f the trillion dollar coin (1 or a thousand) was actually used to pay off debt rather than simply as an accounting trick to get around the arbitrary debt limit imposed on the Treasury by Congress then it would have a huge impact in the short term and a disastrous impact in the long term.
But that is not what will happen because the Treasure will still have to sell bonds (i.e. borrow from you) to continue funding the government. The only difference is in the treasure books they will show a 1 trillion dollar asset offsetting the 16 trillion dollar in debt. The actual debt will be the same and the method of raising money by selling bonds will be the same.
Everyone wondering about this option should read that paragraph carefully and understand it fully before commenting on the idea.
BigDadWolf has described the rationale for the coin perfectly, but that won’t stop political manipulators like the NRCC making false arguments like “The amount of platinum needed to mint a coin worth $1 trillion would sink the Titanic.”
They are counting on a public that doesn’t know the meaning of the word “seigniorage”. Which, IMO, is a pretty good bet.
I’m not trying to be mean, but can you point me somewhere that says this? My understanding is that Congress controls the issuance of debt, having more assets doesn’t change the dollar amount of debt that you’re allowed to issue.
Having a trillion dollars in a bank account allows you to pay bills without needing more debt. Once they do that, the debt limit is no longer a bargaining chip, the Reps will back off trying to use it as one, and we’ll be allowed to issue debt again to buy back the coin and put it on display somewhere.
You are correct that Congress controls the issuance of debt. At one time every spending bill passed by Congress included the funding specifics such as the number, value, and types of bonds. At some point in the 20th century that became too cumbersome so Congress authorized the treasury to issue debt instruments up to the “debt ceiling” which is essentially a credit limit on the treasure. For decades Congress authorized spending and the treasury issued bonds to cover that spending. When the spending pushed the total debt near the debt limit then Congress would increase the limit as a matter of course. It is only in the last decade that this has become a political issue.
Since we again approaching the debt limit which, if not increased, will result in the treasury not being able to pay for spending already authorized by Congress and causing economic disruption I see three basic choices: 1) Congress can increase the debt limit which will allow the treasury to continue to issue debt instruments to cover Congressionally authorized spending, 2) the treasury can create a trillion dollar coin which will make an imaginary credit in the accounts so they are legally one trillion dollars further away from the debt limit which will allow the treasury to continue to issue debt instruments to cover Congressionally authorized spending, or 3) the president can use some other option such as apply the 14th amendment to get around the debt limit which will allow the treasury to continue to issue debt instruments to cover Congressionally authorized spending.
Hopefully you can see a trend here. Regardless of how it is accomplished the key is that the treasury needs to be allowed to continue to pay obligations incurred by the Congress. All of these options result in the same debt level and the same money supply. The only wrong choice IMHO is to make this a political battle.
I get the concept, I’m just saying that’s not how the debt limit works.
The debt limit is $16.4T. That means you can borrow $16.4T. Putting a $1T coin in the bank doesn’t mean you can borrow an additional $1T, because you’ve already borrowed $16.4T, and that’s the limit.
Having $1T in the bank means you can write checks, and they’ll be good, without having to borrow more than $16.4T.
Cheesesteak is right and BigDadWolf is wrong, I believe.
The notion is to deposit the coin at the Federal Reserve, and draw checks on that account to pay various claims. This would indeed increase the overall money supply.
The debt ceiling is focused solely on the face value of U.S.-secured debt. The amount of money the U.S. has in its account at the Federal Reserve has no impact on the debt ceiling.
Technically yes, and if this trillion dollars were going into the economy at large, it would cause hyper-inflation. But the coin is going on deposit at the Fed only (it will never circulate), and the Fed is sitting on a ginormous pile of treasury bills. My expectation is that the Fed would sell these bills on the open market (removing money from the economy) and simultaneously reduce/stop bond purchases. Eventually–once the politics have been worked out–Treasury would withdrawl the coin from the Fed a cover the balance by issuing replacement debt to the market.
In principle the plan has all the properties of a technical fix where the coin reduces the apparent debt by $1 trillion to avoid bumping up against the ceiling. It’s similar to the way we say “the Fed raised/lowered interest rates” as a shorthand way of saying the Fed bought/sold bonds and/or changed the reserve ratio such that interest rates would rise/fall in the general economy.
Incidentally, the reason why we can’t mint, say, a $16 trillion dollar coin and just wipe out the national debt is because (1) the debt isn’t really wiped out–Treasury would have to cover the coin at some point by issuing replacement debt–and (2) the Fed couldn’t cover this new infusion of money with T-bill sales, so we would eventually get hyper-inflation.
After reviewing the cites provided I concluded that I was incorrect in my understanding; that the coin would be used as a checking account whereas my previous impression is that it would be used as offset against the debt balance allowing bonds to continue to be sold.
I do believe it would still be better option than forcing a shutdown.
BigDadWolf, you forgot a few more options:
4: The President could unconstitutionally usurp Congress’s power over revenue and unilaterally introduce some new revenue stream to cover the spending Congress has already authorized.
5: The President could unconstitutionally usurp Congress’s power over spending to unilaterally cut some spending Congress has already authorized, down to our current revenues plus debt ceiling
6: The President could unconstitutionally order the country to default on its debt.
Oddly, these options seem to be the ones favored by conservatives, even though they’re all three clearly unconstitutional, and would give more power to a man they seem to hate.
Yes; I think it’s counted as part of the “intra-governmental” portion of the debt (~$6 trillion total; I think the Fed holds ~$2 trillion of this). The sale then would only transfer debt from gov’t holdings to the publically-held portion.
I wish I could remember where I read this, but I read a pretty good analysis comparing this plan to Quantitative Easing. In QE, the Fed buys long-term bonds from Treasury, waits for maturity (or, more likely, sells them back to Treasury once the economy recovers), and treasury pays off by issuing new debt. The platinum coin follows the same path, but here Treasury is leveraging seigniorage on the coin rather than bonds to create money.
Well given Congress’ approval ratings vs. Obama’s, I think ANYTHING that Obama does that is in the general direction of “Fuck Congress” which the coin minting DEFINITELY is, and is presented as such (subtly, of course) is a huge political win for Obama, and a huge loss for the House of Representatives, who totally deserve it.
I think this one’s a little too complex to be a slam-dunk. The FUD that will be spread about this will be legendary. Since it’s a bit difficult to grasp (and more importantly, easy to distort), a sizable portion of the population will be confused or misled, which won’t lend itself to a big PR win. I wonder, if Obama does anything unusual with the dept ceiling, if the House won’t use it as an excuse to begin impeachment proceedings. Anything that looks (or can be made to look) like an unusual end-around or a power grab will play into their ‘radical usurper’ narrative.
Cash doesn’t pay an interest rate. It just gathers dust, it doesn’t reward the person who carries it. The only reward that comes is when it’s spent, when it moves. In contrast, a bond does pay an interest rate. You get rewarded by holding it, by being lazy, by doing nothing. The longer you do nothing with it, the more interest payments you receive. There’s an incentive to keep it from moving.
The instrument that circulates more quickly through the economy is the one which will put more upward pressure on prices. This is very simple. If the people you’re citing genuinely think interest-bearing assets are more inflationary, then they are extremely confused. There is no economic necessity that a platinum coin has to be inflationary, but the reason is entirely different.
