A Coin worth...(pause)....ONE TRILLION DOLLARS!!!

[N3bu]

I fell this opinion piece should go here.
Reuters

Quote:

Let’s be clear about this: no one’s going to mint a trillion-dollar platinum coin. Nor is anybody going to mint a million million-dollar platinum coins. But it would probably be stupid for anybody in the government to say that they’re not going to do it.

The trillion-dollar coin is the fiscal equivalent of the Flying Spaghetti Monster: a logical reductio ad absurdum designed to emphasize the silliness of an opposing position. For instance, if you don’t believe that churches should be tax-exempt, then you just claim that your entire family are Pastafarian priests, and that therefore all your investment income should be tax-exempt. Or rather you claim that you could claim that, but doing so would obviously be absurd; the logical implication is that failing to tax the investment income of, say, the Catholic church is equally absurd.

In this case, the absurdity to be pointed out is the debt ceiling. Everybody who’s ever been in charge of any country’s finances knows that the concept of a debt ceiling is profoundly stupid, self-defeating, and generally idiotic. And we discovered in 2011 that it can do very real harm. Back then, I hated the idea of the platinum coin:

Tools like the 14th Amendment or even crazier loopholes like coin seignorage would be signs of the utter failure of the US political system and civil society. And that alone could mean the loss of America’s status as a safe haven and a reserve currency. The present value of such a loss? Much bigger than $2 trillion.

This is the real problem with the main argument for minting a coin, which is that “yes, it’s a stupid gimmick, but so is the debt ceiling, and the debt ceiling is a lot more harmful than a coin would be”. That’s true, but it’s important to recognize just how damaging the platinum-coin move would be, all the same. It would effectively mark the demise of the three-branch system of government, by allowing the executive branch to simply steamroller the rights and privileges of the legislative branch. Yes, the legislature is behaving like a bunch of utter morons if they think that driving the US government into default is a good idea. But it’s their right to behave like a bunch of utter morons. If the executive branch failed to respect that right, it would effectively be defying the exact same authority by which the president himself governs. The result would be a governance crisis which would make the last debt-ceiling fiasco look positively benign in comparison.

There’s a reason why the proponents of the platinum-coin approach are generally economists, or at least economically-minded. The idea makes gloriously elegant economic sense, and attempts to shoot it down on economic grounds generally fail miserably. You can try a legal tack instead, but that doesn’t work much better: the coin is as logically robust as it is Constitutionally stupid.

No one in the executive branch has any real desire to mint a trillion-dollar coin — you can be sure of that. But the coin-minting advocates are OK with that: they just want to use the threat of the coin to persuade Congress that it should just go ahead and allow Treasury to pay for all the spending that Congress has, after all, already mandated. As a result, while no one intends to actually mint a coin, any statement to that effect would constitute unilateral disarmament in the war between the executive and the legislature.

But there are two problems with this approach. The first is that it’s a version of Hank Paulson’s famous dictum that “if you have a bazooka in your pocket and people know it, you probably won’t have to use it”. That wasn’t true for Paulson, and in general it’s not true of bazookas. In politics as in the markets, if you have a bazooka in your pocket, you’re likely to be backed into a position where you’re forced to use it, sooner rather than later.

The second problem is that what we’re talking about here has a kind of Cold War mutually-assured-destruction mentality: “don’t you dare try to force a debt default, because if you do, I’ll come out and render you entirely irrelevant with my platinum coin”. The nihilistic logic of the Cold War was brutal and scary at the time; but at least it was played by people who respected each others’ intellectual prowess. In this case, we’re basically talking about Barack Obama trying to bluff the House Republicans. And as any poker player knows, when you’re up against a very stupid opponent, you should never try to bluff.

