New MSM Trillion Dollar Coin Wave: Here’s The Big Story

By Joe Firestone

The one thing that jumps out at you when reading the mainstream posts of the past week-and-a-half bringing Platinum Coin Seigniorage (PCS) into the forefront of attention again, for the first time since last year’s debt ceiling crisis, is that every mainstream blogger or commentator is telling a story about minting a Trillion Dollar Coin (TDC), or a few trillion dollar coins as an option the President can either use or not to get around the debt ceiling. But no one is telling us the much bigger story of the enormously increased authority to cause the creation of fiat money, delegated to the Executive Branch by the Congress in the 1996 legislation enabling PCS. And no one is telling us what the possible implications of this change are for our political and economic systems.

I’ve reviewed these posts, as well as a cable segment,  in the four earlier installments of this series. The installments, beginning with this one, are here. The posts and the cable segment are by: PethokoukisWiesenthal, Carney, Drum, Yglesias,  Yglesias, Harry BradfordBrad Plumer and Chris Hayes.

 Background: Moving off the Gold Standard

This is reminiscent of the situation with the system of fiat currency itself in 1971, when President Nixon, took us off the gold standard for purposes of international trade. After Nixon’s action there were no good treatments in the Press, or by economists, about how the move to a non-convertible fiat currency with a floating exchange rate ,and no international debts denominated in any other currency, had changed the financial system by removing the possibility that the Government could become involuntarily insolvent (“run out of money” except through its own choice not to create more).

Before Nixon’s big change, the amount of US currency and reserves was limited by the amount of our gold reserves, because it was possible for other nations to demand payment in gold in return for the dollars they held in their accounts at the Federal Reserve. In fact, Nixon closed the gold convertibility window, because France had started what looked like might be a multinational run on the gold reserves of the United States, jeopardizing the stability of the dollar in international trade, and threatening its role as the reserve currency in the middle of the Vietnam War.

After the window was closed however, other nations followed the United States in leaving the gold standard, with the result that now we have a world of nations with fiat currencies, though many nations aren’t “sovereign” in their own currencies because they’ve incurred debts in other currencies, or have pegged their currencies to the dollar, or, in the case of the Eurozone nations have, like the American States, given up their power to issue currency, and become currency users of the Euro (or the dollar, as the case may be).

Nixon’s ending of the gold standard was enormously significant because it removed the gold supply solvency constraint on the United States. And it restored the powers of the Government given it by the Constitution to issue money as needed to provide for the common defense and the general welfare (today we might say fulfill the public purpose).

The Gold Standard Hangover and Progressive Fiscal Policy

But the full significance of this event wasn’t understood by most government officials or the public, both here and in other nations. Constraints on spending that were appropriate for a gold standard-based financial system were never repealed. They persist to this very day in our institutions, in our minds, in our economic systems, and in our politics.

These included: 1) Congress dividing the financial functions of the Government between the Federal Reserve and the Treasury; 2) Congress prohibiting the Fed from directly buying Treasury-issued debt; 3) Congress’s ceiling on debt subject to the limit; 4) Congress’s prohibiting the Fed from issuing credits directly to the Treasury to implement deficit spending, forcing it to issue debt and making the terms deficit and debt close to synonymous in the public’s mind; 5) Congress’s delegating its currency power primarily to the Fed; while leaving its delegation of the power to coin money with the Treasury; and 6) Congress leaving the Fed, the Central Bank, independent of the Executive Branch and the Treasury, but, at the same time closely associated with the Banking and Wall Street interests that own the regional banks, and sit on the Federal Open Market Committee (FOMC).

These constraints have divided the sovereign currency power of the Government and weakened the President’s power to implement spending appropriated by Congress, when that spending involves deficits, even though that deficit spending was previously approved by Congress in its appropriations process. They have also perpetuated the previous gold standard-based understanding of deficit spending as closely associated with the national debt and the further understanding of the debt as a threat to government solvency, the international credit of the United States, “our grandchildren,” our standing with “the bond vigilantes,” fiscal sustainability, and fiscal responsibility.

So, these constraints have mired us down in the deficit/debt cluster of issues, self-imposed chains that prevent us from using Federal fiscal policy to meet our many problems. They have been the worst enemy of economic progressivism over the past 40 or so years, and have prevented us from responding strongly enough to the crash of 2008 to create a robust, full employment economy.

