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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)."
Can you say it?
Do this, and you make it clear to everyone in the world that we're willing to devalue their bonds/dollar investments to near zero just whenever we feel like it...
"I do not agree with what you say, but I will defend to the death your right to say it"
It's not that much different than just creating virtual "account" money, as it's had been done so far.
How about instead of increasing the debt limit they A) Stop pissing away money and B) Find a way to MAKE money. Making money doesn't mean in curring more debt. What US the is doing is what most people do in college, they discover credit cards, take out 10 of them, max them out and have to get more credit cards to pay off the one's they've always maxed out. This is EXACTLY what increasing the debt limit is, it's increasing your credit limit or taking out a credit cards because you can't pay them off. At one point stop spending and put money into your bills.
Where was I going with that? Well they can now strike a coin thats worth N dollars, so how is this any better. I'm going to increase my credit limit by N to save me? That is a horrible idea for a consumer let alone a country.
This is essentially what Greece is about to do. Announce your own currency, set it at $1 fake dollar = $1 billion real dollars, then give all your creditors $20 fake dollars, call it a day and the debt is resolved! Actually this is what every country does that isn't western europe about every 60 years when their economy craters. The reason the dollar is so strong is that we haven't had to do this since it became a popular tactic about 100 years ago. Once we do that, we lose relevance in the global currency market, and paying off dictators like Saddam, Gadaffi and others puts us on a much more level playing field with Iran, Russia, China, India, Brazil etc. becomes much harder, because their currency is just as likely to be worth something tomorrow, after, or in the middle of a global or regional war.
moox. for a new generation.
Given the willingness of both parties to force a default, I suspect any attempt in this direction will be quickly torpedoed by House or Senate.
INFLATION!! no seriously, this debate is a fluffed up scare tactic, the US is bringing in enough money to pay for its debt, but the US just wants to SPEND MORE than its bringing in so lets just see how much were willing to slit our own throat for bullshit smoke n mirrors projects...
I am not going to argue politics with anyone, and that is because I am disappointed with every single one of the self interest fat ass out of touch snakes in the grass fuckwit children, this administration and last
All the while, the rest of us are stuck moving refrigerators and colour TVs.
Because they thought that the Fed would be an apolitical board that would do what was best for the economy - and, in general, they've been right.
If the government is doing something profitable, they shouldn't be doing it. With all likelihood, if something is profitable, a guided free market should be able to manage it much more efficiently.
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.
If the government is turning a profit, it's either doing something wrong, or doing something that someone else should be doing instead.
-Rick
"Most people in the U.S. wouldn't know they live in a tyrannical state if it walked up and grabbed their junk." - MyFirs
Such a coin would not be compatible with existing coin-op machines.
Warning: this article may contain humor, sarcasm, parody, and perhaps even irony. Read at your own risk.
It's not. It's just massive quantitative easing under another guise.
The only difference with this is there are statutes governing how much paper money you can print. This particular law on minting platinum coins apparently has no limitations built into it.
But, if you institute a policy reminiscent of Zimbabwe, expect the world to value your debt in the same way they value Zimbabwe's.
It's depressing how the debt ceiling is such a matter of contention right now, when it's been increased without much hullabaloo every six months or so since WWII. The reason for any artificial crisis is for politicians to threaten the public with doom and gloom in order to sneak something past them that the public normally would not accept. With Democrats and Republicans both playing along, what do both parties want to sneak by us? My guess is deep cuts to vital social programs, since the Obama administration started calling them "entitlement programs" at the start of the debate.
In the congressional hearings sure to ensue:
"So, Mr. Secretary, you're telling us you were carrying the 5 trillion dollar coin in your pocket and you think you lost it when you pulled out coins for a soda machine?"
This contradicts the entire spirit of a suicide pact. What's the point if you can cheat death?
Actually, there's a subtle and funny reason why they CAN'T just print dollar bills. The laws regulation the printing of paper currency place limits on how much can be printed at once or something like that. There is no such limit on money minted as coins. Therefore, in order for this hack to work, the money MUST be minted as a coin because statutes presently don't allow for that much paper money to be printed.
