Trillion Dollar Coin: Posts on Legality and Constitutionality

By Joe Firestone

Enthusiasm for using Platinum Coin Seigniorage (PCS) to produce a Trillion Dollar Coin, or coins totaling a few trillion dollars continues to increase. The twitterverse went mad two nights ago around #mintthecoin, a hashtag originated by MMT’s Stephanie Kelton, which by yesterday morning had become the 5th most highly trending topic on twitter.

Meanwhile, the blogosphere continued to produce more points of view on the Platinum Coin. The points of view divide into those that are very negative; either claiming that 1) using Platinum Coins would be illegal or unconstitutional, or 2) using them would be just ridiculous and financially irresponsible, and so should be avoided; and others that favor using PCS 3) either in a limited way to avoid the debt ceiling crisis, or 4) in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.” In this post I’ll review new posts on legality and constitutionality.

Kevin Drum on legality

Kevin Drum of Mother Jones filed his second recent post claiming that the trillion dollar coin is illegal and will be subject to challenge in Court on grounds of intent. He repeats exactly the same reasoning he used in his first post. I’ve already critiqued that reasoning saying that the Courts generally don’t try to interpret laws based on theories about Congressional intent. The Justices aren’t collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn’t something any Court is likely to take up. Drum then adds:

There is, apparently, a widespread belief that courts will uphold a literal, hypertechnical reading of legislative language regardless of its obvious intent, but I’m quite certain this isn’t true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don’t think there’s even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin.

I am, obviously, not a lawyer. So if someone with actual legal training in the appropriate area of the law says I’m wrong, then I guess I’m wrong.

Well,, the language of 31USC5112(k) doesn’t look very tortured or “hypertechnical” either to myself or many others who have looked at this including lawyers Jack Balkin and Carlos Mucha (beowulf); but seems very plain and unambiguous. Drum is entitled to his opinion, but as he keeps saying, he’s no lawyer, and his judgment about what the Courts will do based on the problem of intent isn’t very plausible.

What if a trillion dollar coin is used to avoid the debt ceiling, and this saves the United States from defaulting on its debts, and the world financial system from collapsing? Is it then likely that the Supreme Court will entertain any challenges to the plain language of the law based on an interpretation of intent, which would then place the Treasury in the position of having to return that trillion dollars in Fed credits, and again look default in the face? Can you see John Roberts ever voting for this? Please Kevin, give us a break!

John Carney on Unconstitutionality

John Carney believes that Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin are unconstitutional. The core of his argument is:

There are limits to how far Congress can stretch its powers under the necessary and proper clause. Of particular interest to us here is the non-delegation doctrine, which holds that the Constitution’s requirement that laws be passed by both houses of Congress and signed into law by the government constrains the ability of Congress to delegate its lawmaking authority to other bodies. . . .

The Supreme Court . . . . went out of its way to affirm the basic principle of non-delegation . . .

Article I, Section 1, of the Constitution vests “[a]ll legislative Powers herein granted… in a Congress of the United States.” This text permits no delegation of those powers, and so we repeatedly have said that when Congress confers decision making authority upon agencies Congress must “lay down by legislative act an intelligible principle to which the person or body authorized to [act] is directed to conform.”

So the question that is relevant for us here is whether or not the law that authorizes the creation of platinum coins by the U.S. Treasury lays down an “intelligible principle” to which the Treasury is directed to conform.

He then quotes the law authorizing PCS:

“The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

You see the problem here, right? There’s no intelligible principle whatsoever. The law gives the Secretary complete discretion over everything having to do with the minting of platinum coins. This is very likely an unconstitutional delegation of the legislative power to coin money and regulate the value thereof.

Carney goes on to talk about issues of standing recognizing that standing may be very difficult to get from the Courts and that therefore it may not be possible to challenge the law. But he still thinks that the above argument is a decisive one and that the coin seigniorage law is unconstitutional. You see the problems here, right?