And, perhaps worse, the thinking that arises out of them now rationalizes the policies of austerity and deficit reduction that threaten to destroy the social safety net and bring our economy down again into recession or depression, or at least into a decade or more of future stagnation. These austerity policies will ruin the economic lives and prospects of a generation of Americans, and will place increasing burdens driving more and more older people into poverty, for the sake of false gold-standard based theories about how to run fiscal policy in what has become a sovereign fiat currency-based financial system.

PCS Creates a Great Crack in Gold Standard Constraints and Austerity Justifications

The big story about Platinum Coin Seigniorage is not the Trillion Dollar Coin and its possible implications for solving the debt ceiling crisis, as the mainstream has been telling us. Instead it is the great crack it creates in the wall of gold standard-based constraints still hanging over our politics and economics, and the increased fiscal and policy space this gives us to use to solve our various national problems. It is the authority the Executive Branch of Government now has to break through these constraints, and begin to unify the financial functions of government behind the public purpose.  Let’s look at those constraints again, and see what PCS, if used vigorously by the President, can do to weaken them or make them irrelevant.

– Congress dividing the financial functions of the Government between the Federal Reserve and the Treasury: PCS enables the Treasury to commandeer the power of the Fed to create unlimited reserves to fill the Treasury General Account (TGA); the public spending purse, to cover debt repayment and deficit spending for years to come. The Treasury can use this power to demonstrate to the public that there is no Federal solvency problem, and no need for austerity or deficit reduction, because many trillions of dollars fill the public purse.

Another implication of this power is that it would add greatly to the amount of reserves in the banking system as the Treasury adds reserves through debt repayment and deficit spending without destroying them through a corresponding amount of debt issuance. To compensate for Treasury’s reserve adds, the Fed, if it wants to keep the Federal Funds Rate at a target level above zero, would have to pay interest on reserves (IOR) shifting the interest paying function from the Treasury to the Fed.

–  Congress prohibiting the Fed from directly buying Treasury-issued debt: PCS, if used to produce coins with face values high enough to repay the debt subject to the limit and also pay for future deficit spending appropriations for some years, enables the Treasury to get along without issuing debt. So, it would need no one including the Fed to buy Treasury debt.

– Congress’s ceiling on debt subject to the limit:  PCS, if used to produce coins with face values high enough to repay the debt subject to the limit and also pay for future deficit spending appropriations for some years, would make the debt ceiling a dead letter for some time to come, even if the PCS authority were repealed. The law would be still be there; but it would have no effect on politics or fiscal policy because there would be no, or at least very little, debt. And there would also be no political issue due to the presence of public debt.

– Congress’s prohibiting the Fed from issuing credits directly to the Treasury to implement deficit spending, forcing it to issue debt and making the terms deficit and debt close to synonymous in the public’s mind: This constraint arises from the prohibition against the Fed granting credit to the Treasury. PCS however, involves the Fed exchanging reserves for a legal tender coin produced by the Treasury. Technically this isn’t granting credit to Treasury; but just the Fed accepting a deposit of legal tender into the Mint’s account, crediting that deposit as reserves, and then transferring most of the reserves created into the TGA as seigniorage. So, PCS produces revenue for the Treasury without violating this constraint, and also renders the constraint unimportant.

– Congress’s delegating its currency power primarily to the Fed; while leaving its delegation of the power to coin money with the Treasury: This constraint still remains with PCS. But the 1996 legislation, for the first time, makes the coining power of the Mint the near equivalent of the reserve creating power of the Fed, by allowing the Treasury to create coins with arbitrarily high face values.

With that power, the Treasury can require the Fed to fill the public purse to any level that Treasury thinks is necessary for its purposes. So, the Treasury’s lack of currency and reserve-creating authority would be far less important than before, if PCS is used to its full potential.

Let’s be clear, however, filling the public purse to any level, however high it may be, doesn’t open the purse strings for free spending by the President.  Congress still has to appropriate spending in excess of tax revenues for Treasury to spend that money. So, Congress still has control of the public purse; even after delegating its authority to fill it to the Treasury and the Fed in combination.

