The President’s Leverage: He Can Go Platinum

By Joe Firestone

Well, that’s over. The President had a chance to go “over the cliff,” bargain hard with the Republicans, get more of what he said he wanted at the price of perhaps some more days of crisis with extreme pressure building on the Republican caucus, and he blinked. I don’t much care that he blinked on tax rates for the top 2% and on inheritance taxes, because tax rate increases for purposes of deficit reduction simply aren’t needed for getting deficit spending needed to create jobs, as the rest of this post will show. Here’s what I care about:

— First, he claimed to be after extending the partial payroll tax holiday; but he didn’t get that, a $125 Billion would-be stimulus failure that is likely to cost at least a million jobs;

— Second, he claimed to be trying to get the debt ceiling issue off the table for at least two years, and he didn’t even get anything to deal with it in the bill;

— Third, he claimed to want to resolve the sequestration issue, but only got that can kicked down the road for two months;

So, in sum, he’s already achieved some unneeded austerity with this “negotiation” and, in addition, he’s set things up beautifully for a truly extreme episode of extortion by the Republican House over the next couple of months, as Congress faces the upcoming sequester, debt ceiling, and Continuing Resolution (CR) conflicts. Why did he insist on making his year-end deal, rather than allowing things to kick over to the new Congress and negotiating a better one?

There are different theories about that. One, is that he wanted, at all costs, to avoid Wall Street panicking and then tanking, even if, only temporarily. A second is that he has good “progressive” motives, but he’s just a lousy negotiator, who just can’t avoid first establishing firm positions and then showing the other side that he will always cave in if they, in turn, stand firm. A third theory, and the one I favor, is that since 2009 he’s been conducting a careful campaign to get Americans to accept austerity through forced deficit reduction including heavy cuts to the social safety net programs that Americans love so well.

During this campaign, he’s ignored the evidence from Europe and elsewhere that austerity doesn’t work and hurts most of the people, most of the time. He’s also ignored all the polling data showing how Americans feel about Social Security, Medicare, and Medicaid. And he has moved slowly, deliberately, persistently, and in concert with allies outside the Administration like Peter G. Peterson, high-level Wall Street Executives, and MSM media personalities and journalists to create a consensus around the idea that “entitlement reform” is both inevitable and necessary for long-term fiscal sustainability. Finally, he has “negotiated” with Republicans  during a series of “shock doctrine” crises to try to gradually implement austerity, while making sure that the Republicans, rather than his own party end up bearing the blame for the end result of austerity policies.

The results of the “cliff” negotiations have now set up a confluence of three events: the sequestration; the debt ceiling; and the CR; creating the occasion for the mother of all fiscal “shock doctrine” negotiations over the next three months. This confluence can be seen as an intentional emergence of the conflict between the Republicans and the “progressive” President Obama, or it can be seen as the result of a very long-term conservative campaign setting the stage for austerity, and a comprehensive attempt to weaken the social safety net.

I won’t try to make the case that the dangerous confluence we’re about to face is due to a deliberate staging by the President, even though I suspect that it is. Nor will I try to make the contrary case that the President has excellent motives, but stumbled into this mess due to incompetence at negotiating, and the Republican victories in the House in the past two elections, for which his supporters might say, he was blameless. What, I’ll do instead, is try to show that either way, the President has leverage to get what he wants.

If His Game Is Deliberate Austerity?

Then, of course, he’s maneuvered us into a situation where, he will claim, there either has to be a Government shutdown, frightening to most people, or concessions to Republican demands for cutting discretionary programs and entitlements. He will be in a very good position then, to regale all of us with horror stories about the consequences of shutting down the Government for weeks until the “crazy” Republicans capitulate; compared to the lesser evil of making “balanced” spending cuts among defense, discretionary, and entitlement programs, while he prepares to reluctantly give into the hostage takers to avoid disaster; while constantly letting us know that as the adult in the room he must arrive at a “compromise” settlement. So, if his game is deliberate austerity, then he will have plenty of leverage to get what he wants.

If His Game Is to Avoid Cuts That Will Hurt the Economy and the Safety Net?

Today, most people commenting on the fiscal cliff agreement are assuming that this is his game, and are saying that the President has given away his leverage for future deal-making. Their logic is that he’s already made deals on the tax rate cuts and on the inheritance tax rates, so that he has little left to offer the Republicans except painful cuts in programs most of the American like. This, however, isn’t true.

