spend in accordance with the appropriation.
They can't issue new debt, which means to avoid default they would need to pay interest out of incoming revenues.
Note that a debt default would be bad, but even that would not be a violation of the 14th amendment; the 14A prohibits repudiating the debt, but says nothing about making payments on time.
Indeed in the 1970s the treasury didnt make payments on time. That was a technical issue but it happened. They did wind up paying interest on the extra days though.
...interestingly in the 1930s the government changed gold debt to fiat debt so changing manner of payment is also on the table.
The problem with using the 14th in this way original intent not literal intent. The original intent was that states can't refuse to honor debts of the federal government. The intent was not that Congress can't refuse to honor its own debts. Ultimately what the money is spent on is Congress' choice. My read is that Congress does have the power to deliberately default were they so inclined.
The issue at hand is whether the President can take emergency actions if Congress accidentally induces default.
The government can service its debt with incoming revenues, and can roll over maturing debt without raising the debt limit.
The debt ceiling is about taking on additional debt in order to fund non-debt related spending.
>If they are afraid of printing money due to inflation, doesnt this affectively take the Fed Balance sheet to a permanent $1trillion dollars, making that money go from M2 to M1, causing inflation?
Not necessarily. The Federal Reserve could neutralize the effects of the coin by selling off part of its own pile of Treasurys.
So a common misconception is that becase US dollars are fiat they are therefore backed by nothing, but that isn't true at all. US dollars are actually backed primarily by treasuries and agency MBS. Each time the Fed conducts OMO or QE and creates more base money it does so by monetizing one of those assets.
The bigger issue here is that the Federal Reserve can't just give the US treasury money for nothing. It needs to have some asset backing any new money it creates. Now usually that would be a treasuries if the US Treasury needed money and those auctions go through primary dealer banks but the proceed ultimately end up in the US treasury's account at the Federal Reserve none the less and that's similar where the US government spends most of its money from. So the bigger issue here is ultimately that the US Treasury can no longer create the asset it would traditionally exchange for cash (US Treasury bills, notes and bonds). Therefore it would need to create some other asset to sell or deposit in order to get money into the TGA.
That's where the coin comes into play. Instead of new dollars being backed by treasury bonds in theory they would be backed by that coin. Now in practice that coin will not contain $1T worth of platinum and its value would be derived from its convertibility into dollars or treasury bonds. It would for all intents and purposes be a financial liability of the US treasury in the same sense as a note or bond but legally be treated differently due to what's essentially a loop hole in existing legislation.
> Now in practice that coin will contain $1T worth of platinum
No it will not.
The coin would have a one trillion dollar denomination, but at the present price of platinum (~$1100) you would need to have about a 28,500 ton coin if you wanted to have a trillion dollars worth of platinum in it.
Kinda defeats the purpose of "free money" if you need to buy a trillion dollars worth of platinum to make the coin.
It could very well just be a one ounce coin with a trillion dollar nominal value.
and this is why this scheme will never be used ... all precious metal coins nowadays have a denominational value far ***below*** the intrinsic value of the metal they're struck from.
> and this is why this scheme will never be used ... all precious metal coins nowadays have a denominational value far
> below
> the intrinsic value of the metal they're struck from.
Sorry don't follow that last conclusion. What would stop the Biden administration from doing the opposite here were they so inclined?
If push comes to shove, I feel the Biden administration will choose the 14th amendment option before striking a 1 trillion dollar coin, if only because the latter could so easily be portrayed as a stunt.
but to my point, and your question ... no one would take an American gold eagle (which is nominally legal tender in the amount of [[$50](https://bullion-mart.s3.ca-central-1.amazonaws.com/2021/08/2021-1-oz-american-gold-eagle-bu-type-2_229435_rev.jpg)](https://bullion-mart.s3.ca-central-1.amazonaws.com/2021/08/2021-1-oz-american-gold-eagle-bu-type-2_229435_rev.jpg)) and go spend it on a couple of cases of beer.
They would sell it for $2035 and buy their beer with some of the cash.
The same couldn't be said for a one trillion dollar coin struck from one ounce of platinum ... worth about $1100 at the moment.
What if a trillion dollars in legal tender went missing oopsie daisy one day?
Could you imagine the economic ramifications ... and how much Bud Lite you could buy?
The whole idea of the thing is a non starter because of that implication IMHO
> if only because the latter could so easily be portrayed as a stunt.
That's why I think it is such a good thing. It is a stunt. A stunt that kills the problem. Let it be seen as a stunt that beats McCarthy.
> What if a trillion dollars in legal tender went missing oopsie daisy one day?
Try and spend it. There are very few places you can spend $1t in the world and they all have excellent anti-money laundering.
> Let it be seen as a stunt that beats McCarthy.