– Congress leaving the Fed, the Central Bank, independent of the Executive Branch and the Treasury, but, at the same time closely associated with the Banking and Wall Street interests that own the regional banks, and sit on the Federal Open Market Committee (FOMC) which sets the monetary policy of the United States: PCS, again, if high enough coin face values are involved, reduces the independence of the Fed relative to the Treasury, by influencing its actions in setting its target interest rate.

As I’ve explained above, when and if coin seigniorage is spent by Treasury, reserves are added to the banking system in the trillions of dollars. But, these reserves would not be drained by debt issuance, so their existence in the system will drive the Federal Funds Rate (FFR) down to zero. If the Fed has a positive interest rate target, then it will need to pay IOR to depositors, and this will shift the bill for Federal interest over to the Fed, rather than the Treasury, taking it off budget.

Variations in PCS Options

The mainstream bloggers and commentators told the PCS story solely in terms of the theoretical availability of coins with face values in the low trillions and their potential impact on the debt ceiling conflict. But they never considered or examined a more aggressive use of PCS to change the US financial system substantially, by freeing the Treasury from its gold standard chains and the political system from fiscal policy alternatives focused first  and last on their fiscal impact on deficits, debts, and misplaced solvency fears, rather than on full employment, price stability, and other public purposes. They never considered a range of PCS options and their possible wide range of impacts on economics, politics, and the federal financial system, as well as on the debt ceiling conflict.

Not even Brad Plumer quoting the acute Jack Balkin, is thinking, for example, about very high value PCS, in the $60 T or greater range, as options that might liquidate the debt completely, and change the whole structure of how fiscal policy could be implemented. In addition, no one was thinking about the relationship between the general PCS authority and the broader government context including the Congress and the Fed.

As I’ve said in another place, a $60 T solution would allow Treasury to harness the authority of the Fed to fill the TGA (the public purse), so that Treasury need never issue debt again for the next 15 – 20 years, ample time to reconsider the unwise and damaging decision made by Congress in gold standard days to make the Fed independent of the Executive Branch and unaccountable to the public. That solution would also make the debt ceiling issue a dead letter, to the point where that legislation could easily be repealed over the next few years, since no one would expect to use it again.

When one proposes a very high value PCS solution, almost the first objection, after getting over the shock of hearing or seeing the proposal, is that either repayment of the debt, or deficit spending using seigniorage rather than debt issuance would be inflationary. That consideration made it into the mainstream posts. I’ll consider the inflation objection at length in my next post. However it’s also already been considered and evaluated in past writings by myself, and also by Scott Fullwiler. The bottom line, however, is that debt repayment won’t be inflationary; and that deficit spending using seigniorage, also won’t be inflationary in itself.

Any inflation effect will result from unwise and excessive Congressional deficit spending past the point of full employment. It will have nothing to do with using seigniorage credits rather than credits accumulated through bond sales for deficit spending.

If the mainstream had considered a wide range of PCS options, then one among them would have caught the broader PCS story, not that PCS could help the President over his current hump with the Republicans; but that it can remove many of the Treasury’s gold standard-based constraints and, in the process, free up progressive advocates to push for solutions to most of our acute policy problems without always having to fight the “we can’t afford it, because we’re running out of money and what will we do about the burden on our grandchildren,” battle. If used properly, PCS can end all current justifications for austerity, debt, and deficit reduction in public spending. It can free progressives to build the Green New Deal and with it a bright future for America. The mainstream bloggers have missed all that by their narrow focus on the Trillion Dollar Coin and the debt ceiling rather than on PCS and its more general implications and potential significance if used.

Why?

One important question, is why the mainstream bloggers who are interested in the PCS idea haven’t explored options other than the band-aid option of a few trillions in coin seigniorage to get by the debt ceiling for a little while. Why couldn’t they see PCS more broadly than they do and explore the idea to begin to understand the likely impact of it generally as well as alternative PCS options. What’s holding them back? Is it the impact of busy lives and hectic days? Is it the time they spend on the telephone or in email communications with other mainstream bloggers and insiders in the Washington/New York village? Is it that they consciously or unconsciously shy away from ideas that might lead them to advocate policies that would actually change the system of political economy we have now?