First, the President still has some leverage when it comes to defense cuts. Republicans don’t want those at all. So, if he’s willing to cut there; he can sincerely threaten cuts and then trade for their sparing popular programs from the ax.

But, second, the main thing being ignored by most of the strategists commenting on the morning after is the President’s ability to change the fiscal context of the coming negotiations from one of apparent scarcity “justifying” austerity to one where spending capacity is so plentiful, that Congress will be hard-pressed to impose austerity, because its justification in the form of apparent limitations on spending capacity will just seem silly. Now, that can translate into leverage in the negotiations!

How can it be done? Through the use of Platinum Coin Seigniorage (PCS).

PCS Variations

Here are some variations on PCS, an idea first proposed by beowulf. (Carlos Mucha).

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 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 PCS 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 PCS, 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.

What about inflation? Well using PCS isn’t intrinsically inflationary. For the reasons why, see my previous post. I outline how to justify it politically in the next and final section.

The Speech

If the President wanted to emulate the great Democratic Presidents of the past, end austerity and decide to rise above the debt ceiling controversy, safeguard the social safety net, and do something really, really important from the perspective of history by using $60 T coin seigniorage to short circuit the upcoming fights over the debt ceiling and the budget, then there would be a spectacular uproar in the Congress and the Press over what he had done. All kinds of overblown and downright crazy claims would be made because the President’s action would shock people, everyone would have a tough time getting their minds around it, and the media would report on what was going on in a very sensationalist way using stereotypes created by the neo-liberal perspective that journalists at places like the WaPo, NYT, WSJ, and CNN are superficially well-schooled in. Places like CNBC and Fox would be absolutely foaming at the mouth in response to something like this, and Geithner might very well resign over it, as might Ben Bernanke, since he’d be forced to have the Fed credit the coin.

There would also be an  immediate move in Congress to repeal the 1996 law that enabled the President’s action. This would fail however, because even if it got through the Congress, the President would simply veto it. The opposition couldn’t possibly get the 2/3 vote necessary to override the veto. Even if by some miracle, repeal got through, however, it would be  too late. The coin would have done its work and the $60 T would be in the Treasury General Account, a fait accompli, and a vivid demonstration that the government can create as much money as it wants, and can only run out of money by choice.

However, the President would then have to defend himself with a political campaign aimed at persuading the public that his move was a bold and liberating move and the first step in finally getting out of this protracted economic depression. And yes, he should use the D-word, whatever the Republicans, and the so-called “fact-checkers” say about it. And he should also begin the campaign by explaining the issuance and deposit of the first $60 T coin in a high profile TV address to the public, the following way.

My Fellow Americans:

1) Until now the Treasury has been borrowing the money the Government created back from the private sector, in order to cover our deficit spending, so the national debt has been steadily growing.

2) That’s silly! According to the Constitution, this Government, of the people, by the people, and for the people, is the ultimate source of all US money. So why should we ever borrow US money back and pay interest on it, since we can create it any time by the authority of the Constitution and Congress?

3) Congress has also imposed a debt ceiling, so, if and when we reach it, we can’t borrow back our own money without Congressional approval, anyway, and lately Congress has been using the need to raise the debt ceiling as an excuse to extort cuts in safety net and discretionary programs that the majority of Americans support.

4) So, on my order, and in accordance with legislation passed by Congress in 1996, and with the US Code, the US Mint has issued $60 Trillion using a single 1 oz. platinum coin, and deposited it at the NY Fed. It’s legal tender, so the Fed credited the Mint’s Public Enterprise Fund (PEF) account with $60 Trillion in US Dollar credits using its unlimited authority from Congress to create them.

5) This is not inflationary because the Fed will put our coin into its vault, and keep it there permanently out of circulation, and the Treasury will use the $60 T in USD credits only to pay back the national debt and to spend what Congress has already approved, which is only a small fraction of these credits and far from the amount needed to cause inflation.

6) My action ends any possibility of a debt ceiling crisis in February or March, because we have no further need to borrow our own money back in the markets, and that’s why we don’t need the tea party or other Republicans, or even my fellow Democrats to agree to raise the debt ceiling any more.

7) Now the Treasury, has plenty of money, much more than we need, in fact, to pay for all appropriations Congress has already approved for 2013, and may approve in March, including all deficit spending and, again, we won’t have to borrow our own money back, either to repay debts or to implement future deficit spending.