Virtue finds and chooses the mean.
Aristotle, Ethica Nichomachea
Of course they wouldn't use $100 bills for that. You can print however large denomination you want.
In Hungary the biggest denomination was 10^18 pengö. (egy milliárd bil peng (long scale) - one billion tril pengö (short scale)).
http://en.wikipedia.org/wiki/Paper_money_of_the_Hungarian_peng%C5%91#Postwar_inflation_series_.281945-1946.29
The problem is that for some people their elected representatives are behaving properly, they were sent to Washington to destroy the government (drown it in the bath tub) and they are doing just that.
If capital can be created out of thin air, why don't they just make everyone rich instead of those connected enough to use the discount window?
Because a government can create money from thin air but it can't create new value to go with it.
The value in thin-air-created money comes from diluting the value of the already-created money. No value is created, the existing value is just moved around.
The point of the exercise is to suck some of the value out of existing money, put it into new the new money, and use it or dispense it to their cronies. If they gave it to everybody they would defeat the purpose.
Giving it to everybody in proportion to the dollars and dollar-valued securities and contracts would just raise the prices of everything (and lower things like wages until they can be renegotiated). Giving it to everybody equally would suck the value out of everybody's savings - especially retirement plans - and spread it around among both those who worked and saved and those who didn't.
Of course value isn't strictly conserved, either. Value is subjective among those who are trading in each commodity (which is all of us in the case of money).
Currency once was actual precious metal and more convenient paper certificates which could be exchanged for metal. The value came from the inherent value of the metal, the convenience of its form for simplifying barter, and the government's promise to accept it for payment of debts and taxes and to recognize (and require) acceptance of it as paying off any private debt. Once it was in regular use the government gradually debased the coinage (substituting cheaper metal) and defaulted on the promise to redeem the paper for metal.
The remaining value is the expectation that the paper (or numbers in accounts) will continue to pay off debts (which it will) and be accepted for future purchases (which is variable). If the government makes it clear that it is willing to print as much as it pleases, people will anticipate a future flood of extra money. At that point people will demand even more of it in new dealings - or demand some other form of payment. Then the value of the money can drop far more than it would if there were some constant amount of "value" that was merely spread around among the old and new currency.
The classic example of such a situation is the Weimar Republic Hyperinflation. Thanks to Nixon's destruction of the Bretton Woods system by the elimination of the US' payment of gold in even intergovernmental currency dealings, there is even less to retard such a meltdown of the current US Dollar than there was the Weimar Republic Mark.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
When I first heard the idea, I thought that using Platinum would be SOO cheap for a trillion-dollar coin.
I thought about some of the really rare metals like Osmium or Rhenium. The problem is that they are both super-hard, so it would be hard to strike them as coins.
Then I had it: Americium, specifically Am-241. It has some great attributes for something you'd want to put into a vault and make it a tricky thing to steal.
Wait, someone said most US citizens have more debt than cash, so inflation is a good thing because it only hurts lenders and responsible people who've been managing their finances carefully! Nevermind that most people use a generally fixed income to pay for basic needs... Seeing this idea posted to Slashdot, then lauded as reasonable by so many is just unreal.
We are not facing a "debt" crisis here. Judging from current market prices for US securities, people with lots of money to put in safe places still think our public debt is manageable. What we are facing is a liquidity crisis.
I think the term "debt ceiling" is misleading. Many people seem to think this is about limiting Obama's ability to add to the debt. Issuing treasury securities adds very little to the debt; it's *spending* that creates debt. If I loan you a thousand dollars, you are not "in debt" until you spend that money on something I can't or won't accept as repayment, like your vacation. Under our Constitution the President cannot spend money on his own authority. Spending is authorized, and in some cases mandated by Congress. And of course "spending" usually isn't a cash up front affair. When we order a million dollars worth of missiles from Raytheon, they don't demand cash up front; they deliver the missiles and present us with a bill. The "money is spent", and now the President has to find a way to raise the cash to satisfy Raytheon.