I cannot say. But what I do know is that their examination of platinum coin seigniorage in the context of the debt ceiling crisis, and otherwise, is too narrow and superficial too serve us well. We need deeper thinking and more detailed exploration of this relatively new idea, and its implications.

But the sudden waves of blogging by the mainstream when debt ceiling crises approach, aren’t giving us any of that. What they’re giving us instead, is an echo chamber treatment of the TDC, not the daring explorations of a new idea, very high face value platinum coin seigniorage, that we have a right to expect from a free press.

37 Responses to New MSM Trillion Dollar Coin Wave: Here’s The Big Story

  1. What’s the point of talking about a Platinum coin on a web site devoted to Modern Money Theory? Is not the Platinum Coin totally bunk and irrelevant? Please, cease and desist.

    • Ray, platinum coin seigniorage refers to a process that shows how fiat money in the form of a coin created by the Executive can be used to force the Federal Reserve to use its ability to create reserves out of thin air to fill the Treasury General Account (TGA) to any desired level. The process demonstrates that Government money is fiat money and that the Government whether defined as excluding or including the Fed has the capacity to create virtually unlimited amounts of fiat money and cannot become insolvent if it is willing to use whatever tools to create money are available to it. I’d say this is squarely within MMT and about its central concerns.

      I really don’t understand what you’re complaining about.

  2. Joe – If the profit from the $60T coin is deposited in the TGA – how does it get figured into the reserves picture. If IOR remains at say 25bp, would the treasury collect the $112+ billion? Combine that with the $360B in debt service savings and we’re pushing half a trillion that could go to fund something really good like a JG program. Am I seeing this right?

    • Hi OS, well, I don’t know whether the Fed pays the Treasury IOR; but it’s an interesting thought. However, why are concerned about “funding” a JG program by getting payments from the Fed. Under the $60 T PCS assumption haven’t we just gotten $60 T from the Fed, and can’t we just get $60 T more if we need it?

  3. Joe,
    I think the work you’re doing on this will prove extremely valuable to the study of our system of money.

    Of course, I have a problem with several of the nuances contained in your explanation, but the ultimate changing relationships among players that you describe, and how these changes enable us to overcome national monetary inertia, are sauce for the gander.

    Further considerations on monetary seigniorage.
    Discovery of the PCS monetary wrinkle purports to do no less than free the government from any limitations of Treasury money issuance. If you could think of the Platinum Coins as if they were actually a different media, paper, and a different color, say Green on the Back side, then you would be fully joined with the historic power of public money.

    Greenbacks are important. They were issued without debt, yet issued by the government at a time when the government’s money was issued as redeemable with gold – as were many private bank notes. IOW, Greenback public money proved that despite what MMTers consider OMG ‘non-sovereign’ money, the issuing power and the policy space gained were incontrovertible.
    All it took was an Act of the Congress Assembled to assert the rights of monetary sovereignty in order to solve the immediate public crisis of paying the soldiers for their service.

    Another clue.There was no Fed with Greenbacks, and we didn’t even have any National Banking Act. Yet, Greenbacks worked. As might the Platinum coin seigniorage, which SHOULD end up in the same place on the Treasury’s balance sheet as did the Greenbacks. As the IMF’s Benes-Kumhof paper describes it – the equity of the commonwealth. Almost like – the Money System Common.

    Because MMT is hung up on its combination of debt- and reserve-based money, the Fed is involved in crediting the reserves to the TGA. No matter.

    MMT is engaged in enlarging the thinking of intelligent people about the potential benefits of a public-purposed sovereign fiat money system. The Platinum Coin tangent actually adds an element of much greater importance – that of identifying a legal foundation for public money issuance that puts legs on that otherwise immovable saw horse of MMT.

    No need to think of money as debt.
    No need to debate whether right now government creates money when it spends.
    No need to join the issue of whether taxes pay for government services.
    No need to parse the nuance of the statement that “the government neither has nor doesn’t have any dollars”, or that the IRS shreds our cash-based tax payments.
    No need to sell the notion that we have government debt because we need to ‘manage’ private interest rates.

    With the Platinum Coin we have digital Greenbacks, monetized however you like.
    That is the important thing to the discussion.

    Just in case the PCS doesn’t make it, Remember the Greenback.
    Thanks.