8) So, we will pay all Government debts which will come due in 2013 and 2014. Treasury securities and all other debts included. We will also pay back all debts held by other agencies of Government and the Federal Reserve. When we do this we will lower the national debt by about $12 T, reducing the “debt burden” by about 75% by the end of 2014, and creating an actual Social Security trust fund with 2.7 T in cash reserves in it; and again, to do this we don’t have to borrow any of our own money back, and we will also reduce our interest costs on the outstanding national debt all through the remainder of 2013, 2014, and beyond until it is all paid off.

9) None of the $60 T in new credits created by our actions is “money” in the private sector economy until the Treasury spends it. For now it is just capability to spend awaiting the appropriations of Congress to mandate deficit spending, should it need to compensate for the reduction in demand, probably close to 10% of GDP right now, caused by your own desire to save (which we want to do our best to facilitate), and your desire to import goods from foreign nations.

10) We have created $60 Trillion in new credits even though we probably needed less than that to cover anticipated deficit spending and debt repayment until at least 2028. The reason for this, is that I wanted to have enough capability created in the Treasury account, so that the national debt could be completely paid off (except for a small amount in very long-term Treasury debt still not mature by 2028), and all projected Federal deficits covered over the next 15 years, even extraordinary deficit spending needed to be performed without further borrowing over this period.

11) Of course, we can always make new coins if our projections about future deficits turn out to be wrong; but I thought it would be best to ensure that all $16.4 T plus of the “debt burden” can be completely eliminated from our political concerns; and also to provide enough funds in our spending account at the Fed, so that it would be very clear to Congress and all newly elected Representatives and Senators, that even though they, as required by the Constitution, continue to control the purse strings, the national purse is very, very full, and that we would be able to cover from the Treasury General Account whatever deficit spending for the public purpose, including for full employment,  Medicare for All, infrastructure, education, and other things, that Congress, in its wisdom, chooses to appropriate now, before the next election, and for some elections to come.

Good night, my fellow Americans! Rest well knowing that our beloved country won’t be defaulting on any of its debts when the debt ceiling is reached, and that I’ve prevented this without going over the legal debt ceiling, or borrowing any more, by providing money for spending mandated appropriations, in compliance with the laws authorizing Platinum Coin Seigniorage, while supporting the Constitution’s prohibition against our Government ever defaulting on its debts. I hope that, in the future, everyone in Congress will obey the 14th Amendment’s prohibition against questioning the validity of Federal Government debts, and think twice before they indulge themselves in  loose talk about the possibility of the Federal Government defaulting on its obligations.

America will always pay its debts in US Dollars according to the terms of the contracts it has concluded, and in line with the pension payments and other obligations that it owes. Neither you, nor the rest of the world need ever doubt that again! Nor need you ever think that our Government is running out of money for the things we must do. We can never run short of money unless Congress refuses voluntarily, to use its unlimited constitutional authority to make more of it. But as long as it delegates to me the authority to create high value platinum coins to cover our needs, you can be sure that running out of US money will never happen!

40 Responses to The President’s Leverage: He Can Go Platinum

  1. “The President can legally use coin seigniorage to fill the purse”
    ___

    My copy of the Constitution is missing that section of Article II.

    SECTION 2.

    The President shall be commander in chief of the Army and Navy of the United States, and of the militia of the several states, when called into the actual service of the United States; he may require the opinion, in writing, of the principal officer in each of the executive departments, upon any subject relating to the duties of their respective offices, and he shall have power to grant reprieves and pardons for offenses against the United States, except in cases of impeachment.

    He shall have power, by and with the advice and consent of the Senate, to make treaties, provided two thirds of the Senators present concur; and he shall nominate, and by and with the advice and consent of the Senate, shall appoint ambassadors, other public ministers and consuls, judges of the Supreme Court, and all other officers of the United States, whose appointments are not herein otherwise provided for, and which shall be established by law: but the Congress may by law vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.

    The President shall have power to fill up all vacancies that may happen during the recess of the Senate, by granting commissions which shall expire at the end of their next session.

    I must not have the Blog Edition.

    • US Constitution: Article 1 Section 8 – CONGRESS shall have the Power . . . To coin Money.

      Congress has DELEGATED that power to the US Treasury which works for the US President.

      Try reading some of the supporting links. It’s all been legally vetted.