The solution to the fiscal cliff crisis was to let the House Republicans overstretch, self-destruct, and render themselves powerless: that’s how to best deal with such people. There’s exactly zero chance that the House Republicans, faced with the Coin Threat, will suddenly turn logical and decide that they’re not going to play political games around the debt ceiling after all. Rather, the Coin Threat is a political game, played by the other side: it’s the executive branch bringing itself down to the House Republicans’ level.

If you believe that the country is best run by grown-ups, you can’t believe in #mintthecoin, because it simply isn’t a grown-up strategy. If you believe that the House Republicans behave in crazy and illogical ways, then you can’t believe in #mintthecoin, because the threat of minting the coin doesn’t work against someone who’s crazy and illogical. And if you believe that the best way to approach the debt ceiling is to try and abolish it altogether, then you can’t believe in #mintthecoin, because the entire strategy is based on the idea of keeping the ceiling where it is, and then trying to circumvent it.

So while #mintthecoin is an amusing intellectual exercise, no serious executive-branch politician should or will embrace it. Not unless he wanted to torpedo the international credibility of the United States just for the sake of some short-term political one-upmanship.

[Less Than Liz]

N3bu

I fell this opinion piece should go here.
Reuters

Already linked it.

[N3bu]

Less Than Liz

N3bu

I fell this opinion piece should go here.
Reuters

Already linked it.

Ah Ok.

[azulmagia]

N3bu

Equating it to Weimar Germany would be naive, but still demonstrate one possible problem, especially if you're not careful.

The real reason he raised Weimar Germany is so he could set himself up to Godwin the thread.

And I raise you this:

Paul Krugman

Well, the trillion-dollar-coin thing — deal with the debt ceiling by exploiting a legal loophole to have the Treasury mint one or more large-denomination coins, deposit them at the Fed, and use the cash in the new account to pay bills — has really taken off. Last month I spoke with a senior Fed official who had never heard of the idea; these days it’s all over.

There seem to be two kinds of objections. One is that it would be undignified. Here’s how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac — a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, “My god, we can’t dress the secretary up as a clown!” Even when it will make him a hero who saves the day?

The other objection is the apparently primordial fear that mocking the monetary gods will bring terrible retribution.

Joe Weisenthal says that the coin debate is the most important fiscal policy debate of our lifetimes; I agree, with two slight quibbles — it’s arguably more of a monetary than a fiscal debate, and it’s really part of the broader debate that has been going on ever since we entered the liquidity trap.

What the hysterics see is a terrible, outrageous attempt to pay the government’s bills out of thin air. This is utterly wrong, and in fact is wrong on two levels.

The first level is that in practice minting the coin would be nothing but an accounting fiction, enabling the government to continue doing exactly what it would have done if the debt limit were raised.

Remember that the coin is supposed to be deposited at the Fed, which is effectively just a semi-autonomous government agency. As the federal government proper drew on its new Fed account, the Fed would probably respond by selling off some of its $3 trillion balance sheet. In effect, the consolidated federal government, including the Fed, would be financing its operations by selling debt instruments, just as always.

But what if the Fed decided not to shrink its outside balance sheet? Even so, under current conditions it would make no difference — because we’re in a liquidity trap, with market interest rates on short-term federal debt near zero. Under these conditions, issuing short-term debt and just “printing money” (actually, crediting banks with additional reserves that they can convert into paper cash if they choose) are completely equivalent in their effect, so even huge increases in the monetary base (reserves plus cash) aren’t inflationary at all.

And if you’re tempted to deny this diagnosis, I have to ask, what would it take to convince you? The other side of this debate has been predicting runaway inflation for more than four years, as the monetary base has tripled. The same people predicted soaring interest rates from government borrowing. Meanwhile, the liquidity-trap people like me predicted what would actually happen: low inflation and low rates. This has to be the most decisive real-world test of opposing theories ever.

So minting the coin would be undignified, but so what? At the same time, it would be economically harmless — and would both avoid catastrophic economic developments and help head off government by blackmail.