    • Thanks Joe. I agree with this; and I’ve always loved those Greenbacks. We never would have won the Civil War without them.

      • Question?
        Isn’t QE 3 a PTC in disguise.
        Money issued debt free used to purchase assets.
        Yes, the $45 billion per month benefits the TBTF banks and makes a profit for them.
        BUT what if QE 4 the people. $1 trillion were to be issued debt free to purchase all residential real estate notes,mortgages at real value plus 10% for the TBTF bankers to cover part of their cost (loss).
        The Fed could modify these loans (assets) at 2% for 36 years turning the purchase into a revenue stream of $5.5 trillion per year for 36 years.
        Ben Bernanke has proven that QE is a viable menthod , but for a Noble Prize maybe he should do it for the benefit of bettering all the people.
        Why would be want federal income taxes at all if this is a proven “somewhere else” the government can “raise revenue”
        Please tell me I am wrong.
        I can not understand why you would not want prosperity for yourself and your children?
        A fair taxation, collect interest on issuance instead of income.
        “Justaluckyfool”

        • JLF, please see my latest post on PCS, Debt, “printing” and inflation with references to Scott’s work on PCS and QE. The bottom line here is that Treasury QE through PCS may be like Fed QE in that it’s an asset swap when PCS is used to pay off debt. But when it’s used for deficit spending, then it’s a fiscal move that adds to net financial assets and is much superior to QE when it comes to adding to aggregate demand.

  4. Joe:After Nixon’s action there were no good treatments in the Press, or by economists, about how the move to a non-convertible fiat currency with a floating exchange rate, and no international debts denominated in any other currency, had changed the financial system

    There definitely was a “good treatment” by Abba Lerner, of course, in his penultimate book Flation, and surely by other dinosaurs who did not participate in the revival of zombie economics precisely when what little validity it had had thus been removed. And a probably bad treatment by Milton Friedman, I think.

    because France had started what looked like might be a multinational run on the gold reserves of the United States Yes, De Gaulle was influenced by his anti-Keynesian idiot goldbug adviser, Jacques Rueff, also an ancestor of the Euro catastrophe, IIRC. So mediated by the faux-Socialist idiot Mitterand, inflictor of austerity on France, and of the Euro on Europe, De Gaulle thus caused the destruction of Gaullism.

    Ray Phenicie: What’s the point of talking about a Platinum coin on a web site devoted to Modern Money Theory? Is not the Platinum Coin totally bunk and irrelevant? Please, cease and desist. I am always for yet one more therapy to convince slumbering Lions that they are bound only by chains of dew. You never know which might be the way that will wake them up. And no, it is not bunk.

  5. The coverage could always be better, but anything in the MSM that brings MMT one millimeter closer to the surface is coverage to smile about. I think Chris Hayes, for one, is really starting to get it. His favorite slogan these days is “nobody really cares about the deficit.” If he keeps Googling “trillion dollar coin”, he will eventually find us.

  6. Thanks Joe for the clear and detailed exposition of the big story about the 60T PSC and its effect of MMT. I think that RP only read the header and not the post, for it was about as lucid as any article covering economic theory can be. Discarding hoary preconceptions is the first and necessary step in adopting any novel or innovate approach.

  7. Any chance that you could discuss the applicability of this to the UK?

    As I understand it, it would all be broadly applicable but with a few insignificant changes. Have I got this right?

    Thanks for the series of articles, stimulating and thought provoking reading!

    • I don’t know the specific constraints parliament has placed on the Bank of England’s relationship with the Exchequer. I’d guess though that there’s no specific legal prohibition against the BoE crediting the Exchequer with funds to cover deficit spending. If that’s true, then the only reason why they don’t is that they believe the nonsense that the Government should only fund itself through taxing or borrowing. If they change their minds they can establish a facility for keystroking the Government’s accounts when it wants to deficit spend. I suspect, but don’t know, that all it would take is an agreement between the BoE and the Chancellor of the Exchequer.

      Perhaps Neil Wilson, if he’s seeing this can provide more than a guess in answering your question.

      • Many thanks. I just wish I knew more; there seems to be no good text anywhere covering the situation in the UK

  8. Just wondering, what exactly defines the verb “to coin”? Is it the act of making a coin, or does it include the act of circulation?

