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

[N3bu]

Basically I don't really (I'm half-half because I'm not a legal expert) support efforts to circumvent congress because I think it undermines the government, but I most certainly don't support any ideas to literary mint some stupid coin. I am amazed people like Krugman have somehow backed this idea.

He's backing this idea to essentially print money, but has yet to explain how a trillion dollar coin would retain any value. In the end either two things have to happen, either a foreign agent buys it for 1 Trillion dollars, which they won't, or the government uses it as a place hold for 1 trillion real dollars they used to pay off in it's place, which means nothing because the Treasury will just have a worthless platinum coin that can't be sold or exchanged for any value.

[N3bu]

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.

I understand the threat of the debt ceiling, probably more then you, without even having to ask other people for facts and figures. Like I said I'm half-half, and by that I mean I am all for the camp that says we shouldn't even have a debt ceiling. My worry is in what I don't know, and that is the effect of circumventing congress or (apparently plausibly) creating a crisis of governance and constitutionality.

If the legal authority of the entire US government evaporates, what effect do you think THAT will have on the markets? I don't know. Almost certainly, I'm not going to risk it on a plan I know will not work. A coin will not work.

There is also the fact that you number reference a fiscal freeze of a YEAR. Every week that the government continues to be inoperable because of the debt ceiling would create political panic as unemployment rises. The chances of fully actualizing your scenario are low. Admittedly that still doesn't change the threat of a credit downgrade.

TL biggrin R Your scenario is unrealistic, if maybe mathematically true, I don't know the consequences of bypassing congress in this issue, A coin will still not work.

[N3bu]

They have yet to explain how exactly this coin is supposed to have value.

Has anybody, at all, considered the repercussion of this?

Let say we do the plan the media seems infatuated with right now. Deposit it use the new money to pay off the debts. To simplify this we have to assume the Treasury can back it's numbers with some form of currency (because no private bank would trade for it).

So the Treasury pays down it's debts (somehow) and what does it have left? 1 trillion dollars right? Nobody is going to accept the coin as tender so the treasury is going to have a book value of 1 Trillion dollars with only a single un-trade-able worthless coin to back it's value. That 1 Trillion dollars? That evaporates because it cannot be used, it has no functional value so to basically any function of the treasury to means nothing. The Treasury goes bankrupt.

Basically all you've done, is tricked the government into giving away all it's money.

[azulmagia]

N3bu

Basically I don't really (I'm half-half because I'm not a legal expert) support efforts to circumvent congress because I think it undermines the government,

Obama caving into to Republican demands in return for the debt ceiling be raised is not only undermining the government, but the will of the people who did not vote for the guy who lost the election!

Quote:

....but I most certainly don't support any ideas to literary mint some stupid coin. I am amazed people like Krugman have somehow backed this idea.

Maybe 'cause he's smarter than you perhaps?

In a crunch it may actually be Obama's ******** duty to mint this "stupid coin" in order to escape the horns of this dilemma. Ever heard of taking a third option?

Quote:

He's backing this idea to essentially print money, but has yet to explain how a trillion dollar coin would retain any value. In the end either two things have to happen, either a foreign agent buys it for 1 Trillion dollars, which they won't, or the government uses it as a place hold for 1 trillion real dollars they used to pay off in it's place, which means nothing because the Treasury will just have a worthless platinum coin that can't be sold or exchanged for any value.

Only the Fed, with whom this NON-CIRCULATING coin would be deposited with, would recognize its value. And when it does, the coin does indeed become 1 trillion real dollars! This is no different from the Fed creating money, the only difference is (a) who's doing it and (b) there will be actual coinage denominated at $1 trillion.

Quote:

I understand the threat of the debt ceiling, probably more then you, without even having to ask other people for facts and figures. Like I said I'm half-half, and by that I mean I am all for the camp that says we shouldn't even have a debt ceiling. My worry is in what I don't know, and that is the effect of circumventing congress or (apparently plausibly) creating a crisis of governance and constitutionality.

There is already a crisis of governance, and the constitutional crisis over the coin can only happen if it goes to the courts. I'm not even sure the courts will even want to get involved in this controversy.

Quote:

If the legal authority of the entire US government evaporates, what effect do you think THAT will have on the markets? I don't know. Almost certainly, I'm not going to risk it on a plan I know will not work.

A plan you [know will not work? Are you trying to make me laugh here? rolleyes

And what makes you think the "legal authority of the US government" will evaporate? If this scheme works, the Republican's machinations to subvert the will of the electorate will fail, and the people will be grateful to Obama from saving them from the debt ceiling cliff. If the government is the Executive Branch, the authority of the US government will be enhanced.

