Slashdot Mirror
Seigniorage Hack Could Resolve Debt Limit Crisis
UltraOne writes "With the US Senate voting to table the Boehner debt limit bill, the US is only a few days away from running out of cash to pay for all its obligations. Slate is reporting on a fascinating legal hack that could come in handy, described by blogger 'beowulf' back in January 2011. Seigniorage is the extra value added when a government mints a coin with a face value greater than the value of the precious metal contained in the coin. The statute governing the minting of coins contains a section (31 USC 5112(k) ) that authorizes the Secretary of the Treasury to mint and issue platinum coins in any denomination or quantity. To keep the government from running out of money, Timothy Geithner could order a $5 trillion platinum coin struck and deposited at the Federal Reserve. The money could then be used to fund Federal Government operations (blog post contains legal details)."
I am the OP. The reason this approach counts as an 'escape hatch' is that it appears that the executive branch already has the authority to carry it out (in 31 USC 5112(k) ). To stop it, Congress would need to pass a law. To do that in the face of a presidential veto would require 2/3 supermajorities in both the House and Senate. As long as Obama can get 34 of the 51 Democrats in the Senate (or 53 Democrats plus independents who caucus with the Democrats) to back this approach, there is nothing that the House can do to stop it.
It's the best solution to our problems, unfortunately. Defaulting rather than devaluing spreads the pain rather unfairly. Devaluing hits all debt holders equally percentage wise.
Also, it resolves the housing crisis, which would be great for helping the economy overall.
"Who is the Journal of Quantum Physics going to believe?" --Stephen Hawking
Nothing to worry about.
(US debt to GDP since 1929, source Deutsche Bank, picture taken from Q2 2011 report of Brummer & Partner Zenit hedge fund.)
Meanwhile:
* Profits share of GDP
* Wages share of GDP
(http://www.marketwatch.com/story/corporate-profits-share-of-pie-most-in-60-years-2011-07-29)
"The government's duty is to perform services that are by their very nature not profitable. Public schools, police, fire, national defense, etc... it there isn't a profitable model that can provide these services at the level we expect, the it is up to the government to suplement or perform those services."
I notice you leave health out of this list, and I'm intrigued as to what your reason (if any) was for this?
The reason I'm intrigued is that in Europe it's something that we tend to lump in with schools, police, fire, but in America it's not, many Americans believe it is something that can be made profitable through health insurance and so forth, and as such I have to wonder if, having left it out, you did so because you agree with this.
If that is the case, then are you able to explain why you view it as different to say, fire insurance, or crime insurance to justify as to whether you should be able to get assistance from the police, or fire department, dependent on whether you've paid such insurance?
If it's not the case and you missing it out was merely an oversight, or an attempt to simply avoid the debate then I apologise! I'm just genuinely intrigued to know how some Americans square away that facet of the healthcare debate.
Not when you have the power to say that money means whatever you say it means.
There seems to be this misconception, especially among technocratic IT dudes who get their economic education from Civ IV, that money, currency, is tied to some absolute value, the way a meter is equal to 1,650,763.73 wavelengths of the orange-red emission line in the electromagnetic spectrum of the krypton-86 atom in a vacuum.
Money does not work that way. It never has. China says their yuan is worth X amount of dollars and the US says the dollar is worth X amount of euros. But none of those units of measurement is set to any standard. Even the "gold standard" wasn't really a standard because gold was still being pulled out of the ground, and its perceived value changed with cultural trends. The Indians really like gold, for example, so gold becomes more valuable. That's it. So you never tie your currency to a metal, you tie it to how much people want that metal, which is not a fixed number. Since there is no absolute standard for money, it can mean whatever we decide it means. All of this other nonsense is just smoke and mirrors to keep people from realizing that fact.
More and more, the economic elites measure wealth in very ugly human terms. A CEO is worth 800 workers and 100,000 Chinese peasants. Sort of the way a really successful athlete has to measure his worth by comparing his salary to the salary of the guy who's not catching as many touchdown passes. He doesn't even know how many zeroes are in the amount of money in his contract, but he knows his contract has to be just a little richer than the guy who had the biggest contract last year. The money itself has no meaning. Without poor people being sufficiently poor, rich people can't feel sufficiently rich. The entire purpose of money now seems to be to give rich people a way to measure how much more valuable they are than a tool & die maker or coal miner or single mother of three. Or a 62 year old unemployed auto worker.
Everybody stays poor simply to prop up the egos of the rich. When you start getting bonuses in the tens of millions and salaries in the hundreds of millions, the only way that's left to increase a rich man's perceived value is to have the perceived value of everyone around him to go down. That's what "supply-side" or "trickle-down" economics is all about. It was also called "Reaganomics" in honor of the man who presided over its inauguration as the economic system of the future. If the species should survive that long, people will look back at the turn of the millennium with disgust, as a period when the means were available to alleviate so much poverty and inequity and suffering, but the rich and powerful kept that suffering in place just to make themselves feel rich and powerful, so they could go to bed at night knowing they were that much more valuable than everyone else.
You are welcome on my lawn.
If you look at a graph of the money supply in the US over the past few decades, you will observe that the vast majority of it was created by private sources such as banks.
We have a debt based currency. The way money is created is that you borrow money from a bank against the value of an asset. In a very contorted way, the money you borrow is created by the federal reserve out of nothing. So to first order the money supply is equal to the value of all of the assets that have been borrowed against. The only way to really "create" money is to increase the value of those assets (or create more of them).
So what happens if the federal reserve makes money out of nothing (as proposed)? Well, the rule still holds. Suppose the money supply is (pulling numbers out of nowhere) $20T and the fed makes $5T more. Now the value of all those assets is $25T. But the assets haven't changed in value, so the dollar is really worth 20% less. That means (over some unspecified time) everything else has to get 20% more expensive.
That also explains why the money supply collapsed so badly in the mortgage crisis. Both the cost and value of the assets collapsed. The mortgages that backed them and the dollars they represented disappeared. The money supply (M3 is the one to look at, and that's why the government doesn't produce it any more) hasn't recovered yet. That's why the stimulus and quantitative easing aren't causing inflation yet. They're much smaller than the money supply collapse. That's also why they aren't very effective. Way too small to do much good.
Now it's left for the reader to ponder why default, which in theory destroys assets that can be borrowed against, has the opposite effect on inflation that a collapse in housing market does.
Support SETI@home
No, son, you missed my point. You indicated that to create currency, a country "had to" balance it with something of value. I challenged the "had to" part.
When you're talking about a $15 trillion economy, you could easily print a trillion and give every man, woman and child who makes less than $100,000 thirty grand. The economy would turn around tomorrow and the immediate growth would erase the budget deficit. That makes a lot more sense than "quantitative easing" which prints the same amount of money just to give it to a few banks, who then lend it out at rate 10 times that at which they borrowed it. The interest comes out of the pockets of the middle and working class and bankers get rich. The economy is not helped.
And there's no reason it should add one bit to "inflation". At the moment, the only commodity that's in short supply is money in the hands of people, so there's no reason prices should go up if everybody got the $30k helicopter drop.
If you say the words "moral hazard" you are disqualified from this conversation.
You are welcome on my lawn.