    The government producing a lot of quarters doesn’t have any impact on the economy unless they are released into circulation (save the effort to make the quarters).

    I fear that the platinum coin scheme, if enacted, won’t educate anyone about MMT principles, instead it will appear as a government liberal-inspired workaround violating some “sacred” economic principles. Producing coins that cannot by definition go into circulation is really stretching things.

    And besides, why eliminate government debt anyway, it is just the other side of the accounting leader of net financial assets held by the private sector. Trying to make physical objects to represent that vast amount of wealth is a futile exercise.

    • Hi PEB, I think “coining” is distinct from putting the coin into private sector “circulation.” However, it’s worth noting that when the PC is deposited at the NY Fed; it’s technically deposited in a privately owned bank. When it goes into the bank vault to stay there forever, it will never go into private sector circulation.

      Moving on, I think I’ve covered your second point in my reply to Ray above; but here its is again:

      Platinum coin seigniorage refers to a process that shows how fiat money in the form of a coin created by the Executive can be used to force the Federal Reserve to use its ability to create reserves out of thin air to fill the Treasury General Account (TGA) to any desired level. The process demonstrates that Government money is fiat money and that the Government whether defined as excluding or including the Fed has the capacity to create virtually unlimited amounts of fiat money and cannot become insolvent if it is willing to use whatever tools to create money are available to it. I’d say this is squarely within MMT and about its central concerns. And so, I really do think it will teach people about MMT principles, more and more after the initial shock has worn off.

      Finally, I’d eliminate Government debt because it takes a political issue that has been paralyzing the political system enabling its domination by the one percent off the table. I’d eliminate because it’s giving welfare to rich individuals, banks, and foreign nations, in the form of risk-free interest. And I’d eliminate it because the Government can create new net financial assets through seigniorage followed by government deficit spending, as well as it can by deficit spending accompanied by debt issuance, and according to Scott Fullwiler, it’s less inflationary that way. And lastly I’d eliminate debt issuance because the whole process supports the noxious to democracy “independent” Federal Reserve System with its domination by Wall Street and unaccountability to the people.

      I hope those are enough reasons to prefer PCS.

      • Joe:

        From an MMT perspective, the Fed is in essence part of the state. I wouldn’t argue that depositing at the Fed is putting the coin in circulation; not if one purpose of the exercise is to educate the public about MMT.

        I think that as a concept, it was a good example to bring out and illustrate key MMT points. But as a practical, political matter, I don’t think it really solves anything, I think any MMT message would be muddled.

        To get rid of government debt, we should have unlimited guarantee of deposits, to eliminate the other function of government debt, the lowest risk place to put excess savings. Now, that would be an interesting exercise to think through all the implications (interest rate setting of lowest risk financial assets, deposit insurance regulations, etc. )

  9. “Why couldn’t they see PCS more broadly than they do and explore the idea to begin to understand the likely impact of it generally as well as alternative PCS options. What’s holding them back? Is it the impact of busy lives and hectic days? Is it the time they spend on the telephone or in email communications with other mainstream bloggers and insiders in the Washington/New York village? Is it that they consciously or unconsciously shy away from ideas that might lead them to advocate policies that would actually change the system of political economy we have now?”

    Joe they are simply TOO STUPID TO MAKE THE CONNECTION by themselves… they are all simply dumb as tree stumps and dont see the logical/mathematical connection like you and we all do …. it’s a major cognition problem within western humanity at present imo…. I cant see any other explanation… we have to “dumb it down” and spoon feed it for them like you are doing here and lets see what happens …. rsp,

    • Hi Matt, I’m not ready to attribute stupidity to our MSM compatriots. For example, Chris Hayes seems awfully bright to me, and Matt Yglesias is no slouch either. So, I think I need another explanation, more like the ones I just gave.

    • When you debate someone that does not understand PCS implications, but want to move Overton Window at least a bit, you should keep the problem only on the most important problem, not to complicate your own arguments.
      SImply, the reason is just as when you teach begginer classes you do not go teaching all that it implys, you keep at the general problem of comprehending a new idea.
      So it all depends on whom they are talking to. And i think they should do it as they do, once Overton Window moves, and new paradigm sets in, it is easy to introduce new implications. They are talking to masses and to those that have no idea what PCS is.
      I preffer not to give evil or stupid atributes to my enemies, then i can really understand what position they come from and can attack it. They are human, just as I am.

