Crank up the mint for the platinum coin

by on July 28, 2011 at 6:38 pm in Current Affairs | Permalink

Matt Yglesias explains.  Crazy, maybe, but some of the other people involved in this mess are even more crazy.  Of course this is still only a back-up plan.  We all know this entire matter all will be settled peacefully well in time to prevent any stress or worry.

And hey people, Get This!

Bill July 28, 2011 at 6:52 pm

I think they should put Grover Norquist’s face on the coin just to irritate him.

Tom Hickey July 28, 2011 at 9:47 pm

I vote for that. :)

babar July 28, 2011 at 10:08 pm

what happened to those bearer bonds two years ago?

Buster July 28, 2011 at 10:48 pm

What could go wrong?

Floccina July 28, 2011 at 11:04 pm

What is wrong with selling gold?

David Gillies July 28, 2011 at 11:11 pm

Is there $2 trillion of platinum out there available for purchase? This is the problem the gold-bugs have. There’s just not enough of it. Platinum’s at about $1780/oz right now (that’s Troy ounces, so 12 lbs is 175 Troy oz, don’t ask me how I know this). Call it $2000. That’s a billion Troy ounces. Thirty thousand tons. 1500 cubic meters. Really? That’s a cube of platinum 35 feet on a side.

beowulf July 29, 2011 at 2:53 am

You’re missing the point, f Congress has delegated the entirety of its apparently “unlimited” power to coin money to the Secretary of the Treasury in the platinum section of the Coinage Act, 31 USC 5112(k). There was a CRS report the year that was enacted (1996) which discusses coin seigniorage:
“As a result, the buying and selling of securities on the open market is the principal means by which the Fed influences the money supply. Buying securities, it injects money into the system. Selling them, it removes money from the system… One method of creating money does not earn profits for the Fed: coins. The system of metal coins is somewhat different. Coins, too, cost only a fraction of their face value to create (being mostly “clad” coins made of nickel, zinc, and copper). But in the case of coins, the Fed pays face value to the mint, with the profits being placed in a revolving coinage fund. The effect on the economy is the same, and it has the same implications for real government outlays and income. Only the accounting differs… If the power of the government is limited to issuing coins, there is still nothing that requires the coins to be “full bodied” — that is, to have precious metal content equal to their face value. The constitutional power to issue coins appears to be unlimited.
http://hiwaay.net/~becraft/FRS-myth.htm

As long as the coin is made of platinum it doesn’t matter how much metal it contains, the value added is the Secretary’s signature. The Secretary has absolute discretion as to quantity and denomination. So he could change the West Point Mint’s 2011 scheduled run of 15,000 platinum coins to 14,998 of the existing 1 oz Platinum American Eagles (face value $100) plus two 1 oz Platinum Reagan Centennials (face value $1 trillion). The Mint issue gold coins as small as 1/10 oz., so I suppose a $1 trillion with a metal cost of $178 is a better value for the taxpayer than $1 trillion coin with a metal cost of $1780, after all the President of the United States thinks we’re out of money. o)

Incidentally, the Fed’s own Regulation D (12 CFR 204.2) contemplates deposits of numismatic coins with its depositary banks. Its vault cash definition includes all US coins except that those “whose numismatic or bullion value is substantially in excess of face value is not vault cash for purposes of this part”. Let me do some quick cipherin’… $1 trillion > $1780, we’re good!

David Gillies July 29, 2011 at 3:13 am

Well in that case this is even further into the land of the fairies than at first glance. Why not just take a blank quarter, stamp “IOU 2 trillion bucks KTHXBAI” on it and stick it in a safe in Ben Bernanke’s office? You can’t magic debt away with seigniorage. We’re not in a liquidity crisis. We’re in a solvency crisis. The letter of the law might allow the minting of coins with arbitrary face value, but all that indicates to me is that lawyers are over-promoted in government at the expense of economists. I’m probably too stupid to see why this isn’t the sheerest nonsense. All my degrees were in boring things like physics and electronic engineering where conservation laws apply and the things each side of the equals sign have to, you know, equal each other.

beowulf July 29, 2011 at 8:15 am

“Why not just take a blank quarter, stamp “IOU 2 trillion bucks KTHXBAI” on it and stick it in a safe in Ben Bernanke’s office?”

Because Congress was pretty clear that the face value of a quarter dollar is… a quarter dollar. However David, if I may quote another engineer….
“under the old way any time we wish to add to the national wealth we are compelled to add to the national debt. Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I… If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good… If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good… The bonds will be negotiable; they will be considered as gilt edged paper. Why? Because the government is behind them, but who is behind the Government? The people. Therefore it is the people who constitute the basis of Government credit.”
http://prosperityuk.com/2000/09/thomas-edison-on-government-created-debt-free-money/

Adam July 29, 2011 at 10:52 am

” We’re not in a liquidity crisis. We’re in a solvency crisis.”

