Home > Main > Now that we’ve got a “deal”, Why not use the Trillion Dollar coin anyway?

Now that we’ve got a “deal”, Why not use the Trillion Dollar coin anyway?

August 1, 2011

There is a deal, apparently.

The deal is horrible for the U.S. economy and almost certain to push it back into recession.  We’re cutting defense spending – a kinda good thing – but at the exact wrong time, and not replacing it with any other spending.

Spending Cuts are Tax Increases,” to paraphrase  Timothy Geithner.  It’s one of the few ideas he gets right.  We need more stimulus, not less.

Consumer spending is diving of a cliff. Corporations are laying off the equivalent of large towns everytime you turn around.  Brad Delong estimates -0.4% off GDP – I’d say more.  He was already asking “Where’s the demand?” before this stupid deal.

Now with this deal, the economy is doomed.  The spending cuts happen right away – and we’re at the brink of a recession.

Prior to this stupid debate, we were trying to cut taxes to stimulate demand. Of course, we haven’t felt any effects of that tax cut due to an increase in oil and gasoline prices.

These spending cuts – plus our current higher energy costs – will equal doom for the U.S. consumer and U.S. economy.

So why not just use the Trillion Dollar coin anyway?  Why not take the debt deal, and then use the Trillion Dollar Coin to makes lots of space under the debt ceiling?

We could use that extra space for huge payroll tax cuts to the U.S. consumer.  We could use it to stimulate demand where it will have the most impact.

Why not use it?  It’s widely regarded as legal.  Why not use the Trillion Dollar coin to get our economy moving again?

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  1. jb
    August 1, 2011 at 9:40 am

    Maybe if the Japanese do something like it first and their system doesn’t collapse then perhaps we will get the gumption to use the “trillion dollar” coins. After all, we are following a trail they are blazing.

    • TC
      August 1, 2011 at 10:13 am

      I know. It’s a fiasco. We’re going to be living poor for decades for no reason. Why in the hell would someone want that?

  2. August 1, 2011 at 10:05 am

    A CONVERSATION WITH ED

    me: Ed, how much money do you have in your wallet?
    Ed: I dunno, probably about $50.00. Why?

    me: Where did it come from?
    Ed: I earned it.

    me: That’s not what I mean. I mean where did the money come from originally?
    Ed: I guess from the bank.

    me: No, that would mean you borrowed it. You said you earned it.
    Ed: OK. I guess it came from the government?

    me: Right. Where did the government get it?
    Ed. They issued it based on the amount of gold we have in Fort Knox.

    me: No. We haven’t been on the Gold Standard since 1971. There is no gold backing the US dollar.
    Ed: You mean the dollar isn’t backed by anything?

    me: Not exactly. But let me ask you again. Where does the government get it’s money?
    Ed: They print it?

    me: Right. So if they print the money, how does it get to your wallet?
    Ed: I don’t know…I guess through banks.

    me: No. If you got your money through the bank you borrowed it. We already covered that.
    Ed: Well, how then?

    me: The government spends the money into the economy. Every time the government buys something from private businesses, or pays government worker’s salaries it is spending money into the economy.
    Ed: Yeah but I earned the money in my wallet. It didn’t come from the government.

    me: Where did it come from then?
    Ed: From whoever I worked for.

    me: Where did they get it?
    Ed: From whoever they earned it from.

    me: Now we’re going in circles. Money had to exist before anyone could earn it. Where did it come from?
    Ed: From the government?

    me: OK so you agree that before anyone had any money the government had to create and spend it first.
    Ed: I guess so.

    me: So every year the government spends into the economy a budgeted amount and at the end of the year it taxes all of the money it created that year back out. Otherwise we would have a budget deficit.
    Ed: But we do have budget deficits. That’s what’s wrong with the economy now.

    me: So budget deficits are bad?
    Ed: Yes.

    me: Why are they bad?
    Ed: Because then we have to borrow money to pay for the deficit, and then the government has to raise taxes to pay the money back.