What we all hope, of course, is that the prospect of the coin or some equivalent strategy will simply take the debt ceiling off the table. But if not, mint the darn coin.

(link)

[Wendigo]

It's a humongously dumb idea.

[azulmagia]

Wendigo

It's a humongously dumb idea.

So what, the problem it's meant to solve is itself humongously dumb.

[Disa Uniflora]

azulmagia

Wendigo

It's a humongously dumb idea.

So what, the problem it's meant to solve is itself humongously dumb.

Doesn't make it not dumb, just adds to the the total sum of dumbness.

[azulmagia]

Disa Uniflora

azulmagia

Wendigo

It's a humongously dumb idea.

So what, the problem it's meant to solve is itself humongously dumb.

Doesn't make it not dumb, just adds to the the total sum of dumbness.

If it works it's not dumb.

[N3bu]

azulmagia

N3bu

Equating it to Weimar Germany would be naive, but still demonstrate one possible problem, especially if you're not careful.

The real reason he raised Weimar Germany is so he could set himself up to Godwin the thread.

And I raise you this:

Paul Krugman

Well, the trillion-dollar-coin thing — deal with the debt ceiling by exploiting a legal loophole to have the Treasury mint one or more large-denomination coins, deposit them at the Fed, and use the cash in the new account to pay bills — has really taken off. Last month I spoke with a senior Fed official who had never heard of the idea; these days it’s all over.

There seem to be two kinds of objections. One is that it would be undignified. Here’s how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac — a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, “My god, we can’t dress the secretary up as a clown!” Even when it will make him a hero who saves the day?

The other objection is the apparently primordial fear that mocking the monetary gods will bring terrible retribution.

Joe Weisenthal says that the coin debate is the most important fiscal policy debate of our lifetimes; I agree, with two slight quibbles — it’s arguably more of a monetary than a fiscal debate, and it’s really part of the broader debate that has been going on ever since we entered the liquidity trap.

What the hysterics see is a terrible, outrageous attempt to pay the government’s bills out of thin air. This is utterly wrong, and in fact is wrong on two levels.

The first level is that in practice minting the coin would be nothing but an accounting fiction, enabling the government to continue doing exactly what it would have done if the debt limit were raised.

Remember that the coin is supposed to be deposited at the Fed, which is effectively just a semi-autonomous government agency. As the federal government proper drew on its new Fed account, the Fed would probably respond by selling off some of its $3 trillion balance sheet. In effect, the consolidated federal government, including the Fed, would be financing its operations by selling debt instruments, just as always.

But what if the Fed decided not to shrink its outside balance sheet? Even so, under current conditions it would make no difference — because we’re in a liquidity trap, with market interest rates on short-term federal debt near zero. Under these conditions, issuing short-term debt and just “printing money” (actually, crediting banks with additional reserves that they can convert into paper cash if they choose) are completely equivalent in their effect, so even huge increases in the monetary base (reserves plus cash) aren’t inflationary at all.

And if you’re tempted to deny this diagnosis, I have to ask, what would it take to convince you? The other side of this debate has been predicting runaway inflation for more than four years, as the monetary base has tripled. The same people predicted soaring interest rates from government borrowing. Meanwhile, the liquidity-trap people like me predicted what would actually happen: low inflation and low rates. This has to be the most decisive real-world test of opposing theories ever.

So minting the coin would be undignified, but so what? At the same time, it would be economically harmless — and would both avoid catastrophic economic developments and help head off government by blackmail.

What we all hope, of course, is that the prospect of the coin or some equivalent strategy will simply take the debt ceiling off the table. But if not, mint the darn coin.

(link)

The issue isn't with the Economics of the issue. Hyperinflation (which honestly gets invoked way more then it should in the company of good sense) practically requires increases in the money supply in pretty much multiples of the size of the Economy drastically changing the ratio of GDP to money supply. That would require increasing the money supply by close to 14 Trillion dollars to just double prices in the United States. Weimar Germany won't happen.

