The Trillion Dollar Coin Is A Conservative Meme

By Joe Firestone

The Trillion Dollar Coin (TDC) is, first, an oversimplified meme, because there’s not one TDC solution, but lots of Platinum Coin Seigniorage (PCS) variations on that idea with differing implications for politics. Some just kick the can down the road, until the next debt ceiling crisis, or set up another trade between the Administration of something relatively valuable for something less valuable. Others would really change the political game.

Progressives should want that game changed and the conservative, FIRE sector, neoliberal bias of American politics shifted to a progressive problem solving bias. Conservatives, even if they favor using a TDC to avoid a debt ceiling crisis, will want to retain the political game they are now playing and use it only for getting around the debt ceiling. Otherwise they will want to retain the present system of funding deficits through debt issuance, so they can continue to talk about the US “not being able to afford x, y, or z, because we’re running out of money.” Or being subject to the “bond vigilantes, if our national debt grows too much.” Or having to worry about leaving huge debts to our grandchildren.

Let’s now look at some variations on the PCS meme, other than the $1 T coin, and their political implications.

First, mint a $1.6 Trillion coin and have Treasury use the profits from it to buy all the outstanding debt instruments held by the Fed. This would retire a substantial part of the national debt and immediately create $1.6 T in “headroom” relative to the debt ceiling. This alternative involves the least amount of change in current procedures. The coin, once deposited at the Fed, would remain in a Fed vault, and would not go into circulation.

The Government would then go right back to issuing debt in order to meet its debt obligations and spend previous Congressional appropriations. Of course, this proposal is a solution to the debt ceiling problem alone. It would prevent a default crisis caused by anti-government tea party Republicans. But, it wouldn’t do very much to defeat the austerity/deficit hawk mind set in fiscal policy.

 A second proposal is to mint a $6.7 T coin to pay back all debt held by the Fed, and  all Intra-governmental debt, including that owed to Social Security, Medicare, and a host of other other agencies. That would create $6.7 T in headroom relative to the debt ceiling, that’s more than enough to carry us through the 2016 elections without breaching the ceiling. Again, this wouldn’t result in any “money” immediately going into circulation, but over time SS and Medicare payments to individuals and organizations would be adding to bank reserves without any reserves being withdrawn from the private sector due to debt issuance.

This alternative would render the debt ceiling problem a dead letter for some time to come, and it also might take some of the austerity pressure off. But it probably wouldn’t end the austerity drive, because the deficit hawks would still point to long-term problems in entitlements that would be projected as running up the public debt in future years.

A third proposal for applying coin seigniorage is to mint a coin with face value large enough to cover the $6.7 T intra-governmental and Fed debt repayment, plus all debt to the non-government sector coming to maturity during the next four years, and all Congressional Appropriations expected to require deficit spending through the 2016 elections. I’ll estimate, roughly, that a $20 T coin is enough for that, including about $6.2 T to more than close the expected gap between tax revenues and Government spending  through the 2016 elections, and the rest for paying down the national debt. Issuing a coin that large, using the profits from seigniorage, and assuming that Congressional appropriations continue the pattern of the past 2 years or so, that would result in a remaining public debt outstanding of roughly a few trillion dollars in long term debt, which would please the bond markets except for the fact that the US wasn’t issuing any more debt instruments, which would probably make the bond vigilantes scream for those safe harbor debt instruments again.

A more important aspect of a coin this large is that it takes the deficit/debt issue very much off the table, since there would be no new debt issuance needed until after 2016, and because most of the seigniorage would be used to pay down debt the US would then have only about 15% of its current debt subject to the limit. In other words, it would take the austerity meme off the table completely over the next four years and even after that there would be a lot of room between the outstanding level of debt and the debt ceiling.

Much of the pressure now being applied to entitlement programs would also be gone. So, progressives could be much more expansive in supporting full employment programs, education, infrastructure, higher entitlement benefits, Medicare for All and other things the country needs.