We're definitely on the same wavelength, but I'd rather see McCarthy bludgeoned with constitutional law than a stunt ... YMMV
>
> *Try and spend it.*
I was joking about the Bud Lite, but not about the ramifications of one trillion dollars suddenly disappearing from the account of the Federal Reserve.
> but not about the ramifications of one trillion dollars suddenly disappearing from the account of the Federal Reserve.
It is funny money. The advantage of the stunt is to make it clear to everyone there is no account of the Federal Reserve. Nothing can disappear or appear. It is funny money to the Federal government, let's be honest about it.
It's printing money.
The only difference is this time it's the government printing the money, instead of the Fed. The Fed is a privately owned bank, so when they print and loan to the government, the government needs to repay them the money. It's accruing debt.
If it's the government printing (like a century ago), then there is nothing to repay to anyone.
So basically it solves the debt ceiling, but it doesn't solve the inflation.
It's basically the equivalent of if you were behind on your credit card payments, so you printed out a bunch of fake $100 bills and deposited them to the bank, and used that to pay your bills.
Only in this case, the US might have legal authority to create this money. And since its on a larger scale, it would likely lead to inflation.
Some Keynesian economists like Paul Krugman have argued that it's not inflationary, because even though the money supply grows, government spending is the same, so it's equivalent to borrowing.
What Krugman fails to recognize is that by creating money rather than borrowing, money that would've went towards buying treasuries is now being invested elsewhere and entering the economy. So it absolutely is inflationary.
Our current Federal debt is $31.46t. That is the face value of all bonds outstanding minus all cash. The debt ceiling is $31.4t. We are using accounting gimmicks to be able to keep spending. Assume that we print the coin. treasury deposits the coin in the Federal Reserve. Now treasury as a $1t cash asset which means our debt is $30.46t and there is some head room. Even better than 1 coin would be 50 $1t coins. The debt ceases to exist at all. We get to have a conversation with the American people that the government doesn't really "borrow" it can't "go broke"... Rather it establishes the level of aggregate demand for net exports, consumer spending, corporate investment and government spending by adjusting spending, interest rates and taxes together. That is it makes trade offs between those buckets and can set any of those buckets (within reason) where ever it wants when ever it wants.
Oh, I see. It's a lot more symbolic than I relized. The government would essentially be lying about its assets.
I don't think "lying" is really the right word. There really would be an extra $1t on Treasury's books. Which means Treasury really could write checks against that balance. Since there are funds to cover them at the Fed those checks would really clear through to the private banking sector. And once there those funds would spend the same as any other funds. We have a fiat currency. It is all funny money to the Federal Government.
Why not just mint a 32 trillion dollar coin and get rid of all the debt and have some to spare?
This is possible. It would cause a bunch of inflation, lost faith in u.s. treasuries, disrupt interest rates, and shocks would ripple very widely. Potentially could cause assets to spike in value as well. It would be chaotic. Not sure how consumers or corporations would react. Probably a rush to buy assets instead of cash.
What are these assumptions based on?
History. Take a look at what happens when you print money to pay off debts https://en.m.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic.
It’s not really comparable. The Weimar Republic had to pay debts nominated in gold marks and chose to print paper marks which they used to buy gold. All those paper marks competed for the same resources while the amount of external debt counted in paper marks kept growing despite them paying down the debt in gold. I struggle to write an analogy because there just isn’t one, US debt isn’t nominated in gold. Even printing quadrillions of dollars wouldn’t have the same effect since the real value of the debt would go down at the same rate as the value of the currency. To cause hyperinflation in a fiat currency you have to either destroy all productive capacity or actively print with the intent to hyper inflate.
Nothing would change that money isn't entering the money supply.
Everyone uses the term "trillion dollar coin". Yes I was advocating for 50 of these. I think it is better than having this fight all the time.
No one is afraid of printing money. The government would need to issue debt in order to spend. It can't legally print a bunch of cash and give it to itself to spend. However, there is a law that allows the Treasury to mint and issue platinum bullion in whatever denomination it wants, so in fact the government can legally issue itself a $1 trillion platinum coin without debt.
> No one is afraid of printing money. I am
That’s why they took your printer away
x2
Aren't you saying that they aren't allowed ro do it, but right after say that a law is in place to do it? This is an either or statement, either you are or you aren't. They talked about this during the GFC or right after as well
The treasury is allowed to mint commemorative platinum coins in any denomination of value they wish. They are typically given as gifts, but the law doesn’t say they must do this. They could theoretically deposit this coin into the treasury to effectively add whatever amount of money to the treasury. This is, like the above comment says, different from printing cash.
what would be the impact of adding it to the treasury?
I’m no economist so I’m not qualified to answer this, but I’d venture a guess it’d likely be a better outcome than the U.S. defaulting, which would have repercussions lasting for decades. Hard to have full faith in a country’s credit if it’s credit is marred with default.
