How does destroying government liabilities increase the financial assets in the private economy? Who is losing out here? Who is not getting what is owed to them? Who is losing money? Unless there’s massive inflation (and it’s not clear to me that there will be) then where is the problem?
The Fed creating money and buying up bonds hasn’t caused any inflation, it doesn’t seem to have stimulated the economy at all.
I do not know the answer to this. It is above my pay grade.
I will say though you must be able to intuit this can’t be that simple.
If all the government need to is print enough money to retire its debt then everyone will do it. You know there simply must be a consequence to doing that.
Whether the consequence is worth it or not is another debate. Are we better defaulting than doing this? That is the question (as septimus just mentioned) that needs answering.
That or have the President use the 14th Amendment option.
What coin?
Which is all pretty much what I’ve been saying. What are the consequences of this? I don’t know. Is it worth it under the current circumstances? I don’t know. Is it really as horrible as some here seem to think? I don’t know, but a number of economists seem to find it intriguing at least as an intellectual exercise.
Yes, it certainly is intuitively problematic. But why? I can’t put my finger on it.
Money is, after all, a fiction, a means to facilitate the trade of goods and services. It’s chits used to keep track. If the game no longer has enough chits to facilitate the distribution of available resources, then can’t we create some more to keep things moving provided it’s the right amount and not inflationary, and provided they’re introduced into the game in a fair and equitable manner? The whole business of minting a coin and buying back bonds is simply a way of doing this within the existing legal framework.
Then stop arguing with people who do know.
You think you know.
Here’s an interesting article on this concept plus another idea called the “exploding option strategy”. Both are just methods for legally creating money.
Why do you guys believe this would be inflationary? All it would do is provide an end-around to Congress’ unwillingness to raise the debt ceiling. If they raise the debt ceiling, the same money is going to get spent as if they ignore the ceiling and mint platinum coins, coins they can declare the value of. If the bond market doesn’t like it, maybe we’ll see US bond rates climb above zero. Arguably, if Congress can’t come to an agreement, the President may be constitutionally bound to order these activities so as not to allow the value of our debt to be called into question.
And they’re not going to “dump” it on the economy, they’re going to use it to conduct the normal business of government (paying SS, redeeming bonds, etc.). Inflation fears are just a bogeyman.
You simply cannot magic $2 trillion into an economy with no effect.
That effect has to be inflationary at the least.
Now, an inflationary effect can be bad or good. Depends on a lot of things and we here are all unsure, in this case, if that effect would be a good thing or bad thing or, at least, not as bad a thing as the other options.
If the government raises the debt ceiling tomorrow and engages in their normal business (which involves adding to the national debt), will that be inflationary? If you agree that it will not be, how is that functionally any different than the government creating a coin that they can credit to their account at the Fed and engaging in the exact same level of spending?
Really? The Fed has magicked over $1 trillion into the economy over the last couple years (QE and QE2) without inflation ticking up noticeably. There were even several OP/ED writers who swore up and down inflation would go up by your argument - that you can’t add that much money to the economy without inflation sky-rocketing up.
To be fair, you could still be right in a somewhat different way than probably intentioned - we may very well have been in deflation without it.
The government borrowing money is not inherently inflationary.
At least not in the way that simply printing money is inflationary.
Look at Zimbabwe. I linked earlier a $100 trillion note that they are using. Value is $5 US. Why are they in that position? Printing money.
Look, I am not saying doing this is a bad decision. In fact I kind of like it. But there are consequences. One of which is inflation. Is that inflation a bad thing? Depends…I have not seen a well done analysis of what impact that would have. Even if it is a bad thing I think it is almost certainly better than a default.
You’ve drawn a distinction without a difference.
Not sure I follow.
Explain please.
It’s arguably legal, so it is at least worth an attempt. Let’s see of the Courts even take up whether it is legal under the doctrine of refusing cases that are political questions. I’d rather this than trashing the economy just to make the current executive look bad so that the Republicans could achieve their goal number one of “making sure Obama is a one term president” according to Sen. McConnell. I’m happy enough to make our current asshole in chief a one-termer. Let’s do it in time to start a primary process for the Dems.
I haven’t studied this proposal closely but at first blush I don’t think it’s inflationary so long as the Fed sells an equivalent amount of treasury bonds from its balance sheet.
Basically the federal government wants to borrow 2 trillion dollars but can’t because of the debt ceiling. Without the debt ceiling the government would just borrow by issuing 2 trillion dollars of bonds. Instead the Fed creates 2 trillion dollars of currency which the government uses to funds its expenditures. Then it sells 2 trillion dollars of bonds to the markets. Essentially the government is still borrowing 2 trillion dollars but using the Fed as an intermediary.