If, also, Congress does the right kind of spending to bring full employment inside a year, then tax revenues will come back as they did during the Clinton Administration, and then there will be no need for all the profits from the platinum coin to be used completely for deficit spending  between now and 2016. In fact, if the right jobs creating program is immediately enacted, as much as $3 T could be left, by the end of 2016. So, this is a much more progressive alternative than the first two. But in itself, it doesn’t provide a continuing ability for the Treasury to create reserves directly to support deficit spending. The nation could still slip back into the regressive money creation practices after 4 or 5 years, and the conservative, neoliberal bias of fiscal politics could be restored.

So far, I’ve discussed three alternative coin seigniorage proposals ranging in scale from a minimal proposal to handle the current crisis to one that would provide enough funds to both pay down debt, and support a gap between spending and taxes that might be sufficient to enable full employment. Now here’s a fourth, enough to handle even generous Congressional appropriations and deficit spending for at least 15 – 20 years, until 2032 and beyond.

Why not mint a $60 T coin?

I favor this fourth alternative above all, because it institutionalizes the idea that there is a distinction between appropriations, the Congressional mandate to spend particular amounts on particular goods and services, and the capability to spend the mandated accounts by having the funds (electronic credits) in the public purse (the TGA). In a fiat currency system, the capability always exists if the legislature provides for it under the Constitution, as it has under current platinum coin seigniorage legislation.

But the value of the $60 T coin, and the profits derived from it, is that it is a concrete reminder of the Government’s continuing ability to buy whatever it needs to meet public purposes, and its continuing ability to harness the authority of the Central Bank to create reserves to support the needs of fiscal policy. It demonstrates very clearly that the Government cannot run out of money, and that the claim that it can is not a valid reason for rejecting spending that is in accordance with public purpose.

So, please keep in mind the distinction between the capability to spend more than government collects in taxes, and the appropriations that mandate such spending. The capability is what’s in the public purse, and it is unlimited as long as the Government doesn’t constrain itself from creating credits in its own accounts. With coin seigniorage its capability could be and should be publicly demonstrated by minting the $60 T coin, and getting the profits from depositing it at the Fed transferred to the Treasury General Account (TGA).

On the other hand, Congressional appropriations, not the size or contents of the purse, but whether the purse strings are open or not, determines what will be spent, and what will simply sit in the purse for use at a later time. So there is a very important distinction between the purse and the purse strings. The President can legally use coin seigniorage to fill the purse, but only Congress can open the purse strings through its appropriations.

This fourth alternative is the one that best solves both the debt ceiling problem and the problem of taking austerity, justified by “we’re running out of money,” off the table. The debt ceiling would no longer be an issue if the Treasury immediately paid off $6.7 T in Fed and intra-governmental debt, and was poised, with the money in its account, to pay off the rest of the debt subject to the limit as it falls due. Nor would there be any justification for austerity policies if the Treasury had a public purse with $44 T of unearmarked funds in it to cover future deficit spending. So, this is the progressive alternative, the one that changes the political context of fiscal policy debates for the foreseeable future. It also gives progressive enough time to fight a major political battle that ought to and must occur. The battle to free the Fed from control by Wall Street and banking interests and to make it accountable to the people by placing it under the authority of the Treasury Department, and our nationally elected executive, the President.

In my next post, I’ll blog about the likely expected relationship between the different PCS options and inflation using the framework laid out by Scott Fullwiler!

15 Responses to The Trillion Dollar Coin Is A Conservative Meme

  1. In the long run it seems that the Federal Reserve will control and maintain the liquidity level of the State?

    • I’ve been reading quite a lot about platinum coin seigniorage from this website. I am intrigued by the idea but when I discuss it with others – aside from the usual “it will blow up into massive inflation” questions, I wonder one essential thing; what and who are negatively affected by this process were it ever to be used? Like anything in American culture, politics, or economics the old adage “follow the money” always applies. If we know who and what will be affected then we can discern where the most push back will come from.

      • –It will blow up massive inflation — Agreed but will Joe Firestone accept this devaluation of US dollar?

        • No, it won’t blow up in massive inflation. It won’t do anything, really. It will just prevent bad things from happening, prevent people succumbing to fear of fear itself.