    • BobbyG, you must not have noticed that Google is your friend (either that, or you’re an obstructionist troll; since it’s still almost the holiday season, let’s forget other recent comments and assume the best). In my extensive research — less than 60 seconds with Google and skimming about three linked paragraphs — I found all the authority the President needs: 31 USC § 5112 (k), http://www.gpo.gov/fdsys/pkg/USCODE-2011-title31/pdf/USCODE-2011-title31-subtitleIV-chap51-subchapII-sec5112.pdf.

      While Constitution Art. I, Sec. 8 gives Congress the power to coin money, they’ve delegated that authority to the Secretary of the Treasury. Last time I checked, the Secretary works for President Obama and not, say, Eric Cantor. You can discuss the consequences of minting a $60 trillion proof platinum coin all you want, but the statutory language is a model of clarity that leaves little wiggle room to question the authority to do so unless and until Congress chooses to change the statute.

      Would it help if they minted a coin bearing the bust of Ronald Reagan? Or maybe Rush Limbaugh? After all, it ought to be a BIG coin, no?

      • Thanks for the insult. You are quite the scholar. Speed reader to boot.

        I may be “obstructionist,” but, unlike you, I am directly identifiable — the opposite of “troll.”

        If it was so incontrovertible clear, both via legislative construction and subsequent case law, the tactic would have been used by now. I notice that 31 USC 5112 is fairly shot through with reference phrases mandating “in consultation with” and “report to” ‘the congress.” (that little Ctrl-F search thing). Turbo Tax Boy may serve at the pleasure of / “work for” the President, but, at the end of the day, I seriously doubt that Obama could simply and unilaterally order him to erase the public debt with a coin strike. Maybe that more a political matter than a nominally “constitutional” one, but I fail to see the functional difference.

        I’d like to hear from Sensei Bill Black on this topic.

        • OK, those are some good speed (-reading) bumps. While we wait for Prof. Black to weigh in, let’s look at ‘em.

          “would have been used by now” … sec (k) was adopted in 1996 and modified in 2000 (PDF p. 337). So it existed only during the tenures of Presidents Clinton, Bush 43, and Obama. Clinton enjoyed a surplus, so he didn’t need to try it out. Bush 43 generated quite a deficit, but we’d probably both agree his backers would not look favorably upon such a strategy. So that brings us to President Obama, the first Chief Executive who might have both a motive and (I sincerely hope) the disposition to use this power. No opportunity yet for any directly-related case law.

          “in consultation with” and “report to” … perhaps my Ctrl-F wore out, but every instance of those phrases I can find deals with the graphic design of coins (who knew Congress had so many aspiring artists?), with the circulation of problematic coins, with materials used in and the cost of coin production, or with counterfeiting. The apparent lack of any explicitly mandated mechanism of Congressional oversight of the total value of coinage issued is striking.

          As for legislative construction? We’ve got (1) no clear expression of Congressional concern for the gross value of coinage issued and (2) pretty picky oversight of specific design and manufacturing issues related to circulating coinage (fruit of lots of irate letters to Congresscritters, I guess). These contrast starkly with the exhaustive section (k) recitation of “specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe ….” I’m no lawyer, but looks to me like that renders “the Secretary’s discretion” pretty unassailable … maybe even for the Roberts court.

          Hot political issue? Sure. Legally barred? I can’t see it.

          • Pedantic pissing contest over 5112 construction aside, I’d also like to get Bill’s take on this:V/i>

            http://www.theatlantic.com/magazine/archive/2013/01/whats-inside-americas-banks/309196/2/?single_page=true

            Turbo Tax Boy, recall, served as Asskisser-in-Chief to this cohort.

            (btw, just got a waft that he’ll be departing quite shortly, ahead of the next debt ceiling drama episode.)

            • My agreement that the administration can coin a $60 trillion proof platinum coin at will doesn’t mean that I trust them to do the right thing about that or anything else. When it comes to financial regulators, I trust the current crop even less then their Bush 43 predecessors. One has to be pretty impervious to observed experience to believe that our current panoply of financial industry “regulators” are anything other than obsequious lackeys of their thoroughly self-serving financial industry masters – and with them I have some slight experience.

              Like probably any regular NEP reader, nothing in the very interesting Atlantic article you cite surprises me except the extent of ugly detail that the author was able to tease out of the expertly-crafted propaganda that was his raw material.