First, the power to physically mint coins is not a law making power, per se. In delegating this power to the Treasury and the Mint, no law making is involved. So, the principle of non-delegation of legislative power may not apply even if “intelligible principles” didn’t exist. But, as we’ll say they do exist anyway.

Second, Congress delegated the Treasury the power to mint platinum bullion and proof coins having a variety of properties to be specified by the Secretary; but it did not delegate to the Secretary that power with respect to coins made out of other materials; or even with respect to platinum coins that are neither bullion or proof coins. So, Congress did limit the authority of the Treasury according to intelligible principles. And in the area of platinum coins what Congress has done is to delegate its authority according to “the intelligible principle” that the Secretary is to mint such coins with face values he/she deems necessary and proper. That seems like an intelligible principle to me, even though John Carney may not like the principle.

Beowulf goes much further in pointing out that the Treasury Secretary’s broad coin minting authority is, in fact, highly constrained by Congress. He says:

Now here’s where John is wrong, the Secretary has no legal discretion in this matter whatsoever. His path is laid out by Congress like he’s the mechanical rabbit at a dog race.

1. Congress tells the Secretary (as supervisor of the IRS) how much to collect in tax receipts and (with somewhat less effort) in miscellaneous receipts.

2. Congress tells the Secretary as signatory of every single appropriation warrant how much money to transfer to federal agency sub-accounts (called “appropriation symbols” for some obscure reason).

3. Congress tells the Secretary he MAY borrow on the credit of the United State to fund expenditures but not for one penny more than the debt ceiling.

4. Congress tells the Secretary he SHALL mint coins such coins as he decides are necessary to meet the needs of the United States.

When Congress orders the Secretary to spend appropriations in excess of the receipts they’ve ordered him to collect, the unavoidable budget deficit must be filled by the combination of the Secretary’s powers to borrow (debt limit-constrained) money and to mint (debt-free) money. If Congress refuses to increase receipts or cut appropriations or extend the debt limit, the Secretary has only one and only one path to comply with all of his legal duties. Maybe I’m naive, but I’m confident the path to salvation will never be ruled unconstitutional by any United States Court.

This is a pretty decisive argument about “intelligible principles” governing Treasury’s responsibility to coin, isn’t it?

Third, Carney’s using his non-delegation argument to apply against the PCS legislation is remarkably devoid of the legal context of Congress’s delegation of its money power. If the Court were willing to consider such a theory in relation to PCS, then how would it avoid applying the same theory, when someone comes along who wants to challenge the constitutionality of the Fed?

In creating the Fed Congress not only delegated very, very broad money creating powers without specifying intelligible principles to guide the delegation; but in addition, it created an executive institution which is independent of the Executive Branch. Surely, this is an unconstitutional delegation of its power that infringes on the rights of the Executive Branch of Government. But it is an unconstitutional delegation that no one except the President has obvious standing to challenge, as Senator Phil Hart (D-Mich) and Congressman Henry Reuss (D-WI) found during the 1970s when they were denied standing to pursue their suit against the Fed on its constitutionality.

In a second post yesterday John Carney replies to the criticism that the non-delegation principle, if applicable to PCS, should apply equally well to the Fed. He says:

The Federal Reserve Act, which establishes and empowers the Fed, is a long bill full of instructions from Congress about what the Fed may and may not do. (In fact, the Fed’s powers were changed recently, under the Dodd-Frank Act.) Most importantly, the Act directs the Fed to implement monetary policy to meet some very specific goals.

And Carney goes on to quote the mandate of the Fed under the Federal Reserve Act following that with the conclusion:

That’s an extremely explicit “intelligible principle.” The Fed cannot make policy willy-nilly.It must conform its policy to increase production while promoting maximum employment, stable prices and moderate long-term interest rates. The Fed has a lot of latitude when it comes to how best to pursue those goals but the goals are very clear.