    me: The government creates the money. Why would it borrow back money it previously created? Wouldn’t it make more sense to just print more money?
    Ed: No. That would cause inflation.

    me: Why would that cause inflation?
    Ed: Because there would be too much money in the economy. That would make money worth less so we would have inflation.

    me: Maybe. But if the government didn’t spend more money into the economy than it taxed out there would be no money in the economy. How would you get the money that’s in your wallet? And how would there be inflation in that circumstance?
    Ed: Good question. This is making my head hurt. I don’t know.

    me: Yeah learning simple things can be hard. So you can see why deficit spending is required for the economy to grow.
    Ed: I guess so. But we have to borrow to pay for the deficit and the borrowing is killing the economy.

    me: We’re going in circles again. The government doesn’t have to borrow, it is the creator of the money. It creates money at will out of thin air as needed. It does not necessarily lead to inflation. That depends on how the government spends the money.
    Ed: Then why does the government borrow money to pay for the deficit?

    me: That’s another discussion. We can talk about that some other time.
    Ed: OK. But what about the National Debt?

    me: What about it?
    Ed: Don’t we have to pay it back?

    me: If we paid it back, there would be no money left in the economy. How would you get money in your wallet then?
    Ed: You’re making my head hurt again.

    me: Thinking is hard. That’s why we rarely do it.
    Ed: So what is the National Debt?

    me: The National Debt is the amount of money to the penny that the federal government has created since it began creating dollars. It includes all of the dollars held by the public plus all of the dollars held by foreign companies that have done business with the U.S. There is no taking it back. Paying off the National Debt is impossible and it makes no logical sense to think of the National Debt in th way we have been taught.
    Ed: You’re killing me. Theres no way anyone could understand this stuff.

    me: I give up.

    • TC
      August 1, 2011 at 10:13 am

      This is brilliant.

  3. August 1, 2011 at 11:06 am

    I love the (temporary) new name of this wonderful blog…

    • TC
      August 1, 2011 at 11:08 am

      I just changed it! I’ll change it back… 🙂

  4. beowulf
    August 1, 2011 at 2:59 pm

    Actually the Obama admin. blew a huge opportunity last winter to use coin seigniorage to stimulate the economy without increasing the deficit, well, a penny. During the lame duck session, Congress amended the Coinage Act to allow for cheaper metal costs for minting new pennies. The bill passed House and Senate by voice vote (no cared enough about it to demand a roll vote). The Administration really have worked to get, by hook or crook, discretionary authority to rebase the penny’s face value himself.

    Indeed, Obama’s Chairman of the Council of Economic Advisors, Austan Goolsbee wrote an a NY Times Op-Ed 4 years ago suggesting Congress rebase the penny since it now costs more to mint each coin than its 1 cents face value. He suggested moving its value to 5 cents, but that’s small ball since that’s a scalable process.
    http://www.nytimes.com/2007/02/01/business/01scenes.html?adxnnl=1&adxnnlx=1312227881-v/vBJxlbE6Z74YEefglZtg

    In any event, administrative discretion to rebase any coin would have to be quietly granted to the Secretary by Act of Congress, any currency change has to done all at once or it becomes too easy for amateur arbitrageurs to game the system. But if Obama officials (the Chairman of the CEA most particularly) hadn’t been asleep at the switch last December when the Coinage Act amendment was pending, they had the perfect chance. Imagine the economic effects if one evening the White House announced that starting that midnight, the 140 billion pennies in circulation would each have a face value of, say, $5 (or $10)? A helicopter couldn’t drop money that fast.

    Stimulating the economy with a piggy bank bailout (as Goolsbee noted, “the money would go disproportionately to the poor… and to people getting allowances from their parents”) would be at no cost to the US govt or anyone else. Vending machines take pennies and since banks would treat pennies like $5 or $10 bills, stores and restaurants would do likewise. :o)

    • Clonal Antibody
      August 1, 2011 at 5:55 pm

      Beo,

      After re-reading Ellen Brown’s Web of Debt, I am now convinced that the 1996 law was not an oversight, but rather it was deliberately worded for exactly such an eventuality.