          What really matters for inflation (or devaluation) is spending, depending only indirectly on the quantity of government financial assets – dollars and bonds. But the composition of these financial assets held by the public – the maturities and interest – is even much less important, especially in today’s already low interest regime. The change from 0.1% interest on an account to 0%, or banks lending at 0.1% less is not very meaningful. No real economic mechanism for inflation or devaluation from the coin – although people could lose their minds and affect the real world, just as if they started spending because they believed the world will end because of the Mayan calendar or something (I forget, has it ended yet?)

          • Again, who benefits and who gets screwed by platinum seigniorage ?

            • Calcagus: Please little more interpretation as to how to control inflation if currency flows like the River of Indus!

          • The Platinum Coin idea is not about having money flow like the river Indus. It is primarily about evading a strange law that the US bound itself with for esoteric historical, legal reasons. Secondarily it is about whacking people on the head with common sense so they understand common sense economics = MMT.
            Tertiarily it is about spending with government reserves, base money, instead of “with” bonds. All this amounts to is lowering interest rates, to zero perhaps. Basically what Japan has done for 20 years – and they are still fighting deflation, not inflation.

            The point is that bonds are not the private sector loaning money to the government. They are just another form of money that the private sector holds, and they are bought with money that the government issues into the economy by deficit spending. Bonds are nothing but rolls of platinum? coins with dates in the future on them. Bonds or no bonds, coin or no coin. Who cares? This is not a structural change, but only a change in todays very low interest rates.

            The important thing is the amount and direction of spending, not how lawmakers fit our government’s spending-pattern into previous laws. SO an MMT-influenced government would just spend on good stuff like the Job Guarantee, like public works spending that the US has been putting off, damaging its economy by underspending on – since 1968! This is NOT inflationary. The point is spend – UNTIL you start getting inflation. Then STOP. The JG is an automatic stabilizer that will very quickly, very sensitively do this, abort inflation in its tracks. And MMT economists have polished a lot of other tools to stymie inflation.

            Basically, IMHO the history of the last 40 years in the US is a tremendous effort to spend as stupidly, wastefully and unjustly and inflationarily as possible, to avert the natural deflationary tendencies of a peacetime economy.

  2. Congress might lower the debt ceiling.

    “If, also, Congress does the right kind of spending to bring full employment inside a year, then tax revenues will come back as they did during the Clinton Administration”

    Taxes have already come back, and are now higher than before the recession, higher than ever before in our history, and more than $470B higher than at the low point in 2009. Expect a big tax receipts bubble next April. Already companies are having special dividends this year, and high-bracket taxpayers will be cashing out long-term capital gains before January, unless there is a surprise deal extending low rates for those types of income.

  3. Why not give green cards to anyone who buys distressed properties for the next say 18 months. Mint a coin that pays off everyone’s mortgage, school loan. This would also bail the banks as the money would go direct to pay these loans. You would get 2 birds with one stone. Consumers will feel free to spend and happy for once they did not get forgotten in the “trickle down” Government that blmes all the past for this sin.

  4. Hi:

    I am relatively new to MMT, but have watched/read several Mosler, Wray, and Kelton works. There are two questions that evade me: 1) Doesn’t injecting new money in the system (as in the $6.7 trillion or $60 trillion above) have a significant effect — making the dollar less valuable for those with foreign currency? 2) If MMT works, why is virtually no onein the government talking about it? Obama is no dummy, and one would assume that if there were a silver bullet here, he would be all over it.

    Perplexed,

    nkm

  5. 1) It’s not money until it is spent.
    2) They’re all over 60, which means their economics education happened under the gold standard. They have not kept up. MMT has made progress even in the past year or so since I discovered it, but is still not widely accepted even in academia.

    BTW, you said “virtually” no one. Who in the government have you heard utter the sound “MMT”?

  6. Pingback: New MSM Trillion Dollar Coin Wave Misses the Big Story: Hayes and Carney - New Economic Perspectives

  7. Your plan 4 is great. I hope everyone recognizes that it is also points out the need for the US to have a true fiat money system, issuing (mostly digital) greenbacks rather than the bank credit-money (endogenous money) dominated system we have now.

    The logical solution for neo-chartalist principles to work is to have a truly chartalist system.

    At any rate, 60 trillion $ platinum coins are much more fun. It is the ultimate fiat money – a massive platinum greenback :)
    Clint Ballinger