Paul Krugman writes about this idea today (NY Times link), and says Obama should be willing to do it.
Yeah, except that we libruls don’t want an economic collapse that everyone agrees is the GOP’s fault - we don’t want an economic collapse **at all.
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This article makes the claim that PCS (platinum coin seigniorage) used to payoff debt will not increase inflation.
As I understand it, it claims that debt is more inflationary then simply creating dollars to pay it off, because:
[ul]
[li]Debt instruments are negotiable financial instruments with a dollar value and we’d simply be replacing one financial instrument (debt instruments) with another (dollars) with no net change in the economy.[/li][li]Debt instruments are actually more inflationary than created money because debt instruments earn interest.[/li][/ul]
I’m not sure that I’m convinced but it makes an interesting case.
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If they’re aware that we need to issue the debt, how come they say they’re willing to refuse to do so if they don’t get their way? (And I’m not just talking about the Teahadists; Senate Minority Leader Mitch McConnell is saying exactly the same thing. And it’s not like you could get a clean increase in the debt ceiling through the Senate right now.)
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In theory, you have to compromise. But the GOP has created all of these opportunities to get what they want through these extortion moments (we’ll have had four in three months by March 28), that they couldn’t have passed through the normal legislative process. It worked pretty well for them in 2011.
What are the four extortion opportunities? I know the “fiscal cliff” and the debt limit. What are the other two?
The sequester, which the fiscal cliff deal postponed to Feb. 28, and the expiration on March 27 of the continuing resolution funding the U.S. government’s operations.
Right. I think I was just linking them with the “fiscal cliff” in my mind; but they’ve become separate issues.
If the Republicans had the decency and good grace to cover the obligations that they had helped pass into law, such tricks would not be necessary. As it is, the coin trick is not just necessary, but fitting.
No. Until about 1940, Congress directly authorized each issuance of debt. To more efficiently manage the public debt, Congress set up a debt ceiling authorizing Treasury to issue as much in bonds as it likes up to a set limit. It’s important to note that in the present economy (because the federal budget is routinely in deficit), this debt is issued for obligations that have already occurred.
Failing to raise the debt ceiling is like buying a new car on credit then refusing to make the payments when they come due: Not only does your car eventually get repossessed, your ability to buy on credit is damaged–you’re not just right back where you started, but worse off. The federal government has made obligations to pay folks based on the budget–you think those defense contractors would risk their capital to work on delivering weapons systems based on anything else? Failing to pay off these obligations–raise the debt ceiling–puts that system at risk.
If Congress wants to do something about spending, then they should cut the budget. Monkeying with the debt ceiling is an end run designed to shield them from the tough decisions they would have to make if they ever took their own bloviating about the deficit seriously.
Exactly. If they were serious, they’d pass an immediate balanced budget through the House. Then if it gets vetoed or doesn’t pass the Senate, then they are being consistent if the House then fails to raise the ceiling (stupid, but consistent.)
I’d like to see them try to pass a budget. Not merely for the political fallout it would cause them: there’s an offhand chance it would contain some interesting ideas amongst the crap.
Exactly. The Republicans are trying to force the Democrats to take the blame for budget cuts to popular programs.
If the Republicans were serious about cutting government spending (and had the voters behind them) they would man up and put forward a budget that shows exactly what cuts they want to make. Then the Democrats could make a counter-proposal and the two sides could hash out a compromise.
Instead the Republicans are saying: “Make a bunch of cuts that we’ll use to run against you in 2014, or we’ll force the federal government into default!”
I usually agree with Krugman, and while I think the Obama administration should call the Republican’s bluff on the debt ceiling, I don’t think the coin would fly politically. That’s due in large measure to the fact that the entire public debt discussion is floating on a sea of ignorance as to what exactly money is. Joe Wiesenthal at Business Insider has a good post up explaining the underlying problem:
Most of the general public still treats money as if it was backed by gold in Fort Knox, and even those intelligent enough to know we’re not on the gold standard still have trouble with the implications of being off it. Therefore it’s easy for the GOP to ridicule the idea–they’ve been pumping the idea of running the government “like a business” for decades–and get most of the general public on board. In short, even if it proves to be 100% legal, the GOP will instantly shred Obama’s political capital for doing it, making the rest of his agenda dead on arrival.
There is another factor which leads me to think that both the $1 trillion coin and the 14th amendment option are off the table for Obama, an incovenient one for liberals like me to admit: Obama wants a Grand Bargain that includes cuts to left-wing sacred cows like Medicare, and while he may not like being pushed around by the House Republicans, if he can leverage their debt-ceiling frenzy to get a deal he likes (third time’s a charm, right?) he will most likely take it.
[QUOTE=The Hamster King]
Republicans are saying: “Make a bunch of cuts that we’ll use to run against you in 2014, or we’ll force the federal government into default!”
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For those who doubt this is true, this is exactly what the GOP did as they ran against Obamacare in the 2010 campaign, and they followed the same strategy in 2012 despite the fact that they voted for the exact same cuts as part of the Paul Ryan budget proposal in 2011. These clowns are entirely shameless.
What political capital? How can you get more intransigent than if they were to attempt to send the US into default?
Political capital in the form of public approval and support for the president’s agenda. Republican intransigence will always be in place regardless of what Obama does, and while the public may not agree with it, they probably perceive that position as legitimate (even if it’s stupid and unproductive). I doubt the public would see the $1 trillion dollar coin as anything other than “cheating” because misinformation about how money works is so entrenched that even a heroic campaign to educate the public would be viewed with deep suspicion.
Are you kidding? The public could be manipulated pretty easily. Just mint the $1 Trillion coin with a picture of the constitution on the reverse, and Jesus on the obverse. Call it the “miracle Jesus Constitution coin”. Accuse anyone who says anything negative about it of hating both Jesus and the constitution.
Heads would asplode.
I’m not against the idea. However, once we have one of these coins, won’t there be a lot of pressure to mint 10 or 20 of them. End income taxes and return our budget surplus.
I don’t think this would be a compromise, more of a slap to the face. Republicans would flip their shit if he did that.
It would be awesome.
Your statement demonstrates the problem with this plan which the perception of what coin will do versus the reality of what the coin will do. The perception is this trillion dollar coin will be used to reduce the debt will it will not. The reality is that it is an accounting trick which will allow the treasure to continue to pay the bills which Congress has already incurred without having to actually raise the debt limit imposed upon the treasury by Congress.
We could mint 10,000 thousand trillion dollar coins and as long as they are only used as deposits into the treasury accounts the impact the debt and money supply will be zilch. The only thing it will allow us to do is continue paying our bills. ( I admit by continuing to pay our bills the actual debt will need to be increased).
I’m pretty sure this isn’t right.
If the gov’t pays its bills by borrowing from me I don’t have that money to spend anymore, the government does.
If the gov’t pays it’s bills without borrowing from me, they spend the money AND I still have money to spend.
That’s a direct change to the money supply. If they wanted to, they could lower taxes to nothing, borrow nothing new, and keep paying bills with their 10 quadrillion dollars worth of coinage. Long term it’s a terrible idea, short term it’s not going to trash our economy, but will at least get the debt limit off the table as a bargaining chip.