I don’t think this could be more wrong. We have no solvency issue. We have at the moment a failure of politics, and that’s all.

David Gillies July 29, 2011 at 12:13 pm

By ‘blank quarter’ I just meant any handy lump of metal. Why not a piece of aluminium foil? And Adam, this is a solvency issue. Illiquidity is where you can’t pay your rent because it’s due tomorrow and your salary cheque doesn’t clear until next Tuesday. Insolvency is where you can’t pay your rent because your monthly nut is bigger than your salary. When the US is spending 25% of GDP but only pulling in 18 or 19% in revenue, then it’s insolvent. I don’t care what fancy-schmancy economics/accounting tricks are used to try and gussy up the figures: the US is broke. Finding a couple of coke bottle caps down the back of the sofa and trying to pawn them off as being worth $2 trillion is, what? Idiotic, certainly. It’s akin to how William F. Buckley characterised the so-called ‘lock-box’ for Social Security: like a 13 year-old girl writing Valentines to herself. Basically this is all angels-dancing-on-a -pin logic chopping.

Floccina July 28, 2011 at 11:12 pm

What is wrong with selling the gold at fort knox?

Jim July 28, 2011 at 11:29 pm

The US only has $400 billion worth of gold reserves. If they did start selling bullion, it would depress the price and the actual take would be less. Since the US needs over $100 billion a month in borrowing, it wouldn’t do much. The trillion dollar coin lets us keep our gold and create a Zimbabwean style trillion dollar coin.

TallDave July 29, 2011 at 10:19 am

That sounds like four months leeway to me.

Jim July 28, 2011 at 11:21 pm

I don’t think they would need $2 trillion in platinum. They would just declare the coin to be worth $2 trillion. More fiat money.

wh10 July 29, 2011 at 12:27 am

To preempt the inflationistas:

1. From a fundamentals perspective, this is no more inflationary than if the debt ceiling did not exist. Govt can only spend what Congress appropriates, so they could print an infinity $ coin and it wouldn’t make a difference regarding spending potential. It would just effectively nullify the debt ceiling permanently.

2. One can make a valid argument that markets would likely be rattled due to uncertainty and speculation, but I think one could make a strong argument the outcome of this would not be as bad as the outcome of a default. The argument against the jumbo coin is based upon speculation of speculation potentially transmitting to bad things (for how long, who knows), and the argument against default is based upon some things we actually know would happen immediately to the real economy. If the choice was literally default or this, I would vote this. Some of the other options, ie the constitutional route, may be preferable to some.

2. This idea came out of the MMT camp at least a half year ago. Here is an article detailing the operations and economics, with links to the original commentators – http://neweconomicperspectives.blogspot.com/2011/07/qe3-treasury-stylego-around-not-over.html

GinSlinger July 29, 2011 at 5:35 pm

Oh, well, if the chartalists came up with it, t must be a good idea!

wh10 July 29, 2011 at 12:35 am

Actually, to be clear, the original idea is to use the coins to purchase debt held internally by the Fed, thereby allowing the issuance of more bonds, as opposed to the Treasury spending without issuing bonds. So the “coin” money would never go into the economy per se. However, you could use the idea to allow the Treasury to directly spend without issuing bonds. The point of bond sales is to mark up the Treasury’s TTL account since law requires the Treasury can’t receive overdrafts from the Fed (note we could 1942-1981) and to drain reserves to maintain the FFR when the Fed isn’t paying interest on reserves.

Prakash July 29, 2011 at 1:03 am

If coin seignorage catches up as a way of financing in the US government and no further treasuries are issued, then what will China end up buying? Actual US Dollars?

beowulf July 29, 2011 at 3:18 am

Prakash, China provides us goods and services which we exchange dollars (of which, like Keebler elves and their infernal cookies, we have an inexhaustible supply) So that’s where China starts out, with the dollar proceeds of their US exports in a Fed reserve account. When they buy interest-bearing Treasuries, their dollars are moved over to a Fed securities Account . As part of the TARP bill, the Fed was authorized to pay interest on reserves, which is tied to target Fed Fund rate (currently 0.25%).
Since Treasuries maturing out to a year or more yield less than that, China is better off now just keeping their dollars in a reserve account and collecting IOR (thus the fake scary headlines that China has dumped 97% of the T-bills they’ve held). Incidentally, the Fed can still peg Fed Fund rate, even if we never issue Treasuries again, simply by adjusting the IOR rate. China is kinda stuck, if they want to keep exporting to us, they have to keep taking our dollars.

TallDave July 29, 2011 at 10:17 am

Everyone always seems to forget that last sentence and the implications it is fraught with.

