Setting aside the wisdom of this policy, does Obama have the authority to fire up the printing presses, both literally and figuratively, to create dollars to make up for the budget gap?
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See this thread for a detailed discussion of whether he can increase the debt.
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Legally, each piece of paper currency is a tiny fragment of the national debt, as they represent ‘notes’ (Federal Reserve and United States Notes) which the Federal government has agreed to pay off on demand, guaranteed by the credit of the country.
There are 147,200,000 troy ounces of gold in Fort Knox. With gold currently at $1,600/oz. He could order coins minted to legally approved designs and raise $235 billion that way, presuming Congress has not limited the number of gold coins which can be minted – a one-shot solution that would wipe out our gold reserve, with whatever consequences to our credit that might have. And he may sell off whatever national assets Congress has previously authorized disposal of. (E.g, Bureau of Land Management holdings in the West, former military bases that have been closed down.) But those two rather drastic steps are AFAIK the sole things he can do he can do to raise money without Congressional approval.
I’m not sure what you mean by ‘firing up the printing presses’, but whatever it means, the basic answer is no. The federal reserve is the body in charge of monetary policy, including ‘printing money’ programs like QE. Neither the president nor congress, by design, have any direct influence over monetary policy, for precisely the reason you imply: if they did, they might end up slashing interest rates or printing money for short-term political reasons. The president does get to appoint the chairman of the federal reserve and its board members, as long as they’re confirmed by congress, but once they’re appointed he can’t interfere with their decisions. And in terms of fiscal policy, every dollar spent by the government has to be authorised by congress, including fiscal stimulus programs like the Recovery Act, so Obama can’t unilaterally order any fiscal stimulus program.
So: Obama can’t spend money unless Congress passes a bill allowing him to, and he can’t create more money even if the whole of Congress wants him to as well, because that’s a decision entirely up to the federal reserve.
He can’t fire up the printing presses, and he may not be able to mint gold coins, either. But he can mint trillion dollar platinum coins.
I’ve never understood what this means. What would it mean for the Federal government to “pay off” a piece of paper currency? Give me paper currency in return?
According to something I recently (it was an op-ed in the NY Times, there is some doubt that the debt limit has any legal force. Congress appropriates funds, say to pay the civil service, and the president is obligated to spend them, the expenditure is a legal obligation of the president, guaranteed by the constitution and if he must borrow to cover it, he must.
There are, obviously, some holes in this theory, but when two duties conflict, it is up to the courts ultimately to decide which one must give way.
Technically the Treasury controls the printing presses, so if you are literally just talking about the printing of money that is 100% controlled by the Treasury.
Monetary policy is controlled by the Federal Reserve (the open market tools along with control of the discount rate and reserve requirement are what really controls our monetary policy, not control of the printing presses) however the Federal Reserve System is a creation of statute and it could be undone by statute. So in your hyperbolic example you are technically incorrect. The 12 Federal Reserve Banks are private institutions, owned by the banks in their districts that have chosen to own shares in the system. Congress could not just destroy those at will. However, the Federal Reserve Board of Governors is the central power of the system, and since the whole system is a creation of statute a Congress 100% behind the President could alter the system such that say, they could declare that the President himself would be President of the Federal Reserve Board of Governors and then he could do what he wanted with the system at large.
Since the 12 district banks could not be destroyed because that would violate the property rights of the shareholders such an action would not be constitutional, but the central organ is a 100% public, not private, and subject to congressional control. Obviously in the real world Congress would never alter the Federal Reserve in that way because it would cause an economic catastrophe not unlike the one people believe we are heading towards now (actually it would probably be worse and would see a massive loss of confidence in the United States around the world), but technically Congress would be able to craft legislation to dramatically alter the FRS BOG, albeit there are real constitutional limitations as to how they could alter the privately owned constituent parts of the system.
Some misconceptions in this thread. First, the total of U.S. banknotes in circulation is less than $1 trillion. (When are we going to switch to speaking of “teradollars”? 
There are a few hundred gigadollars of coins in circulation also, but these have intrinsic worth as copper; so much so that the penny would be worth much more than $0.01 if it were still made from copper.)
Most “cash” is what is called “M2 money” and consists of CD’s, savings accounts, etc. This sums to about $9 trillion and is mostly created by commercial banks ! When you deposit $10,000 in your bank, the bank turns around and lends out $8000 of it. Counting your “money in the bank” there’s now $18,000 where there was only $10,000 before. The borrower pays off (his loanshark? ) who deposits it in his own bank account, and the money amplification continues. In principle the Federal Reserve Board’s job is not to create money, but to facilitate and regulate the creation of “M1” and “M2” money by commercial banks.
Here is a balance sheet for the Federal Reserve Bank. I have two questions about it that I hope experts can answer:
- Normally a bank’s assets = liabilities+capital, right? But as shown at the Wiki page, FRB assets ($2914) exceed liabilities ($1263) + capital ($56) by about $1.6 trillion. What am I overlooking?
- The FRB holds $11 billion of gold, but that is at an old price. The gold has a market value of over $250 billion today. Could an accounting move there buy time?
When a commercial bank needs banknotes, the FedRes provides them, and simply debits the bank’s account. Thus those banknotes have no special significance, greater than a FRB demand deposit, as “debt” or even “money.” (Indeed increasing the count of such banknotes might reduce M2 money due to the amplification effects mentioned above.)