    • Tom just posted this up at Mike’s from Mervyn King the head of the Bank of England, supposedly talking about how we could “change” the present banking arrangements:

      “All it requires is some commonly used unit of account and adequate computing power to make sure all transactions could be settled immediately. People would pay each other electronically, …”

      That’s the mathematical equivalent to what he is already doing! And he can’t see this. And he’s the head of the BOE! This is what I am talking about. We all think this is “easy to see”, but that is manifestly NOT TRUE.

      They do not possess the mathematical cognitive skills to abstract these concepts one against the other and determine equivalency or contradiction (2 mathematical concepts). THEY CAN’T DO IT.

      Here, Joe, you are asking “why” they cannot abstract this PCS concept further in relation to the basic mathematical aspects of the operation of our current system… all evidence points to the fact that this is NOT EASY for some to do. They cannot do this, that is “why”.

      These people are all semantic people, they function thru language (ie “What does the book say?”) , they have limited (some extremely limited) mathematical cognitive skills… I have been observing this for years now… we need to develop graphic models and diagrams to be better able to get them to understand these operational concepts because they will never do it on their own… rsp,

      • Matt
        I wrote recently on Mike’s blog about most common inability to keep two abstract ideas separated and interacting at the same time, talking about cofusion between nominal value of money and real value of products and services.
        But, i believe the problem is emotional, not so much cognitive ability. They want to keep the real value measured in nominal terms no matter what, due to invested emotions in their savings, how much they sacrificed for savings.
        Same problem appears with inflation, again, emotional investment to protect their savings they sacrificed for.
        What Mervin King was saying could do so much to cross over such emotions by presenting an idea that could supposedly simplify accounting, whether he is aware of the reality or not is less important. We could use such cognitive lead as alternative framing to push reality trough the hard heads.
        His wording is simplified MMT presented as better alternative to what we have now. A nice trick to pull the hope forward into something new for them.
        I would like to see what are responses to Meryin King from non MMT people.

        • Jure,

          What they would probably do, is if they look at King as someone of authority, they will read his words and simply believe him without ever seeing the mathematical equivalency to what we are doing now… they …. are …. semantics…

          Joe, writes of Chris Hayes here, ok, Hayes READS THE WORDS OF THE LAW, and can tell THRU THE LANGUAGE, that PCS is LEGAL. So Hayes thinks: “we can do this”…. NO MATH IS INVOLVED FOR HIM.

          Hayes cannot mathematically abstract the concept of PCS vs our present operations… he just can’t do it.

          Ask Hayes: “Hayes, if the CB Operations Desk notices that the FFR is starting to trend above the FOMC target rate, what should the Operations Desk do?” …. go ahead and ask Hayes this question, I guarantee he will not know how to respond (btw it doesnt even look like Richard Koo would know how to respond but I digress) …. other than to perhaps blurt out: “What does the manual say?….” rsp,

      • Matt, I think you are very, very much onto something novel and valuable when you write of mathematical maturity and the dire need for it or something like it for economics – “monetary maturity”? The mainstream economists who look like they are doing math – are repelling the man in the street by this appearance – but are doing things that make a mathematician vomit. Good niche for a scam, which is why it has worked so well.

        But I have to disagree, just as much, with what you (& Paul) sometimes say about “semantics”. Nobody can not “think semantically”,”think metaphysically”. It’s like resolving to speak without uttering nouns (& verbs for that matter), or nouns and verbs you understand. The point is whether you think about your semantic thinking or not. Do it too much, and you will lose your mind. You have to stop and think “operationally”, unreflectively, abstractly at least once in a while, and often much more than that. But do it too little, and you will begin to talk nonsense about nothing. Mainstream econ manages to talk illogically and avoid reality at the same time. Their amount of crap would never have come out if there weren’t money in it for someone.