              When it comes to turning the US economy around so it works for the 99%, like FDR said, we citizens have to make them do it. That’s why we’re here, isn’t it? Otherwise, it’s just an academic exercise in nihilism …

  2. Personally I don’t see any need for any metal coins, whether they be platinum or gold. At one time they were useful in order to stop counterfeiting, but now that we use fiat money they serve no purpose. Why tie an economy to metal production ?

    However, the US government could create money debt free if it so wished. Either we could nationalize the Federal Reserve, who have the ability to create money out of thin air or we could abolish the Federal Reserve and have the US Treasury create the money needed debt free.

  3. If the president even threatens to mint the $60T there would be a foaming at the mouth furore. It would be hilarious to watch the hysteria. There could be much fainting. Good night fellow Americans and sweet dreams!
    The threat in itself is a brilliant move because then he can then skilfully shift the whole negotiation away from the debt ceiling and onto the question of how much the platinum coin will be minted for. The president would need all these brilliant MMT economists to hit the media supporting the idea and illuminating on all the different possibilities arising from the various size of coin that might be minted. Eventually a compromise would be reached and perhaps a $6T coin minted. The trick then is to make it work, create more real jobs, goose GDP and all without unwanted inflation. I would do it if I was president with a wink and no blink.

  4. No not just the blog’s…. everywhere… http://www.law.cornell.edu/uscode/text/31/5112 just control f and find the bit about platinum its in black and white.

  5. Devin, spot on post!!! Let’s settle this thing once and for all. Let’s stop pulling the rug out from under the economy every time we get it working well. PCS! PCS! PCS!

    Obama has a chance to change history, will he do it? That is the question.

    And from what I can gather, most economists agree it works, but still have a hard time accepting that the solution could be that simple.

    Other than calling it a trick, has anyone seen or come up with a reason not to use PCS?

  6. Excellent post Joe. This proposed method of introduction could be likened to shock and awe and might be the best way to go–just do it and let the s**t hit the fan.
    Another option which could be described as stealth would be to start with say a half ounce platinum coin of $1000 face value—call it the G ronnie with a likeness of president Reagan. Gold bugs and numismatists would love the G ronnnie and snap them up. Since the G ronnie is so popular, what Republican wouldn’t want more ronnies, issue a K ronnie with a face value of $1,000,000 but only a little more platinum. Not selling well, but helping pay down the debt despised by all good Republicans, so issue M ronnie($1,000,000,000) and then KM ronnie($1T), only about 50 to 100 needed.

    • Only 3% of the money supply in the US consists of banknotes and coins.

      The other 97% exists only as entries on bank computers. All international business is conducted by electronic means of wire transfers from one bank account to another. How on earth can $1,000 coins remedy anything in the monetary system ? It seems to me to be taking a giant leap backwards.

      • Sunflowerbio

        Frank,
        G ronnie = $1000
        K ronnie = $1,000,000
        M ronnie = $1,000,000,000 or 1 Billion dollars
        KM ronnie=$1,000,000,000,000 or 1Trillion dollars
        Ultimately we might go for a MMT ronnie

        • Sunflower,

          Using coins for anything by small transactions is cumbersome and somewhat impractical. Most people use debit/ credit cards for everyday shopping and internet transactions. Checks are still used for larger purchases of say over $5,000. Most business to business international transactions are done by wire transfer from bank account to bank account.

          What function would you ascribe to large value coins ?

          • Sunflowerbio

            Frank, did you read Joe’s post? The way it works in brief is: G ronnies enter circulation as collector’s items, numismatic pieces. Little profit for Treasury, but foot is in the door. K ronnies have little circulation, but balance taken to Fed and deposited, Treasury GA credited for face value, Treasury shows some profit to apply toward debt, whatever. M ronnies all taken to Fed and deposited as above, Treasury now has 100? 500? 1000 billion dollars to spend as above. KM ronnies, all 100, are taken to Fed, deposited as above and the Treasury has nearly 100 Trillion $ to fund government for next 25-50 years, depending on who spends how much on what. National Debt is paid off as it comes due. No interest to pay out either.

  7. Thanks for a brilliant article and radical solution.

  8. “You better lose yourself in the music
    The moment, you own it, you better never let it go
    You only get one shot, do not miss your chance to blow
    This opportunity comes once in a lifetime, yo”

    EMINEM

    Print the coin Barack !

    • “Do the Right Thing”

      Spike Lee (i like m&m too)

      Print the coin Barack! Lincoln would do it!