Quote:

A coin will not work.

There is also the fact that you number reference a fiscal freeze of a YEAR. Every week that the government continues to be inoperable because of the debt ceiling would create political panic as unemployment rises. The chances of fully actualizing your scenario are low. Admittedly that still doesn't change the threat of a credit downgrade.

TL biggrin R Your scenario is unrealistic, if maybe mathematically true, I don't know the consequences of bypassing congress in this issue, A coin will still not work.

The only way the coin will not work is the Fed refuses to accept it. Since the Treasury can legally mint platinum coins of ANY denomination, the Fed CANNOT refuse to accept the coin.

You are being totally distracted by the superficial unorthodoxy of this proposal.

[N3bu]

Breaking down Krugmans explanation, I can see what he's proposing and I agree with it, much like I was trying to agree with it before. I still don't see the point in a coin, which is my only problem with just about everything happening here, you would be much better off printing $100 bills.

I'd still worry about the constitutional effect though.

[azulmagia]

N3bu

Breaking down Krugmans explanation, I can see what he's proposing and I agree with it, much like I was trying to agree with it before. I still don't see the point in a coin, which is my only problem with just about everything happening here, you would be much better off printing $100 bills.

Treasury can't print enough bills, it's limited by law.

But there are NO laws limiting the amount of coinage it can mint. And the law allows the Treasury to mint coins of ANY denomination, provided that they are platinum.

[N3bu]

azulmagia

Only the Fed, with whom this NON-CIRCULATING coin would be deposited with, would recognize its value. And when it does, the coin does indeed become 1 trillion real dollars! This is no different from the Fed creating money, the only difference is (a) who's doing it and (b) there will be actual coinage denominated at $1 trillion.

There is actually a huge difference nobody has addressed. Even if it's a non-circulating coin, it represents a value to the Fed. With normal currency the Fed can then actually back this value if it needs to, with a single coin, it can't. Which is the whole point. For me, this is not about inflation or printing money, since I already agree with that idea, but the idea of a coin is a bad one (unless it's the only one), and you would be much better off printing 1 Trillion in regular denominations.

This 1 Trillion in book value will only have use if it gets transferred, to the government, to their debt holders, whatever. Eventually those transactions will need to be backed at some point with cash. At that point it kind of roles all the way up the back to the Fed who will actually find themselves short on cash. It will probably actually materialise before that point though since cash isn't used a lot.

[N3bu]

azulmagia

N3bu

Breaking down Krugmans explanation, I can see what he's proposing and I agree with it, much like I was trying to agree with it before. I still don't see the point in a coin, which is my only problem with just about everything happening here, you would be much better off printing $100 bills.

Treasury can't print enough bills, it's limited by law.

But there are NO laws limiting the amount of coinage it can mint. And the law allows the Treasury to mint coins of ANY denomination, provided that they are platinum.

God US laws suck balls.

Ok then, I won't argue further. It's still a bad idea, even if it's the only idea left, just simply because of the inability to use the coin.

[Wendigo]

The "any denomination in platinum" thing is, btw, for allowing commemorative coinage. Which puts said trillion dollar coin roughly in the same category as the "9/11 twenty dollar bill" put out by those scammers on th' teevee.

[Noogie]

N3bu

azulmagia

N3bu

Breaking down Krugmans explanation, I can see what he's proposing and I agree with it, much like I was trying to agree with it before. I still don't see the point in a coin, which is my only problem with just about everything happening here, you would be much better off printing $100 bills.

Treasury can't print enough bills, it's limited by law.

But there are NO laws limiting the amount of coinage it can mint. And the law allows the Treasury to mint coins of ANY denomination, provided that they are platinum.

God US laws suck balls.

Ok then, I won't argue further. It's still a bad idea, even if it's the only idea left, just simply because of the inability to use the coin.

What about one thousand, platinum billion dollar coins? ninja

[azulmagia]

N3bu

azulmagia

N3bu

Breaking down Krugmans explanation, I can see what he's proposing and I agree with it, much like I was trying to agree with it before. I still don't see the point in a coin, which is my only problem with just about everything happening here, you would be much better off printing $100 bills.

Treasury can't print enough bills, it's limited by law.

But there are NO laws limiting the amount of coinage it can mint. And the law allows the Treasury to mint coins of ANY denomination, provided that they are platinum.

God US laws suck balls.

Ok then, I won't argue further. It's still a bad idea, even if it's the only idea left, just simply because of the inability to use the coin.