All that is true, but, this very explicit instruction of the Fed in the Act makes it quite clear that the Fed performs Executive functions, and the question immediately arises about whether Congress has the constitutional authority to create and maintain it as independent from the Executive Branch, especially since there is no clearer principle in the Constitution than separation of powers and the establishment of only three branches of Government. In addition, the Act establishing the Fed isn’t very explicit in regulating and guiding its money creation powers. Surely it doesn’t explicitly give the Fed the authority to create money out of thin air, or limit this power in any coherent way.

Apart from this however, Carney’s comparison between the Fed legislation and the coin seigniorage legislation is an unfair comparison, because the Fed as an institution with delegated powers should surely be compared to the Treasury as an institution with delegated powers, and then the question should be asked whether Congress has specified “intelligible principles” for both. I think the answer is clearly yes, and also that there is little to distinguish between them on these grounds.

Also, the relevant and fair comparison between the Fed and the Treasury Carney should have made is in the area of money creation powers, rather than comparing the Fed as an institution with the narrow Treasury function of platinum coin minting and seigniorage authority. Once one does that; it’s plain that the authority of the Fed with respect to respect to reserve and currency creation is lavish, and much less regulated and governed by the Congress in the form of “intelligible principles”, than is the coinage authority of the Treasury.

In fact, it is only in the area of PCS that the Treasury has anywhere near the freedom and authority that the Fed routinely exercises over reserves. So, with respect to money creation powers it seems that a much greater delegation problem, if there is one, exists between Congress and the Fed than between Congress and the Treasury.

Of course, no one can be sure about what strange decisions may ensue from this Supreme Court. But the same problem exists with Carney’s theory about what the Courts might do as with Drum’s. That is, if the President uses PCS, cites the legislation, and then prevents a default, will the Courts really then declare the PCS legislation unconstitutional based on a vague doctrine like non-delegation which has had limited previous applicability, which would be questionable in this application, and which might have the consequence of crashing the global financial system? Somehow I doubt that John Roberts and Anthony Kennedy would join in such a ruling; and Justices Kagan, Ginsberg, Briar, and Sotomayor are even less likely to decide that way. In other words, John Carney, if it ever gets to the Supreme Court, which is highly doubtful due to standing problems, I think there’s a 6-3, or perhaps even a 7-2 vote in favor of constitutionality coming up on this one.


Summing up, I think the efforts of Drum and Carney to put forward legal theories about the coin seigniorage legislation are both questionable. Drum really offers a tough argument to make stick, because the kinds of intent considerations he brings forward could be used to challenge any Act that had unintended consequences. When we realize that almost every piece of legislation has unintended consequences, it’s clear that an attack based on intent would really be a difficult one to sustain in the face of the plain language of 31USC5112(k).

And with respect to Carney’s legal theory, that the non-delegation doctrine can be applied to coin seigniorage, it is very hard to take his theory seriously. Sure, legislation that assigns legislative powers to other branches of the Government is unconstitutional. It’s also true that legislation assigning executive functions to agencies outside the Executive Branch is also unconstitutional.

But what is a legislative function and what is an executive function? The boundaries between the two are often not so sharp, and some deference must be and has been given by the courts to Congress’s own decisions in delegating both its own and executive functions (like the Fed’s) to other agencies. So, the application of the non-delegation doctrine is a very subjective matter, and is very unlikely to be relied upon by Courts to check the coinage authority delegated to the Executive by the Congress in the clear language of the law.

132 responses to “Trillion Dollar Coin: Posts on Legality and Constitutionality

  1. Clonal Antibody

    I think you missed the interview with the architect of the Platinum Coin Act – Philip Diehl, the Head of the US Mint at that time.

    From A trillion-dollar-coin idea takes off, and a former head of the U.S. Mint doesn’t see why it shouldn’t

    But for what it’s worth, the guy who was in charge of the U.S. Mint when the original law providing for the minting of such a coin was passed told me he thinks Nadler’s proposal is perfectly legal.