  9. Brilliant! Thank you.

  10. Scott Hedlin

    I’m unable to get my head around this issue unless it’s relabeled “The Celebrity Option”. I’d love to see something like this added to the history books. Gonzo economics at its best and I am a fan of “going pro when the going gets tough”. I liked Sunflowerbio’s “added value” stealth strategy as a nice main streaming of the issue, but think it would be better for policy in general to initiate the 60t coin to begin with. Having some symbol of Equity with a capital E that that binds national purpose is the main attraction to the PCS solution. Finally, an option that gives government the credit for being the solution rather than the problem.

  11. I’ve been imagining Obama speeches ‘educating’ the public (he was a Professor) on a wide variety of topics since the first inauguration. Looking into the camera directly at the Public, explaining in clear logical sentences the reality of our situation, versus the BS the American people had heard over the whole ‘W’ era. It never happened. It never will.

    The coin idea is wonderful, as you indicate, primarily because it would force people to think about the real meaning of money and the monetary system.

    But Obama ??? Unfortunately we are hamstrung, because ‘we’ have the man at the top, but he isn’t one of us.

  12. I have a similar idea. The US Treasury prints up $16 trillion in greenbacks, which become the only currency accepted in payment of taxes. The $16 Trillion in greenbacks are exchenged for the $16 trillion in Federal Reserve notes out there. The $16 trillion in Federal Reserve notes are used to retire the Federal debt. From that point forward, deficit spending is funded entirely by greenbacks. Grteenbacks plus taxes are gauged top keep the supply of currency in line with economic activity, thus resulting in price stability. The Federal Reserve is relegated to the status of a clearing house for banks. Federal debt becomes a quaint concept related to a barbaric age that the world, and the American people at last taste real freedom — freedom from debt peonage at the hands of the banks and the Federal Reserve.

    • Helix, your idea has already been proposed in congress. Google HR2990. Read the text. It fully elaborates what you are talking about. let me know what you think. rgds

    • That doesn’t make any sense. The federal/national/public debt (not the deficit) is the record of all currency created since 1792 minus the currency destroyed (taxes). How would Federal Reserve notes retire that?

      Greenbacks plus taxes are gauged to keep the supply of currency in line with economic activity, thus resulting in price stability.
      Could do that now if people or CONGRESS understood federal accounting.

      The Federal Reserve is relegated to the status of a clearing house for banks.
      In it’s complicated, complicated, byzantine way, isn’t that what it’s doing right now?

      Federal debt becomes a quaint concept related to a barbaric age that the world, and the American people at last taste real freedom — freedom from debt peonage at the hands of the banks and the Federal Reserve.
      Nah. The economists would still called it “federal debt” every time the fed government issued currency (greenbacks) because from a double-accounting POV that’s what it is. Le big IOU. Go back to the beginning. There’s just a bunch of guys (and girls)–say 5,000–standing around on a patch of undeveloped land and they want to start a country, they want a government to manage the infrastructure and transportation , etc, so they pick 12 guys or girls to do it, and the first thing the 12 have to decide is the currency of account because they don’t have any. These 12, the new government, have to create it. They call them Newconspeckies. And the new government doles out the Newconspeckies to the rest of the 4,988–spends–to create the things the government needs (provisioning). The government spends Newconspeckies. That is a debt to the government because the government will be expecting a few of those Newconspeckies back at the end of the year as taxes, which is how the government makes sure Newconspeckies are the only thing accepted as legal tender in their new country. From the government’s perspective, it’s their debt–public/national/federal debt–even though they make them up to hire the 4,988 out of whole cloth.

      the American people at last taste real freedom
      They would have it now if they understood how it worked, and ripped the necks off the current congressional crop for damaging the American population, throwing millions of children into food poverty, destroying the lives of America’s seniors, denying adequate health care to everyone that a sophisticated society and advanced civilization has the means, resources, and obligation to provide, and giving everyone a job who wants to work, which at the present moment is about 40 million.

      • The federal/national/public debt (not the deficit) is the record of all currency created since 1792 minus the currency destroyed (taxes). How would Federal Reserve notes retire that?

        MRW, I just don’t understand this. Do these government securities never mature? At maturity, do they not become reserves (liquid if you will) and thus settled? Is there a law or something against that? You’re not the first one who I heard speaking of public debt as the running sum of past budget positions. Maybe it is defined so, and there is a separate “public debt outstanding” kind of thing, which is what I understand the term to mean without the need for the ‘outstanding’ qualifier.