What Congress is doing is tying the President's hands when it comes to raising the cash to pay the bills.
If he can't raise the cash by issuing securities, and Congress won't raise the cash by hiking taxes, this leaves him with two options: not pay the bills, or print (in this case *strike*) new money. The problem with creating new money is it ties the money supply to the federal budget, rather than the needs of the economy for stable prices. That's how the Weimar Republic paid its bills. It'd be OK to do once, but if Congress doesn't raise taxes of the debt ceiling, we could be in the same hyperinflation boat.
Issuing securities is, within limits, a fiscally responsible way to pay the bills, if we can trust the market's judgment of our credit risk. Remember those bills are a *result* of assuming financial obligations; they aren't the *cause* of those obligations. The cause of federal debt isn't federal savings bonds or T-bills, it's federal appropriations. And you can't pay the resulting bills with spending cuts, even if those cuts are a good idea for entirely different reasons. Creditors won't accept fiscal austerity as payment; they want *cash*.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
That is the best example of educated people you can come up with?
Hear hear! They didn't even mention Asia Carrera once!
Don't tell me to get a life. I'm a gamer; I have LOTS of lives!
The denomination of the coin is not tied to the value of the metal. The coin just has to be made from a precious metal. The platinum coin itself could be the size of a dime.
That's the "Seigniorage" aspect to this. The coin doesn't have to have metal worth $5T in it, it just has to have "$5T" printed on it. Many coins are worth much less in their metal than in the face value. The presidential dollars, for example. Also, all paper bills are essentially worthless for their material, but that doesn't stop them from being worth $100 if that is printed on them. This plan must use a coin though, because there are laws in place governing paper bills that keep the President from doing it with paper.
Don't Bogart the fish sticks
The federal budget has been growing faster than national GDP. ... Since GDP cannot be controlled, it is spending that must be controlled. Period and end of debate.
While the poster correctly identifies that the key to measuring the amount of sovereign debt (and deficit) is evaluating it relative to GDP, asserting the budget grows faster than GDP over any meaningful timeframe doesn't make it so. US spending on non-Social Security, Non-Medicare, Non-Debt Interest programs* is about 14.7% of GDP. Compare that to Eisenhower's administration in 1960 which turned in a budget excuding the same things (Medicare didn't exist yet) of 14.2%. It is perfectly reasonable to discuss budget growth outstripping GDP growth, but that isn't empirically what is occuring (again, excluding medicare - that is a legitimate long term underfunded issue that will either require cuts, taxes, or significant changes in health care spending trends to address).
The only undisputable portion of the above is that we take in less in revenue than we spend in outlays, but that doesn't mean that the only way to address that is with less spending, although that is one viable option. Increased revenue or simple GDP growth would also both address this issue.
For those wondering, James Kwak lays this out nicely in The Atlantic and he offers links from the CBO to back up these numbers - but you don't have to take my word for it (with a shout out to LeVar Burton!):
http://www.theatlantic.com/business/archive/2011/07/our-real-deficit-problem-has-nothing-to-do-with-traditional-government/242442/
*For reference, we exclude Soc Sec due to the fact that it has a separate dedicated tax system, medicare b/c it didn't exist at the comparison point, and Debt Interest b/c it doesn't measure the size of government programs.
The Republicans are boycotting all plans that place the slightest tax burden on rich people, hoping to chicken the administration into agreeing to its cuts to social spending. They do this because they know that while they wield enough power to obstruct the government, it's Obama's face in the news when the shit hits the fan, or the government takes ridiculous measures like this.
The Republicans have passed two bills now trying to prevent default. Bills you could read, and see way was going on.
The Democrats have one bill - that you are not allowed to read - that even they refuse to vote on until the very last minute (the Republicans said they would vote on it immediately so work on a true compromise bill could begin).
So just who is trying harder to compromise here? The Republicans are trying different things in the open, the Democrats are coming up with a bill in secret that does only what they want with no consideration for anyone.
It's unfair to blame Republicans for anything when they are the ones doing all the hard work of producing real bills to vote on that try and satisfy both sides!