        People naturally reason abstractly. Cognition goes from the abstract to the concrete, not vice versa. Abstract is easy, to everyone. Concrete is hard, as those of us who have banged their heads against walls know. Look at Hegel’s short essay “Who thinks abstractly?” for a painless intro to this point of view -& remind me what it says – haven’t reread it in decades. :-) Man is a born metaphysician and does metaphysics before he can walk or talk. Like mainstream economics (worldly philosophy), mainstream (of the last century odd, in the Anglosphere especially) philosophy gets everything backwards.

        I am not against graphic models and diagrams to help people, as you suggest. Anything that works. But this is part of the main thing, which is always to think it gooder yourself, to always explain it better, more truly, more simply. And to put more of the onus on those of us who think we know what we are talking about, not our students/victims. :-) The main problem of popularization I think is “not what they don’t know, but what they know that ain’t so”, though.

        On the foolishness of the idea that there will be an “End of Money”, when Mervyn King replaces our system, with uhh, a completely identical system as you point out: Geoffrey Ingham’s book The Nature of Money recently recommended by Wray in these pages IIRC, has a chapter at the end of the book on this mirage.

        • Well, I may be wrong, but I think that Chris Hayes, Yglesias, Rachel Maddow, Ezra Klein, and maybe Melissa Harris-Perry are all bright enough to understand PCS, the central point that there are no solvency problems, the sectoral financial balances model, and the arguments we’ve laid out about why PCS would not be inflationary (See my latest post). The math is really elementary, and the move from the implications of a $1 T PC to the implications of a $60 T PC is just not that hard to see. So, I really don’t think we’re dealing with the stupid here. I think it has more to do with immersion in the DC village and its paradigms, and the narrowing of one’s cognitive perspective to consider only what’s seen as important by one’s professional colleagues in DC.

          We see this everywhere. To some extent, we all live in our own village and the need to avoid information glut makes it hard for us to direct attention outside of that village to the broader world outside. In large part our problem of communicating MMT is about somehow gaining entrance to the village so that people will see us and our views as part of their world.

        • Cal,

          from the wiki on Mathematical Abstraction: “Abstraction in mathematics is the process of extracting the underlying essence of a mathematical concept, removing any dependence on real world objects with which it might originally have been connected, and generalizing it so that it has wider applications or matching among other abstract descriptions of equivalent phenomena.”

          They simply CANNOT do this at all or well …. an educator should NEVER say “how can you not understand this, it is SO easy!….” rsp,

  10. Thank you for explaining to this reader the legal constraints on spending that were appropriate for a gold standard-based financial system but were never repealed. I’d enjoy reading more about these constraints in this blog, including discussion of specific legislative proposals that we can get behind to change/repeal these laws.

  11. Simple meme:

    In the modern monetary world, death is still certain, but taxes needn’t be — taxes can be suspended during economic downtimes if the government is properly focused on balancing the economy, rather than the budget.

  12. Right — I was trying to keep it simple for meme purposes.

    Minor edit perhaps:

    “In the modern monetary world, death is still certain, but high taxes needn’t be — taxes can be — made very low during economic downtimes if the government is properly focused on balancing the economy, rather than the budget.”

    We can convince some from both sides by posing the simple trade — from the right: you get your tax cuts but yield on anti-regulation; from the left, you get your spending but yield on inequality.

    Very much admiring of your fine efforts.

    As you intimated, we need some work on the messaging side. Perhaps something like the above can help.

  13. Derryl Hermanutz

    Way to go Joe! Your presentation of the $60 trillion coin idea has become very clear and concise. I left a comment on this same article at GEI, but I’ll repeat here something I said there.

    In support of his 100% Money solution, Irving Fisher noted that restoring the money issuing power to the government merely creates in fact the system that pretty much everybody already believes is in place. Most everyone will tell you that, “the government creates our money”. In fact private banks create our money by making loans of bank deposits, and by purchasing government securities that the banks pay for by creating new deposits in the government’s accounts at those banks. So in fact “private banks” create our money, as loans of newly created bank deposits, at interest. This bank-debt money system is arithmetically perverse in the same ways the gold standard is perverse: all of the “money” at all times is owed to the banks who created it as ‘loans’. So the economy has no permanent money supply, only unending debt to its banking system.

    The point that might add to your presentation is Fisher’s point that PPCS merely does what everybody already thinks is happening: the government creates the money.

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