As for Krugman, his problem is that he is an Economist. The plan makes Economic sense, although I would need to be clarified in the specifics regarding the supply and demand of such an arbitrary coin. The problems are in the constitutionality and legitimacy of the Government following such a move. Obviously Krugman doesn't care, the Economic threat is to great, but I can't dismiss his own bias when he himself is an Economist who puts Economic issue first.

Either way the plan is still a stupid spaghetti monster argument that shouldn't be treated seriously if we even want to pretend that we want grown ups to start running the place.

[N3bu]

As for the coin there are significant issue of legitimacy which I have yet to see any Economist cover, either because I've missed something, or just because they refuse to acknowledge it.

By minting a Trillion Dollar coin they are essentially creating a new currency, one which works as an IOU. The only reason The US can essentially make money appear through debt is because people are willing to lend money to the government knowing they'll get a return. The US can also print money for the purpose of flooding the market and buying other currency. Just having a Trillion dollar coin doesn't actually DO anything unless they use it to buy something of value, likely other currency.

The only problem here is why would any foreign country pay 1 Trillion dollars for a platinum coin? The situation is so comical it'll probably be one of the first situations that foreign government won't be willing to trust US government finances.

The whole point being, I don't understand how the US government can leverage a platinum coin that they arbitrarily assigned a value. They'd do better off trying to force the Fed (which they don't have control over) to initiate more QE.

[azulmagia]

N3bu

The issue isn't with the Economics of the issue. Hyperinflation (which honestly gets invoked way more then it should in the company of good sense) practically requires increases in the money supply in pretty much multiples of the size of the Economy drastically changing the ratio of GDP to money supply. That would require increasing the money supply by close to 14 Trillion dollars to just double prices in the United States. Weimar Germany won't happen.

I'm glad we agree on that.

Quote:

As for Krugman, his problem is that he is an Economist. The plan makes Economic sense, although I would need to be clarified in the specifics regarding the supply and demand of such an arbitrary coin. The problems are in the constitutionality and legitimacy of the Government following such a move. Obviously Krugman doesn't care, the Economic threat is to great, but I can't dismiss his own bias when he himself is an Economist who puts Economic issue first.

"The constitutionality and legitimacy of this move?" Are you ******** kidding me?! After x number of wars and invasions ran from the Executive Branch, constitutional legitimacy is worth just about s**t. Even the Al-Awlaki killing was let slide very easily. If people don't give a ******** about the constitution when people are literally being murdered, how the ******** are they going to care about the Treasury minting a trillion dollar coin, which is perfectly legal to do?

And what about the constitutionality of Congress raising the debt ceiling in the first place? What about Section 4 of the 14th Amendment ("The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." wink ? And what about the legitimacy of a bunch of whiny-assed thugs using the debt ceiling as a political hostage?

Quote:

Either way the plan is still a stupid spaghetti monster argument that shouldn't be treated seriously if we even want to pretend that we want grown ups to start running the place.

If you want grown ups running the place keep in mind that the House is majority Republican right now, so tough luck there.

[N3bu]

azulmagia

N3bu

The issue isn't with the Economics of the issue. Hyperinflation (which honestly gets invoked way more then it should in the company of good sense) practically requires increases in the money supply in pretty much multiples of the size of the Economy drastically changing the ratio of GDP to money supply. That would require increasing the money supply by close to 14 Trillion dollars to just double prices in the United States. Weimar Germany won't happen.

I'm glad we agree on that.

Quote:

As for Krugman, his problem is that he is an Economist. The plan makes Economic sense, although I would need to be clarified in the specifics regarding the supply and demand of such an arbitrary coin. The problems are in the constitutionality and legitimacy of the Government following such a move. Obviously Krugman doesn't care, the Economic threat is to great, but I can't dismiss his own bias when he himself is an Economist who puts Economic issue first.