Basically the FED “prints” money to buy treasury bonds. Those treasury bonds represent a debt to the United States. If you gave the FED the paper currency back, those treasury bonds would be retired, so that debt is discharged.
Basically we (the royal we) would be paid back by a reduction in the debt that we all owe.
So what I’m hearing is that the Federal government, i.e. the Executive branch, cannot simply conjure money out of thin air (by fiat) and say its debts are paid. The central bank(s) does that, by making more money available for other banks to borrow, who then loan it out to indivduals and governments, fed and state…
Even the executive branch departments would have to “borrow” that money from the central bank. The famously inflationary countries of years gone by simply overdrew their accounts to pay the bills (essentially a loan) and then, I presume, told their national bank to forgive or ignore that loan. In a less electronic society this involved printing sufficient cash and bills to acomodate the demand for currency to conduct the transactions. Nicaragua and Zimbabwe were famous for recalling their bills to print extra zeroes on them, simpler and cheaper than printing new ones.
I assume the Treasury and head of the bank are positions that need approval by congress, so a strategy to “go Weimar” would need a lot of lead time to get the necessary cooperative characters in place, and a relatively dumb congress(??) to not see it coming and block the appointments?
I believe it’s not even the Fed that “creates” money, strictly speaking. Money comes from bank lending; and it’s the Fed’s open market operations, benchmark interest rate moves, reserve requirement changes and so on that determine how much money the banks are allowed to create.
ETA: Or, what septimus said. D’oh!
But the central bank(s) don’t need to have a strict dollar-in dollar-out regimen, as I understood. They can simply create money by telling a bank “there, we lent you another 100 million”. hey have targets that match this money supply with certain economic indicators to avoid inflation or deflation.
The executive departments of government - defence, OSHA, Medicare, etc. - do have to work off an account balance that matches money in (from their allocation from Finance’s taxes and borrowing) to money out.
Correct. They can conjure money out of thin air: the Treasury prints bonds which the FRB exchanges for account balance or banknotes (with the notes backed by the bonds :dubious:), but this just increases the debt.
Thus the FRB can be a lender of last resort to the Treasury. It’s buying bonds now but not because Treasury is having trouble finding other buyers, but instead because Treasury bonds are too popular! The idea is to force investors to buy something other than Treasury bonds and thus prop up the economy. (Problem is, the investors invest overseas. I think “QE” is a miserable failing idea, but that’s another topic, for GD or BBQ Pit.)
I don’t think this is quite right, at least in the case of U.S. FRB. The “QE” program effectively forces banks to have more cash to invest, but it’s not a loan. Indeed, my understanding is that the FRB discourages banks from borrowing from the FRB. (The FRB also controls a “reserve requirement”; lowering that is another way to force cash upon banks. IIRC, the FRB seldom adjusts that requirement percentage; I’m not sure why not.)
Not entirely accurate, apparently. See my “trillion dollar coin” post above. Coin seignorage is an option.
What else would you want? Why would you want anything else besides paper?
(A long time ago you could redeem your paper money, at any time, for gold or silver.
But we dont do that anymore because everyone thinks we don’t need or want gold and silver anymore)
That’s the same thing as hyperinflation. You might as well mint a $20 trillion coin and pay off the whole debt with $6 trillion left to spare. Buy everyone in America a mansion.
Oh, wait, then mansions would cost a trillion dollars a piece…
We’ve created as much cash as is humanly possible: It’s called near-zero percent interest rates. That’s it. That represents the maximum am’t of cash that can be pumped into an economy without actually printing it and printing it has implications you cannot even fathom.
**That’s all there is and there ain’t no more. ** The economy is a Hot Rod Lincoln. It’s floored, but you want more. Well,there ain’t no more.
Son, you’re gonna drive me to drinkin’ if ya don’t stop driving that Hot. Rod. Lincoln.
As has been pointed out many times, you can go to any coin shop in the United States and exchange your worthless paper money for gold or silver any time you wish. Back when the United States was on the so-called gold standard, this wasn’t true. In other words, the government will control the money supply. If money is gold and silver, they will control the supply of gold and silver, and dictate the ways gold and silver can be exchanged and stockpiled. If money is paper, then they can control the money supply via paper and let people who enjoy gold and silver alone to exchange gold and silver however they like.
So be glad we’re not on the gold standard any more, because that’s what gives you the freedom to buy and sell gold whenever and however you like.
???
I have absolutely no idea what you are talking about. Do YOU know what you are talking about?
Back when we were on the** gold standard**, and back when we had paper money that said “gold certificate”, we could go into any bank and hand them a $20 paper bill and the bank would hand us a 1 ounce gold Double Eagle. Being on the gold standard meant that our paper money was freely traded back and forth to or from gold at any bank for face value. Back when we were on the gold standard, a United States $20 paper bill was worth $20 in gold coin, exchangeable at any bank. From 1790 to 1933 the United States was on the gold standard and the US dollar was as good as gold anywhere in the world.
(What the heck do coin shops have to do with anything? As far as coin shops, anyone could buy and sell any coin at any coin shop ever since they were invented. )
By what mechanism would minting a trillion dollar coin, which expands the money supply by $1T, cause more inflation than borrowing $1T, which also expands the money supply by $1T? Or than QE2, by which the Fed deliberately set about to expand the money supply, with basically no inflationary consequences. And certainly not hyperinflation.