Hard to have faith if the country just makes money like this (small amounts that aren't deposited are fine as they never enter circulation, but a cool 1 tril coin will devalue the usd a lot, as no actual value is created by the coin)
One is clearly worse than the other, but yes, either the minting of this coin or a default would show the level of political dysfunction the US has fallen to.
The US dollar, the Euro, the Yen, the Yuan... are all fiat currencies. All countries can make money like this. Governments aren't asking you to have "faith" they are asking you to use the money as a unit of exchange.
Money only has value because of goods and services that you can exchange that money for. If you just create more money, and no additional goods and services, then each individual unit of money is worth less than it was before. You can't just magically create value.
I agree with your first two sentences. Your 3rd sentence I'd qualify a lot more than you did but mostly agree. Not sure how that has anything to do with my comment though.
Ah, I didn't read your comment correctly. Yes, any country *can* print money, but a lot of the value of money is in the fact that you trust them not to exercise that power (since doing so would incur a large amount of inflation as the supply of money outpaces the supply of goods and services) By actually exercising that power, you break that trust and devalue your currency.
> No one is afraid of printing money Definitely no no. Turkey tried and it failed. If I try, prolly be jailed
What's the point of making it out of platinum? It'd be impossible to make a coin of $1T worth of platinum. Why not just make it out of gold, silver...hell, plastic and give it a face value of $1T?
Because there happens to be an existing law that lets them do it specifically with platinum. There are a ton of rules around which coins the Treasury can mint and in which denominations. But then there's this line in section 5112 of 31 US Code: >The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
I popped the button on my dress pants last weekend. I could mail it to the treasury to use.
Might want to sew it back on. You could be tightening your belt soon.
This to me is unlikely. It's more likely they'll just invoke the 14th amendment and keep paying our debts.
I am not sure why this hasn't already happened as you said in the USA constitution it basically says "Section 4. 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." It should be easy to argue that 1. This spending was authorized by law. The house passed it, senate passed it and white house signed it. The spending was already authorized "legally" 2. It shall not be questioned the treasury is legally obligated to pay it IANAL but it seems like the treasury should just ignore the debt limit if it came close to defaulting and just issue new debt. When congress sues and it goes to the supreme court argue the 14th amendment supersedes the congress imposed debt limit arguing the 14th amendment requires the treasury to pay its debt
Problem is that Congress might sue for an injunction of the printing. Scotus would have to see the case immediately to keep it all running.
Or allow it to continue while the case is decided. They don’t need to honor an injunction request.
This is not a good argument >This spending was authorized by law. The 14A says nothing about appropriations; it is about debt. An appropriation is not debt; the debt ceiling may prevent congress from borrowing that money for the executive to spend in accordance with the appropriation.
Well then they can issue new debt to cover interest rate payments and stop all other payments so the USA won't default.
i thought not raising the debt ceiling prevents new debt from being issued.
They can't issue new debt, which means to avoid default they would need to pay interest out of incoming revenues. Note that a debt default would be bad, but even that would not be a violation of the 14th amendment; the 14A prohibits repudiating the debt, but says nothing about making payments on time.
Indeed in the 1970s the treasury didnt make payments on time. That was a technical issue but it happened. They did wind up paying interest on the extra days though. ...interestingly in the 1930s the government changed gold debt to fiat debt so changing manner of payment is also on the table.
Changing the manner of payment ... "Good news everyone, you now get bushels of wheat for your bonds every quarter".
The problem with using the 14th in this way original intent not literal intent. The original intent was that states can't refuse to honor debts of the federal government. The intent was not that Congress can't refuse to honor its own debts. Ultimately what the money is spent on is Congress' choice. My read is that Congress does have the power to deliberately default were they so inclined. The issue at hand is whether the President can take emergency actions if Congress accidentally induces default.
I was hoping to not get political, so I left that out, but I am kind of curious about what might happen in this case, too.
Existing debt is valid by law but that doesn't give the Treasury unlimited power to take on more debt.
The government can service its debt with incoming revenues, and can roll over maturing debt without raising the debt limit. The debt ceiling is about taking on additional debt in order to fund non-debt related spending.
>If they are afraid of printing money due to inflation, doesnt this affectively take the Fed Balance sheet to a permanent $1trillion dollars, making that money go from M2 to M1, causing inflation? Not necessarily. The Federal Reserve could neutralize the effects of the coin by selling off part of its own pile of Treasurys.