      • Clonal Antibody
        August 1, 2011 at 6:28 pm

        From the references provide by Ellen in the book, I find that some of the correspondence with the US Mint on this topic is quoted in “You be the Judge” chap 3 – “Ponzi Scheme”

        • TC
          August 1, 2011 at 8:00 pm

          I’ve only been to Ellen Browns website a few times, but she seems like she understands – plus she’s got that “Tea Party” look. Hmmm…

        • beowulf
          August 1, 2011 at 11:02 pm

          Ellen Brown does know an awful lot about monetary operations. She’s been beating the drum for state-owned banks (like the Bank of North Dakota) for a while— indeed we may see a few more state banks in the near future thanks largely to her efforts.

      • TC
        August 1, 2011 at 6:42 pm

        Interesting, interesting

  5. Clonal Antibody
    August 1, 2011 at 8:13 pm

    TC :
    I’ve only been to Ellen Browns website a few times, but she seems like she understands – plus she’s got that “Tea Party” look. Hmmm…

    Actually, Ellen is very liberal, and very anti tea party. She has been a lead voice in getting legislators to consider laws to establish state owned banks, on the pattern of BND See Public Banking Institute

  6. August 1, 2011 at 8:51 pm

    I would have supported the trillion dollar coin or the exploding option in the face of the extraordinary situation we might have found ourselves in had a deal not been cut. I would even have supported the 14th amendment option – whatever fears I had about the implications for executive power, they pale in comparison to handing that same power to a small sliver of the House of Representatives. I don’t support these ideas under more ordinary circumstances which I know leaves me outside the mainstream on this blog, but hey, we can all get along right?

    I read somewhere tonight someone was comparing this debt ceiling deal to Chamberlain touting the Munich Pact in 1938. Within a year of that pact all of Europe was embroiled in WWII. I think the comparison is apt. Obama & the Senate dems (and the house dems!) just caved to a party that refuses to negotiate and threatens chaos if their demands aren’t met.

    We will be back here in two months when the continuing resolution ends. There will be threats of government shutdown, etc. To switch metaphors abruptly, the house Republicans are going to keep pushing their chips into the center. The Democrats are going to have to risk chaos and start calling the bets. The Tea Party’s hand is not as strong as Herr Hitler’s.

    • TC
      August 1, 2011 at 9:24 pm

      I’ve been thinking about Ed Harrison calling this a Smoot-Hawley moment all day, and the odds of war.

      I have a bad feeling that this particular episode is far, far bigger than we know right now. This is something different – like a sea change in how our government works.

      I can see that Chamberlin comparison – it’s totally apt. Seems great today, but within a short amount of time, it’s clearly a huge mistake.

      We’re f&*!*@. These people don’t want to abide by democratic rule, or our longstanding rules.

      “The Tea Party’s hand is not as strong as Herr Hitler’s.” Very, very true.

  7. Peter D
    August 1, 2011 at 10:42 pm

    I just cannot wrap my head around how Obama managed to turn out so terrible. One theory says he is the Manchurian candidate, that he’s too smart to be the naif fool. I keep returning to Glenn Greenwald who’s been arguing the same from the point of view of civil liberties – how Obama basically made a u-trun on all his lofty pre-election rhetoric and started trampling on freedoms, at times worse than Dubya.
    This cannot be just us “misunderstanding” and “unappreciating” the realities of realpolitik.
    What an a$$hole. I really wish I were wrong and have to eat my words in the future. That would be the sweetest humble pie for me. But somehow I doubt I’ll have to.

    • August 2, 2011 at 8:03 am

      This is how I feel. I went all-in for Obama in ’08. Phone-banked, knocked on doors. I had never done that before in my life (I’m 64).