"The constitutionality and legitimacy of this move?" Are you ******** kidding me?! After x number of wars and invasions ran from the Executive Branch, constitutional legitimacy is worth just about s**t. Even the Al-Awlaki killing was let slide very easily. If people don't give a ******** about the constitution when people are literally being murdered, how the ******** are they going to care about the Treasury minting a trillion dollar coin, which is perfectly legal to do?

And what about the constitutionality of Congress raising the debt ceiling in the first place? What about Section 4 of the 14th Amendment ("The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." wink ? And what about the legitimacy of a bunch of whiny-assed thugs using the debt ceiling as a political hostage?

Quote:

Either way the plan is still a stupid spaghetti monster argument that shouldn't be treated seriously if we even want to pretend that we want grown ups to start running the place.

If you want grown ups running the place keep in mind that the House is majority Republican right now, so tough luck there.

Your missing the whole point here.

1st. The coin itself has significant issue, Deflationary measures however not so.

2nd. If Obama de-legitimises Congress in this manner (which part of me wants to with House republicans being as ******** retarded as this), I start to question what actually gives him legitimacy as president. If he won't uphold constitutionality and admit congress has no power, then why would he have any power? It reminds me of the scene from Battlestar where Cpt Adama refuses orders because if his orders disregard the constitution of the colonies then the very institution of the military that gives him orders has no power anyway and he doesn't have to do s**t for it in the first place. Whether or not I'm correct (since this isn't my expertise) is completely up in the air.

3rd. The Last thing I want to happen is Obama legitimising Republican tactics by being just as childish.

[azulmagia]

N3bu

Your missing the whole point here.

1st. The coin itself has significant issue, Deflationary measures however not so.

2nd. If Obama de-legitimises Congress in this manner (which part of me wants to with House republicans being as ******** retarded as this), I start to question what actually gives him legitimacy as president.

rolleyes

The fact that he won re-election?

And if you point out that Congress won re-election too, I'd like to point out that by the popular vote, the Democrats squeaked in by a little over fifty percent. This did not manifest in the House because the districts are gerrymandered. The American people put their confidence in the Democrats for both the Executive and Legislative branches. So Obama has an edge in the battle over legitimacy.

And I'd like to point out that if Obama caves in to the Republicans, that represents the majority of US electorate caving in to the party that lost the election. More exactly, to the blackmailers who lost the election. That is completely unacceptable. You want to ask question about legitimacy? Well this compromises the foundations of democracy. Teatards and Gunfreaks talk all the time about tyranny, but this would be the real thing here.

Quote:

If he won't uphold constitutionality and admit congress has no power, then why would he have any power? It reminds me of the scene from Battlestar where Cpt Adama refuses orders because if his orders disregard the constitution of the colonies then the very institution of the military that gives him orders has no power anyway and he doesn't have to do s**t for it in the first place. Whether or not I'm correct (since this isn't my expertise) is completely up in the air.

If he upholds the 14th, you are IMMEDIATELY in a constitutional fight. If Obama has the coin minted, the constitutional fight can only start once it's taken to the courts.

Quote:

3rd. The Last thing I want to happen is Obama legitimising Republican tactics by being just as childish.

I don't know why you and others are so hung up on it being silly or childish. Use the tool that's in your hand. It's unorthodox, but so was Gandhi when he had the people of India make salt.

"Childish" and "silly" or even "crazy" are relative terms. Do you having the least ******** idea what the actual effects of hitting the debt ceiling would be? At this point, not minting the coin is starting to ******** scare me.

[N3bu]

azulmagia

N3bu

Your missing the whole point here.

1st. The coin itself has significant issue, Deflationary measures however not so.

2nd. If Obama de-legitimises Congress in this manner (which part of me wants to with House republicans being as ******** retarded as this), I start to question what actually gives him legitimacy as president.

rolleyes

The fact that he won re-election?