J Thomas July 30, 2011 at 11:19 am

China is kinda stuck, if they want to keep exporting to us, they have to keep taking our dollars.

Here’s an alternative for them — they could dump their exports in the Gobi desert.

That way they lose out on getting those dollars, but they also pay less in transportation fees, so they might feel like they come out ahead.

Barkley Rosser July 29, 2011 at 4:55 am

This is indeed weirdly doable. What would be better would be to follow the advice of Moody’s to abolish the debt ceiling entirely, something almost nobody, including Tyler and Alex here, have commented on, much less a single member of Congress, although they are moaning and wailing and gnashing their teeth over Moody’s threat to downgrade the US credit rating. That we alone among all nations in world history even have such a stupidity as a nominal debt ceiling gets ignored in this increasingly absurd frenzy.

In any case, since nobody this time around is going to abolish the limit, and if they do not raise it appears that Obama is too chicken to follow Bill Clinton’s advice and declare the damned thing unconstitutional as it clearly is, then this platinum coin scheme may be the next best thing to avoiding a major financial and economic mess that should never have come to pass, comical and apparently absurd as it is. But it is no more absurd than the debt ceiling itself.

Adam July 29, 2011 at 10:54 am

“What would be better would be to follow the advice of Moody’s to abolish the debt ceiling entirely”

I’m not sure that’s possible. My understanding is that the Constitution gives Congress the sole power to authorize the issuance of debt. Rather than vote on individual bond issues (as they used to do), they now authorize issuance up to a specified amount, and that’s the debt ceiling. Authorizing unlimited borrowing would seem to create separation of powers issues.

TC July 30, 2011 at 3:06 pm

Nice one Barkley. We’re forced into bizarre behavior by people who aren’t grown up enough to deal with reality.

Of course it would be best to eliminate the debt ceiling entirely.

So we’re stuck with the richest, most powerful country in human history being reduced to issuing coins of massive value in order to avoid a global economic catastrophe – and the catastrophe may still happen. As you point out, this apparently has the support of team MR.

Luca July 29, 2011 at 5:49 am

Where does the FED gets the money to but the platinum needed for the coins???

beowulf July 29, 2011 at 8:06 am

Luca,
The Fed would buy the coin from the US Mint, which is part of Tsy. Neither takes a congressional appropriation since, well, if they need money they just make it. As I mentioned above, the Mint is slated to sell 15,000 platinum coins this year to collectors at a markup over metal market price (their $100 face value, of course, being just a fraction of that). Denomination bears no relationship to metal price. A 1/10 of ounce platinum coin could be given a face value of $10 or $10 trillion, its at the discretion of the Secretary.

As for the Fed, it would purchase the coin at face value either by marking up Tsy dollar reserves or, more simply, by exchanging an equal value of Fed-held Treasuries. Indeed, the latter is a textbook example of what economists call a “fiat coin money barter system” (OK I just made that up). :o)

Brandon Berg July 29, 2011 at 6:22 am

I endorse this plan if and only if the coin is comically oversized.

Silas Barta July 29, 2011 at 11:52 am

And the Fed had better damn well buy it with one of them oversized checks too!!!

TC July 30, 2011 at 3:08 pm

lol! beuwulf – who BTW is one of the creators of the idea – wants to issue a tiny, tiny coin. There is hilarity in both.

TallDave July 29, 2011 at 10:16 am

Ah, financing our deficits with seignorage, a.k.a. the Zimbabwe Option.

Jim Baird July 29, 2011 at 12:37 pm

Not to confuse you with facts, but this is nothing of the kind. (You may stick your fingers in your ears and start singing “Mary had a Little Lamb” now):

http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/marshall-auerback-inflation-and-hyper-inflation/

Gizzard July 31, 2011 at 8:21 am

Ahhhh another rube who throws out Zimbabwe!

So you really think its legitimate to compare a country with THE reserve currency of the world, one with literally billions of people saving in it, to a country where no one outside the borders ever saved their currency (except to hang it on a wall somewhere)?

You really think its legitimate to compare a country that has never had a bond market to speak of to a country with a bond market the size of the USs?

You really think in a country with an output of over 15 trillion dollars another trillion is going to lead to currency collapse?

Again, literally hundreds of millions of people hold US dollar denominated bonds either directly or via some retirement vehicle. You really see them dumping those just because the Congress cant agree on whether to pay granny 1700 or 2000 or whether to tax Thurston Howell 38% or 35%.?

You’re dreaming

falk July 29, 2011 at 10:52 am

Refreshing, this comic relief. It momentarily dispels the sheer terror lurking in the hall of smoke and mirrors we perpetuate simply by believing in it. The fate of nations, and the world, now hangs by the frayed thread of credit ratings, which are issued by proven crooks who sold out to the banksters in their insane scheme to build a perpetual money machine that plunged the world into recession. It is time to demonstrate to these criminals that we are not their puppets, they do not hold the strings, and all wealth is illusion if the people (We the People) who in fact created it will not allow you to enjoy it.