This coin is not meant to be used as other coins are. It's just a really offbeat way to get certain things done without breaking the law.

Wendigo

The "any denomination in platinum" thing is, btw, for allowing commemorative coinage. Which puts said trillion dollar coin roughly in the same category as the "9/11 twenty dollar bill" put out by those scammers on th' teevee.

That law was passed to allow the Treasury to mint commemorative coins. But the wording of the statute does not actually forbid what is being proposed, so that argument is moot.

Noogie

What about one thousand, platinum billion dollar coins? ninja

It would be too easy to lose that many. Probably mint them in the 100 billion denomination.

As to the face on the coin, Krugman nominated John Boehner. Though Obama would probably put TR or Reagan on it.

[Heimdalr]

Wait wait wait hold on. That's what you're gonna use to pay me back? Seriously a*****e? I know what platinum is, and a coin that will fit through the front door of the Fed is not worth a trillion dollars. I don't care how many zeroes you can fit on it because I know it's gonna be worth about the same as a '98 Ford Taurus, while you owe me a hundred thousand Lamborghinis. Don't make me demand the debt be covered by barter.

[N3bu]

azulmagia

N3bu

azulmagia

N3bu

Breaking down Krugmans explanation, I can see what he's proposing and I agree with it, much like I was trying to agree with it before. I still don't see the point in a coin, which is my only problem with just about everything happening here, you would be much better off printing $100 bills.

Treasury can't print enough bills, it's limited by law.

But there are NO laws limiting the amount of coinage it can mint. And the law allows the Treasury to mint coins of ANY denomination, provided that they are platinum.

God US laws suck balls.

Ok then, I won't argue further. It's still a bad idea, even if it's the only idea left, just simply because of the inability to use the coin.

This coin is not meant to be used as other coins are. It's just a really offbeat way to get certain things done without breaking the law.

All currency should be usable at some point, just by nature. Essentially the Fed is just pretending they have an extra 1 Trillion dollars. They don't really because they can't give it to anyone or pay anyone with it. This works for the situation, but eventually when it comes down to it your going to be promising 1 Trillion dollars to people when it doesn't exist, or at least until the point they replace that coin with 1 Trillion dollars in real currency.

[Michael Noire]

most of the debt is imaginary. why don't we all just imagine the debt doesn't exist?

come on care bears! let your light shine!

[azulmagia]

N3bu

azulmagia

N3bu

azulmagia

N3bu

Breaking down Krugmans explanation, I can see what he's proposing and I agree with it, much like I was trying to agree with it before. I still don't see the point in a coin, which is my only problem with just about everything happening here, you would be much better off printing $100 bills.

Treasury can't print enough bills, it's limited by law.

But there are NO laws limiting the amount of coinage it can mint. And the law allows the Treasury to mint coins of ANY denomination, provided that they are platinum.

God US laws suck balls.

Ok then, I won't argue further. It's still a bad idea, even if it's the only idea left, just simply because of the inability to use the coin.

This coin is not meant to be used as other coins are. It's just a really offbeat way to get certain things done without breaking the law.

All currency should be usable at some point, just by nature. Essentially the Fed is just pretending they have an extra 1 Trillion dollars. They don't really because they can't give it to anyone or pay anyone with it. This works for the situation, but eventually when it comes down to it your going to be promising 1 Trillion dollars to people when it doesn't exist, or at least until the point they replace that coin with 1 Trillion dollars in real currency.

I think you've forgotten how money is created. Atrios puts it this way:

Quote:

There really is nothing silly about this. Money is a creation of government. That we've, by statute, left most of that power to the Fed does not mean that Treasury should not, if necessary, use its power for a clearly positive purpose.

Frequently the Fed snaps its fingers and creates billions. The coin is no sillier than that, unless you just think money is silly. In which case you can give all of your money to me.

link

When the coin is deposited at the Fed, the Fed will start issuing bonds - just as would happen were the debt ceiling be raised by act of Congress.

Heimdalr

Wait wait wait hold on. That's what you're gonna use to pay me back? Seriously a*****e? I know what platinum is, and a coin that will fit through the front door of the Fed is not worth a trillion dollars. I don't care how many zeroes you can fit on it because I know it's gonna be worth about the same as a '98 Ford Taurus, while you owe me a hundred thousand Lamborghinis. Don't make me demand the debt be covered by barter.

True, the metal of the coin is not going to be worth a trillion dollars. But does a penny contain a cent's worth of metal? Is the paper a dollar bill made of worth a dollar?

Once again, people are getting spooked out about money creation.