      I feel fully betrayed, not only by him but by the Democratic Party at large. Up until 3 years ago I was a Republican, so now there’s nowhere else to turn.

      At this point I feel that engaging in electoral politics is pointless. Unless we were able to turn all 535 members over one election cycle (not possible) there is no way short of violence we will ever be able to take back control of our government from the oligarchs through voting.

      The only things I see making any difference now are huge national protests or targeted strikes (boycotts) against monied interests and the outcome of those strategies is unclear.

      I’m at my low ebb of hope for the future. Invest in pitchforks.

      • Peter D
        August 2, 2011 at 8:20 pm

        I just mentioned Glenn Greenwald and went to check his feed and found this – very appropriate:
        http://feeds.salon.com/~r/salon/greenwald/~3/Rqq42CqZnfg/debt_ceiling

        … how anyone can claim in the face of all [the] evidence that the President was “forced” into making these cuts — as opposed to having eagerly sought them — is mystifying indeed. And, as I set forth there, there were ample steps he could have taken had he actually wanted leverage against the GOP; the very idea that negotiating steps so obvious to every progressive pundit somehow eluded the President and his vast army of advisers is absurd on its face.
        […]
        As I wrote back in April when progressive pundits in D.C. were so deeply baffled by Obama’s supposed “tactical mistake” in not insisting on a clean debt ceiling increase, Obama’s so-called “bad negotiating” or “weakness” is actually “shrewd negotiation” because he’s getting what he actually wants (which, shockingly, is not always the same as what he publicly says he wants). In this case, what he wants — and has long wanted, as he’s said repeatedly in public — are drastic spending cuts. In other words, he’s willing — eager — to impose the “pain” Cohn describes on those who can least afford to bear it so that he can run for re-election as a compromise-brokering, trans-partisan deficit cutter willing to “take considerable heat from his own party.”

        • Peter D
          August 3, 2011 at 2:09 pm

          Another piece saying essentially the same thing:
          http://www.blackagendareport.com/obama-fake-debt-ceiling-crisis_smarter-than-you

          The truth is that Barack Obama’s actions are entirely rational, understandable and even predictable if you suppose him to have been a vicious, vacuous and cynical right wing operative from the very beginning.

          So, the job of the Dems is to push for policies that the Republicans cannot push on their own. But having the cover of the Dems doing that – easy!

        • Peter D
          August 4, 2011 at 11:22 pm

          http://www.huffingtonpost.com/2011/08/04/rnc-medicare-obama_n_918489.html
          “RNC Is Suddenly Upset At Obama For Proposing Medicare Cuts That The RNC Wants”
          Who the hell this guy? This headline is just absurd. I would’ve thought it was from the The Onion but I know better, unfortunately… 😦

  8. Clonal Antibody
    August 1, 2011 at 11:25 pm

    beowulf

    At least in her book, Ellen appeared to be unaware of the 1996 law. The discovery of the wording of the 1996 law, and its implications, were first brought to public knowledge, at least as far as I know by you. But that said, my assumption is that the US Mint already knew of this law and its implication, when you contacted them, given all the prior communication between the congress and the mint on the topic of trillion dollar coins.

  9. wh10
    August 2, 2011 at 2:18 am

    Krugman loves the platinum coin here! Look how his eyes light up, and how he reasserts it right at the end of the vid!

    http://www.huffingtonpost.com/2011/08/01/paul-krugman-george-will-_n_914760.html

    • August 2, 2011 at 8:51 am

      Krugman appears more and more to me to be an MMT’r in denial. All of his ideas save “the long-term budget deficit problem” seem to be in harmony with what MMT would point us to.

      I think it is very valuable to have someone like him on the big stage constantly talking about these things. He adds an air of credibility to MMT arguments. I know he respects Jaime Galbraith’s ideas (opinions?) so I think it will be just a matter of time before he is fully on board.

      Maybe it’s just wishful thinking but…

  1. August 5, 2011 at 12:34 pm
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