Adam July 29, 2011 at 10:56 am

The twitter link is the inverse of what I had been wondering. Namely, is this a form of quantitative easing? And would that be a good thing?

Roger July 29, 2011 at 12:01 pm

Another option to coins is selling rights to buy Federal Property. Just Send the president down to the local “Title Loans” place. He could put up the title to Capital building. It is not like anyone is using for it’s intended purpose. Or maybe he could put an aircraft carrier or two into hock.

Bill July 29, 2011 at 1:45 pm

I think the President should mint toilet paper as currency instead of platinum coins.

You could either store it or use it.

As to the platinum point, this is also stupid and damaging to the economy: think of any company that uses platinum in a manufacturing process and ask the question: how much output will be produced by this factory in the future if the price of platinum goes up.

Geez, I’m glad their is not much use for gold other than jewelry or you would be tanking those industrial customers also.

Adam July 29, 2011 at 3:11 pm

” how much output will be produced by this factory in the future if the price of platinum goes up.”

huh? Why would minting a handful of platinum coins (containing whatever arbitrary amount of platinum) do anything to platinum prices?

Bill July 29, 2011 at 4:32 pm

Re your comment: “Why would minting a handful of platinum coins (containing whatever arbitrary amount of platinum) do anything to platinum prices?”

There is something called supply and demand.

Look it up.

If you increase the demand for platinum, its price increases.

Who would have guessed that silver miners in the 1880s wanted currency to be based on silver? Do you think purchasers of silver for use in industrial processes liked that? If Kodak would have been around, they would have had a beef?

Bill July 29, 2011 at 4:34 pm

Or, for that matter, why would companies that buy or sell gold sponsor the Glenn Beck show?

Abelard Lindsey July 29, 2011 at 4:40 pm

I don’t think you understand what this is. The idea is not to mint coins out of Platinum and then base the value of those coins on the market value of the Platinum used to make them. Rather, the idea is to make only two coins out of Platinum, then arbitrarily assign the value of $1 Trillion to each one of those coins. The “value” of the coin has nothing to do with the underlying value of the Platinum. It is purely a fake value.

Adam July 29, 2011 at 4:45 pm

“If you increase the demand for platinum, its price increases.”

Why would minting a handful of platinum coins (containing whatever arbitrary amount of platinum) do anything to platinum prices?

In other words, we aren’t talking about much platinum. Why would this small amount of platinum move the market?

Bill July 29, 2011 at 6:16 pm

Why not two copper coins. It would be cheaper.

I’ll admit, though, in skimming the article I thought that it was creating coins (not two coins) from platinum based on their value off of the value of the mineral.

Gizzard July 31, 2011 at 8:29 am

Abelard

“The “value” of the coin has nothing to do with the underlying value of the Platinum. It is purely a fake value”

I hate to break it to you Abelard but ALL value is fake. Golds value is “fake”. There is no such thing as intrinsic, objective value. At least not any that can be quantitated. All values are agreed upon by some sort of convention, which of course is man made.

Abelard Lindsey July 29, 2011 at 4:35 pm

The Federal government owns a significant percentage of the land in the Western U.S. as well as Alaska, something like $40Trillion or so. They can start selling this land at auction.

Andrew Edwards July 29, 2011 at 6:09 pm

I hear it is a great time to try to sell a trillion dollars worth of undeveloped real estate in the middle of nowhere. Real smoking-hot market.

Bill July 29, 2011 at 6:18 pm

Not a bad idea.

We also manage to sell OCS leases to raise money also.

I heard that the leases were going up on E-Bay on August 1.

Urso July 30, 2011 at 3:52 pm

Far be it from me to cross legal swords with Jack Balkin, but off the top of my head I think this proposal is unconstitutional. Congress has wide, but limited, authority to delegate its powers. One of those powers is to “coin Money [and] regulate the Value thereof.” To me this seems like a pretty clear abdication of the coinage power to the Secretary of the Treasury. It’d be like Congress passing a law saying “The Secretary of Defense can declare war on whoever he wants to, in his sole discretion.”

Now whether the unconstitutionality makes a real-life difference I can’t say. Obviously it’d take a while for the Supreme Court to rule on this and by then the crisis will (hopefully) have passed. The question then isn’t whether it’s actually unconstitutional but whether the markets would *treat* it as unconstitutional. I think the uncertainty would add too big a risk from most investors’ perspectives. (Also, I realize this is all hypothetical and there’s no chance of this actually happening).

5ftflirt July 31, 2011 at 12:57 am

Alexander Hamilton is rolling over in his grave.

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