        Also, federal reserve notes, being legal tender for all debts, public or private, should be capable of retiring public debt. That must go without saying, as far as I can tell.

        Also, I found this link: http://metricmash.com/us-gdp.aspx
        It shows graphically the US gdp with debt and political control overlays from 1791 to 2012. Something, huh? I looked at it, but didn’t notice anything remarkable happening at or around 1972.

        • Also, federal reserve notes, being legal tender for all debts, public or private, should be capable of retiring public debt. That must go without saying, as far as I can tell.

          It’s the things that go without saying that usually trip people up. They are very often wrong. MRW has it right.

          FR notes are used to retire public debts. Sort of. That’s what they are used as – legal tender laws don’t really matter. It is a behavioral statement, that people mistake as a structural one. But FR notes are just another government debt – so by definition, they cannot retire public debts. They ARE public debts.

          The only way a debt can be retired is by being cancelled – usually by a debt going the other way. Buying stuff from the government, or more usually, “buying freedom” by paying taxes. If you have government money, that says the government owes you.

    • You might also be interested in this:
      http://www.usagold.com/federalreserve.html

    • Yes, the US Treasury should create the money needed by government and lend money to the Federal Reserve at interest. In this way the People would benefit instead of a favored few. As you say taxation could be used to regulate inflation.

      High value coins are a gimmick with no practical use apart from being collectors’ items. You can already buy gold or platinum ingots on one of the commodity exchanges if so desired:

      http://futures.tradingcharts.com/chart/PA_/W?anticache=1357305833

      The problem is that precious metals generate no regular income and it actually costs money to insure and store.

  13. This coin talk by this blog’s writers perplexes me. The logical path the Administration and the rest of the country would have to take to accept the premise is the same path to understanding MMT in the first place. The coin becomes an unnecessary thought experiment after that, the solution would be obvious. Too many bits are being wasted in this trillion dollar coin exercise to my humble thinking. It seems more than a little silly, to be mean about it. I apologize for that, I truly respect this site and its writers.

    //so it goes

    • The bits, like keystrokes, are virtually free (ok, you do have to pay your electric bill). Several reasons exist for this thought experiment. For one, it illustrates in a concrete fashion how MMT can and should work for those who have difficulty grasping the concepts of fiat currency and keystroke money creation.
      A second reason is that it can be implemented solely on the basis of a presidential order without any change in legislation. With our dysfunctional-debt mongering Congress this is a huge plus if only the CNC could be persuaded to use it. Granting that PCS is unnecessary, it still seems to be the only realistic path open to this president at this time. We’re all the worse off for that.

  14. Not to be fly in ointment, but just what happens:
    If they coin the coin platinum of which you often write,
    and forget the nest from which the idea fledged;
    keeping instead the economic delusion that exists,
    in their head. What then, dear friend?

  15. Paul Hellyer in Canada is on the same page and has been advocating essentially the same process. He goes further abolishing the Fed and reducing fractional lending. The issue is the courage of politicians to do it or the lack of coordination amongst the people to demand it.

    http://victoryfortheworld.net/

  16. I have a fifth suggestion:

    Mint a $90 T coin. Use the $60 T plan above, in addition to using another $30 T to carry out Professor Steve Keen’s plan for a “modern debt jubilee.” $30 T would pay our privately held debt down to about $9 T (roughly 50% of GDP) from its current level near 300% of GDP.

    Just throwing this out there. Great article, btw!
    -Kyle

    • How do you mint a trillion dollar coin ? Is it just a coin the size of the current US dollar coin with $1 trillion written on one side and a bust of Obama on the reverse, or is a coin which contains $1 trillion worth of platinum ? I have not done the calculation, but I would guess that it would have to be rather large and need a train to move it to Fort Knox.

      One ton of platinum is worth approximately $60 million.

      http://futures.tradingcharts.com/chart/PL_/W?anticache=1357365516

      • frank, could be size of a quarter, a pancake, a Frisbee, or a stop sign. Its the stamp and declaration of value by the treasury sectry the gives it the value. they could mint 1 or a 10000. My guess is they would store them across the 3 fed regional vaults.

        i can’t wait for the movies on the TDC to come out.

  17. Pingback: The Great Austerity Swindle! - New Economic Perspectives

  18. Pingback: Naked Capitalism: The Austerity Scam | Seniors for a Democratic Society

  19. Pingback: Beowulf and Diehl Embrace Trillion Dollar Coin Incrementalism! - New Economic Perspectives