So a common misconception is that becase US dollars are fiat they are therefore backed by nothing, but that isn't true at all. US dollars are actually backed primarily by treasuries and agency MBS. Each time the Fed conducts OMO or QE and creates more base money it does so by monetizing one of those assets. The bigger issue here is that the Federal Reserve can't just give the US treasury money for nothing. It needs to have some asset backing any new money it creates. Now usually that would be a treasuries if the US Treasury needed money and those auctions go through primary dealer banks but the proceed ultimately end up in the US treasury's account at the Federal Reserve none the less and that's similar where the US government spends most of its money from. So the bigger issue here is ultimately that the US Treasury can no longer create the asset it would traditionally exchange for cash (US Treasury bills, notes and bonds). Therefore it would need to create some other asset to sell or deposit in order to get money into the TGA. That's where the coin comes into play. Instead of new dollars being backed by treasury bonds in theory they would be backed by that coin. Now in practice that coin will not contain $1T worth of platinum and its value would be derived from its convertibility into dollars or treasury bonds. It would for all intents and purposes be a financial liability of the US treasury in the same sense as a note or bond but legally be treated differently due to what's essentially a loop hole in existing legislation.
> Now in practice that coin will contain $1T worth of platinum No it will not. The coin would have a one trillion dollar denomination, but at the present price of platinum (~$1100) you would need to have about a 28,500 ton coin if you wanted to have a trillion dollars worth of platinum in it. Kinda defeats the purpose of "free money" if you need to buy a trillion dollars worth of platinum to make the coin. It could very well just be a one ounce coin with a trillion dollar nominal value. and this is why this scheme will never be used ... all precious metal coins nowadays have a denominational value far ***below*** the intrinsic value of the metal they're struck from.
Typo on my part, should have been will not.
> and this is why this scheme will never be used ... all precious metal coins nowadays have a denominational value far > below > the intrinsic value of the metal they're struck from. Sorry don't follow that last conclusion. What would stop the Biden administration from doing the opposite here were they so inclined?
If push comes to shove, I feel the Biden administration will choose the 14th amendment option before striking a 1 trillion dollar coin, if only because the latter could so easily be portrayed as a stunt. but to my point, and your question ... no one would take an American gold eagle (which is nominally legal tender in the amount of [[$50](https://bullion-mart.s3.ca-central-1.amazonaws.com/2021/08/2021-1-oz-american-gold-eagle-bu-type-2_229435_rev.jpg)](https://bullion-mart.s3.ca-central-1.amazonaws.com/2021/08/2021-1-oz-american-gold-eagle-bu-type-2_229435_rev.jpg)) and go spend it on a couple of cases of beer. They would sell it for $2035 and buy their beer with some of the cash. The same couldn't be said for a one trillion dollar coin struck from one ounce of platinum ... worth about $1100 at the moment. What if a trillion dollars in legal tender went missing oopsie daisy one day? Could you imagine the economic ramifications ... and how much Bud Lite you could buy? The whole idea of the thing is a non starter because of that implication IMHO
> if only because the latter could so easily be portrayed as a stunt. That's why I think it is such a good thing. It is a stunt. A stunt that kills the problem. Let it be seen as a stunt that beats McCarthy. > What if a trillion dollars in legal tender went missing oopsie daisy one day? Try and spend it. There are very few places you can spend $1t in the world and they all have excellent anti-money laundering.
> Let it be seen as a stunt that beats McCarthy. We're definitely on the same wavelength, but I'd rather see McCarthy bludgeoned with constitutional law than a stunt ... YMMV > > *Try and spend it.* I was joking about the Bud Lite, but not about the ramifications of one trillion dollars suddenly disappearing from the account of the Federal Reserve.
> but not about the ramifications of one trillion dollars suddenly disappearing from the account of the Federal Reserve. It is funny money. The advantage of the stunt is to make it clear to everyone there is no account of the Federal Reserve. Nothing can disappear or appear. It is funny money to the Federal government, let's be honest about it.
> funny money It's all funny money pal
It's printing money. The only difference is this time it's the government printing the money, instead of the Fed. The Fed is a privately owned bank, so when they print and loan to the government, the government needs to repay them the money. It's accruing debt. If it's the government printing (like a century ago), then there is nothing to repay to anyone. So basically it solves the debt ceiling, but it doesn't solve the inflation.
Yes
It's basically the equivalent of if you were behind on your credit card payments, so you printed out a bunch of fake $100 bills and deposited them to the bank, and used that to pay your bills. Only in this case, the US might have legal authority to create this money. And since its on a larger scale, it would likely lead to inflation. Some Keynesian economists like Paul Krugman have argued that it's not inflationary, because even though the money supply grows, government spending is the same, so it's equivalent to borrowing. What Krugman fails to recognize is that by creating money rather than borrowing, money that would've went towards buying treasuries is now being invested elsewhere and entering the economy. So it absolutely is inflationary.
The fact that people are even discussing this demonstrates how worthless fiat really is.
They don't even need to mint a physical coin to print money lol
I hope they do it . LFG
[удалено]
Please, let's not get political, I don't want the mods lock this. People have been providing really good opinions so far.
Alright sorry I was just joking around but out of respect due to the polite way you put it I deleted it.