Actually there is a reasonable case to be made that the Fed should be actively trying to increase the inflation rate to a few percentage points but that is a separate argument.
Exactly. Inflation IS a way of taxing the rich. Which is why we’ve been told for years that it’s a horrible, horrible thing that must be avoided at all costs.
First of all, if your basis for comparison is Zimbabwe, then you’re thinking too drastically. The United States is not Zimbabwe. Hyperinflation is not on the horizon.
If you’re looking to make a minor, pedantic point regarding the inflationary power of the printing press, then I’m not interested. I was under the impression we were talking about Inflation with a capital I. You know, 1970s-level inflation. That actually would be a problem.
But in this economy, that isn’t a problem. Interest rates are at zero. Conventional monetary policy calls for the government to inject more money into the system. We did that with quantitative easing and rates hardly budged. If the Treasury has to issue platinum coins from time to time, on top of the government’s ongoing bond sales (which continue to do brisk business, even as they increasingly provide no yield, because THE ENTIRE WORLD CONSIDERS THEM SAFE!), to get around an intransigent and broken Congress, the world isn’t going to suddenly stop buying US treasuries. The US economy won’t suddenly become less productive. Our ability to pay our debts and provide full faith and credit to our currency won’t change. We’ll have just embarrassed ourselves in front of the rest of the world because of some statutory debt limit that the market is telling us we don’t need because it doesn’t consider our spending and currency minting to be out of control.
I tried to redirect the debate upthread but was ignored. Let’s try again.
First. Indeed QE and QE2 have an effect very similar to the platinum teradollar. The teradollar coin is a way to give U.S. Treasury and FedRes legal authority to continue creating money, which is exactly what they’re doing now, especially with the simplifying assumption that FRB buys all added debt with its QE program.
In other words, if Treasury simply mints the teradollar, Congress is bypassed, but FRB is forced to continually repeat its QE2 strategy until Congress comes to its senses.
That’s what I would advise Obama to do, immediately if not sooner. I happen to think QE2 is a failing strategy but that’s a separate debate. In game-theoretic terms, Congress disallowing debt increase can be countered (using a legal ploy like the platinum coin) but FRB ends up in permanent QE mode. If I were Pres, I’d have done this, be laughing at them, telling them to come to their senses and take us off QE money. But meanwhile, that’s the best of bad alternatives.
Second. Interest rates are another side of the money supply-and-demand picture. Interest rates being low is a bad sign (if good investments were available, borrowing money would be in demand), but the solution is not to increase interest rates :smack: . And analysis of inflation is complicated in that prices move in different directions. Lately gold and oil are going up, and homes are going down. GOP proposals will weaken the dollar, weaken the T-bond, and raise interest rates. If lowered American confidence dampens demand, it will prolong recession – but injecting new money may instead increase consumer spending and confidence. A new teradollar translates roughly to $10,000 per American household; just throwing the money to them (or even making them think they have it – what if the housing market recovered?) would be a stimulus. “Giving” the new money to the U.S. Government to meet its obligations is similar stimulus (unless you want to argue that salaries and stipends paid to soldiers, Federal workers, and SocSec retirees is to give the money where it’s not needed).
Third. As I’ve implied, inflation in a global economy is complex to analyze; I find the platinum coin = inflation “argument” being presented much too facile.
Fourth. Repeating a point Great Antibob and I made above, it is interesting that the Platinum Teradollar to avoid Debt is exactly the same as FRB’s Quantitative Easing, with the minor difference that in one case FRB holds the coin as collateral; in the other case it holds Treasury IOU’s. Viewed that way, what’s the real difference? I don’t like the QE program, but that’s a separate debate and, in any event, is preferable to driving off the cliff.
Chill man.
While I personally like the $2 trillion coin idea I admit I do not know enough about how it will all work and what effects it will have.
Printing $2 trillion in cash to pay a debt is going to have an effect. Some suggest here there are ways to offset its effect to make it neutral. I know that balance sheet hocus-pocus can achieve amazing results. And perhaps here this is just another balance sheet dodge that makes everything balance out with no ill effects (i.e. a way for the government to “borrow” money without actually borrowing money they are not allowed to borrow).
I really would like to see a good analysis on the effects of this. As I have said here and earlier I like the idea if it dings the debt held by Wall Street. They have not been accountable and they have paid their loans with taxpayer money to repay those loans (they borrowed from the Fed at 0% rates and bought government debt).
About time they took a haircut and I think, if done properly, it could have a good effect on the economy.
Of course the Devil is in the details…