And if you point out that Congress won re-election too, I'd like to point out that by the popular vote, the Democrats squeaked in by a little over fifty percent. This did not manifest in the House because the districts are gerrymandered. The American people put their confidence in the Democrats for both the Executive and Legislative branches. So Obama has an edge in the battle over legitimacy.

Quote:

If he won't uphold constitutionality and admit congress has no power, then why would he have any power? It reminds me of the scene from Battlestar where Cpt Adama refuses orders because if his orders disregard the constitution of the colonies then the very institution of the military that gives him orders has no power anyway and he doesn't have to do s**t for it in the first place. Whether or not I'm correct (since this isn't my expertise) is completely up in the air.

If he upholds the 14th, you are IMMEDIATELY in a constitutional fight. If Obama has the coin minted, the constitutional fight can only start once it's taken to the courts.

Quote:

3rd. The Last thing I want to happen is Obama legitimising Republican tactics by being just as childish.

I don't know why you and others are so hung up on it being silly or childish. Use the tool that's in your hand. It's unorthodox, but so was Gandhi when he had the people of India make salt.

It IS childish. He didn't even offer it, afaik it was started by some silly petition. The US needs QE regardless (my opinion) mostly to deal with debt and exports. But the idea that this "coin" shoudl be used as a threat to get the house in line is childish. Firstly because an actual coin wouldn't work and secondly because it's essentially like trying to bluff stupid people with a stupid ultimatum. You don't bluff stupid people and you don't fight stupid with more stupid.

[azulmagia]

N3bu

It IS childish. He didn't even offer it, afaik it was started by some silly petition. The US needs QE regardless (my opinion) mostly to deal with debt and exports. But the idea that this "coin" shoudl be used as a threat to get the house in line is childish. Firstly because an actual coin wouldn't work and secondly because it's essentially like trying to bluff stupid people with a stupid ultimatum. You don't bluff stupid people and you don't fight stupid with more stupid.

1) Read my revised post.

2) The coin should not be used as a THREAT, it should be minted if there is no alternative to avoid hitting the debt ceiling.

3) Read this and let's see if you're still singing the same tune.

Quote:

We have about a $100bn per month deficit.

The fiscal multiplier right now is close to 1.5 for new spending with monetary policy at the zero bound, according to the IMF. But this for ADDITIONAL spending. The multiplier on existing spending is probably higher. Back of the envelope, it probably ranges for 3+ on the first dollar of spending down to 1.2 on the most recent dollar of spending. Call the multiplier 1.8 across the entire range of deficit spending- and I think that is being conservative.

This puts us at 100bn * 1.8 = $180bn per month in impact to our economy. That number sounds like a lot, but we don’t have a good mental image of how much that would impact the economy.

Let’s put it into terms which are easier to understand, like an annual hit to our economy. Annualized, this would be $2.16T for the entire year. This is 14.5% of the U.S. economy! Wow! That is a huge impact.

Next, we know the rough relationship between 1% point of the economy and unemployment through Okun’s Law.

We can use Okun’s law to figure out the change in unemployment given a change in GDP. Okun’s law relates the amount of change in unemployment given a loss to the economy.

We estimate GDP would fall by 14.4%, and the Okun’s law divisor is 1.8. Therefore a fall in GDP of gives us 14.4%/1.8 = 8% more unemployment! The current unemployment rate is 7.9%, so hitting the debt ceiling would eventually cause 16% unemployment.

How many actual jobs would be lost? That’s easy to figure out. The total non-farm payrolls today is 134 million people. We would lose approximately 8% of this if we shut off deficit spending entirely, which is 10.7 million jobs.

This is probably a high estimate – this would imply losing nearly 1 million jobs per month. But we are certainly talking losses above 600,000 per month. The impact of hitting the debt ceiling would be like the worst months of the great Recession.

If you know another way the President can cough up the money to pay for the bills he is constitutionally forbidden to permit a default on, please tell me.