The #trilliondollarcoin meme

[girl gone mad]

From Edward Harrison, http://www.creditwritedowns.com/2011/07/trillion-dollar-coin.html">credit writedowns:

The coin seignorage idea has really caught on - not just in the blogosphere, but in the mainstream media as well. You have Brad DeLong, Matt Yglesias, Tyler Cowen and a lot of others talking up ‘The Coin’. In the mainstream media, the Economist, CNN, The New Republic and many others.

Just so you know what I am talking about, the idea is an end-run around the debt ceiling and it works like this:

1. The Treasury mints a $1 trillion coin, or whatever amount is desired.
2. The Treasury deposits the coin into the Treasury’s account at the Fed.
3. The Treasury buys back bonds
4. The retirement of bonds is an asset swap, no different from QE2
5. The increase in reserve balances is not inflationary, as Credit Easing 1.0, QE 1.0, and QE 2.0 already have shown.
6. These operations by the Treasury create no new net financial assets for the non-government sector
7. The debt ceiling crisis is averted

http://www.creditwritedowns.com/2011/07/trillion-dollar-coin.html">more...

Let's do this already.

[Shagbark Hickory]

1. Sounds really good to me.

Not sure what any of it means but it sounds good!

[former9thward]

2. Why not just make it 100 trilliion?

Then none of us would have to pay taxes and we could all retire at 35. It makes as much sense.

[girl gone mad]

9. Because that would be inflationary.

[former9thward]

13. And creating one trillion dollar coins would not be?

[girl gone mad]

14. No more so than simply raising the ceiling.

The spending was already approved by Congress during the budget process so any inflationary expectation is priced in by now.

This coin will not circulate, it will sit in Treasury's vault at the Fed. It's an asset swap, similar to the Fed's QE2 program.

[former9thward]

15. That would be a banana republic move.

And would be treated by markets and investors as such.

[girl gone mad]

18. There's no reason to make such an assumption.

Markets have not reacted negatively to quantitative easing or any of the other Wall Street bailouts which transferred massive amounts of private debt onto the public's balance sheet.

The banana republic move would be for the government to default when it has the capability to pay its debts, or to make economically damaging cuts to vital spending programs when there is no valid need to do so.

In my view, this would be a market reassuring action.

[Frank Cannon]

25. Well, since we are swiftly becoming a banana republic, if we aren't already...

it would just be truth in advertising.

[JVS]

24. No it wouldn't. As long as the money stays in the account at the fed.

[drm604]

23. You're not getting the entire picture.

The idea is to use the trillion to buy back bonds. That way there is no net increase in financial assets in the private sector. I don't think there are 100 trillion in bonds outstanding so what you're suggesting (sarcastically - I understand that) is something completely different.

[Ruby the Liberal]

3. With Geithner having the authority to mint coins, this is definitely workable

I first heard about it from Yves Smith, and have yet to see anyone (with any credibility or not) give a good reason as to why it wouldn't be completely legal. It goes to the power of the Treasury to coin money (NOT the "Federal" Reserve).

[Poll_Blind]

17. This is a far safer way for the President to stave off economic ruin than invoking the 14th.

People keep getting hung up on the concept of a coin with so much worth.

PB

[Ruby the Liberal]

19. Not to mention, it leaves the "fed" holding the magic beans.

[Wait Wut]

4. It'll take 6 months...

...just to get the artwork approved. That "could" be our compromise though. Put a big ol' cross on one side and Ronnie on the other. We'll get it approved immediately and none of us would ever have to look at it.

[Ruby the Liberal]

11. !

:rofl:

[saras]

5. Like this?

[Wait Wut]

8. HA!!!

Get some gold spray paint and I'd call it good!!

[rdking647]

20. it has to be platinum

I actually read the law that lets geitner do it. The coin has to be platinum.

[drm604]

6. I'm confused.

What is achieved by the treasury printing money (okay, minting a coin or coins, same difference) and buying back bonds?

How does this give them money to issue, for example, SS checks?

On Edit: Never mind. I figured it out. By buying back a trillion in bonds they would be decreasing our debt and putting us a trillion dollars below the current debt limit, giving us a lot of breathing room.

[girl gone mad]

10. Treasury can trade the coin for vace value USD credits from the Fed.

The difference between face value and what it actually cost Treasury to mint the coin(s) is their profit, which they can then use to retire US government debt obligations.

[Ruby the Liberal]

12. Yep, think Jack and the Beanstalk

Treasury gives the Fed some magic beans and they tear up all of our IOUs.

Its brilliant, IMO.

[PoliticAverse]

7. The Fed has much less silly ideas up their sleeve than this. n/t

[Poll_Blind]

16. This is a far less volatile idea than invoking the 14th Amendment.

If there's an actual safe escape hatch as a last second save form all out economic ruin, this is actually far less open to dispute than invoking the 14th Amendment.

PB

[Poll_Blind]

21. People should take the brief amount of time it takes to read that and understand that....

...if the President has to pull out some emergency maneuver, there are more legally-defensible options and less legally-defensible options. From everything I have read this, while sounding the silliest, is actually the most legally-defensible option.

And remember, this would only be a last ditch option to prevent our Nation from defaulting on its creditors, which would certainly bring about a spectrum of economic calamities the likes of which we do not want to ever see scourging the American countryside.

PB

[bluedigger]

22. It takes a crisis, even a manufactured one, to find the simple solution.

This is brilliant. Deus ex Machina in the real world.

[amborin]

26. many highly respected economists advocate this remedy; moreover,

"....if no action by Congress raising the debt limit is forthcoming, it will be the President’s sworn DUTY AND OBLIGATION to either use platinum coin seigniorage, or some other revenue creating tool legislated by Congress in past years, to make the money necessary to avoid default, since his failure to use an available way of creating revenue for continuing to spend appropriations, which he is mandated to do, would be a violation of his oath of office."

more at:

http://www.nakedcapitalism.com/2011/07/why-matt-yglesias-and-felix-salmon-are-wrong-about-a-legal-way-to-circumvent-the-debt-ceiling-impasse.html