Currently about the only difference is the Republican bill wanted a balanced budget amendment. Is that so insane? Lotys of states have them. The limit can be overridden by majority in times of need, but in normal times it provides a degree of control that Washington has shown is required.
Many here seem to think that out of control companies need more regulation. Well then why not regulation for an out of control government?
"There is more worth loving than we have strength to love." - Brian Jay Stanley
To agree with you: http://www.eco-action.org/dt/affluent.html ... The world's most primitive people have few possessions. but they are not poor. Poverty is not a certain small amount of goods, nor is it just a relation between means and ends; above all it is a relation between people. Poverty is a social status. As such it is the invention of civilisation. It has grown with civilisation, at once as an invidious distinction between classes and more importantly as a tributary relation that can render agrarian peasants more susceptible to natural catastrophes than any winter camp of Alaskan Eskimo."
"The Original Affluent Society... Hunter-gatherers consume less energy per capita per year than any other group of human beings. Yet when you come to examine it the original affluent society was none other than the hunter's - in which all the people's material wants were easily satisfied. To accept that hunters are affluent is therefore to recognise that the present human condition of man slaving to bridge the gap between his unlimited wants and his insufficient means is a tragedy of modern times.
And "The mythology of wealth"
http://www.conceptualguerilla.com/?q=node/402
"All of the "laws, ordinances, customs and usages" that regulate control over resources and relationships between people -- including their business relationships -- are nothing more than a set of rules invented by the imagination of some human being -- frequently one who has been dead since the middle ages. Those rights are frequently exchanged for -- get this -- printed pieces of paper with pictures of dead people on them. Where is the value of those pieces of paper? The answer is in your mind, in the mind of the person you are "bargaining" with -- and nowhere else. Itâ(TM)s all a big game. It is our mythology, and it is no more real than belief in Zeus, Hera and Aphrodite."
On the wheels coming off our system (scary, but incomplete as it ignores automation and the general decline of the paid value of most human labor, so it will be worse):
http://www.aftershockeconomy.com/
http://w3.newsmax.com/a/aftershockb/video.cfm
On moving beyond that (by me):
"Five Interwoven Economies: Subsistence, Gift, Exchange, Planned, and Theft"
http://www.youtube.com/watch?v=4vK-M_e0JoY
A 21st century issue: the irony of technologies of abundance in the hands of those still thinking in terms of scarcity.
Am I the only one that cannot get over a mental mispronunciation of the name Boehner?
Tsk!
Carol vs. Ghost
--just take half the gold in Ft. Knox. Issue gold certificates backed by it at a value such that the debt is paid; but don't allow redemption.
Then there's the punster solution:
Get 14 $1 bills. Tear them in half. That's 14 terabucks.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
A more general idea along those lines: http://en.wikipedia.org/wiki/Basic_Income_Guarantee ... Winners of the Nobel Prize in Economics who fully support a basic income include Herbert Simon, Friedrich Hayek, James Meade, Robert Solow, and Milton Friedman."
"A basic income guarantee (or basic income) is a proposed system of social security, that regularly provides each citizen with a sum of money. In contrast to income redistribution between nations themselves, the phrase basic income defines payments to individuals rather than households, groups, or nations, in order to provide for individual basic human needs. Except for citizenship, a basic income is entirely unconditional. Furthermore, there is no means test; the richest as well as the poorest citizens would receive it. The U.S. Basic Income Network emphasizes this absence of means testing in its precise definition, "The Basic Income Guarantee is an unconditional, government-insured guarantee that all citizens will have enough income to meet their basic needs."
If we took half the US GDP, that would be around US$2000 a month per person. The other half of the GDP, equivalent to what it was in the mid 1990s, would presumably be enough to motivate some people to work more who wanted more than that. As a plus for conservatives, we could get rid of the minimum wage law and various other things like that which so many US Republicans hate, given workers would no longer need so much protection as they could decide to live off the basic income or use that money to start their own business.
A 21st century issue: the irony of technologies of abundance in the hands of those still thinking in terms of scarcity.