    “My understanding of how this all works suggests that this is a viable alternative,” said Philip Diehl, a former chief of staff to the late Texas congressman Lloyd Bentsen, who was head of the U.S. Mint from 1994-2000.

    Diehl tried to make the Mint function more like a business, and saw an opportunity in the worldwide market for platinum bullion coins. (The gold bullion coins fashioned by the Mint are not produced at the preferred purity for the worldwide gold trade, Diehl said, making them a tough sell on the international market.)

    Diehl planned to conduct extensive market research, focusing in particular on the hot market for platinum in Japan, and wanted legislation that would allow him to react quickly to those results. The Treasury Department, wary of its bureaus making their own friends on the Hill, was “decidedly unenthusiastic” about the legislation,Diehl said, but he worked closely with Republican Rep. Mike Castle, who was chairman of the House Financial Services Subcommittee at the time, and eventually got the bill through the Republican-controlled House with what Diehl called a “blank check.”

    “One of the ironies in this story is that a G.O.P. Congress passed the legislation over the objections of a Democratic Treasury, and now, today, Treasury may well be in a position to use the law as leverage to neutralize the G.O.P.’s threat to hold the debt limit hostage,” he said.

    The legislation served its purpose; the Mint rushed out a platinum bullion eagle coin—in denominations up to $100—and overtook the market.

    “We brought that coin to market faster than any coin the U.S. Mint had ever brought to market, and within about six months of launching it, we owned about 80 percent of the worldwide market for platinum bullion coins,” he said. “The Canadians had dominated the Japanese and U.S. market up to that time, and we basically took them out of his both markets.”

    “Of course, no one ever imagined that a scenario like this would develop,” said Diehl, who is now C.E.O. of a gold seller in Austin, Texas.

    Diehl said he thought it could be used “as a backstop,” and that it appeared to be on more firm legal ground than the 14th Amendment.

  2. “The Justices aren’t collective psychologists who are expert at divining the intent of the Congress.”

    WHAT? Scalia the Texualist aside, the Courts (and petitioning Amici) argue Congessional intent ALL THE TIME.

  3. Where does the money come from to buy the platinum in order to make the coins?

    currently selling at $1,500 per troy ounce.

  4. ” promoting … stable prices”

    And yet the Fed does exactly the opposite, attempting to increase prices rather than maintaining stability. Seems to me a challenge on that ground is more based in the language of the law than any of the others discussed.

    Of course, Congress can change the law whenever they choose, if they don’t like the idea of the TDC. The fact that they do not act in the face of all this publicity says something about their intent, too.

  5. The legal arguments notwithstanding, the Supreme Court is dominated by right-wing true believers, who have a history of interpreting the law according to right wing desires. If the Republicans mount a strong objection to the PCS (which they will, because it helps prevent a recession during the Obama administration), the Court very well may find “reasons” why the PCS is unconstitutional.

    Remember, this is the same Court that decided corporations have people rights, and money does not buy elections.

    • i read some where in order for it to go to court, only congress could make the objection and would require 2/3 of both houses…..if so, i wouldn’t be too concerned about a court problem. the real kick is, would they legislate it out, if so why?

      I still contend it’s more fun, that the language was diliberate but its intended use was to be a restoration plan in the event of catastrophe to the monetary system…yes i’m waiting for the tom clancy novel.

      • Bottom line, the debt ceiling is a nonsensical nonsolution to a nonproblem that leads to trashing of the American economy.

        The right wing politicians are furious that the trashing of the economy, under the Obama administration, might not actually happen. They also are frightened that the campaign money they have accepted from rich donors, to widen the gap between the rich and the rest, might no longer come in.

        But they should rest easy. Obama already has pledged to destroy the middle class, which is all his wealthy donors ask of him. Raising FICA was only his first step. Next, he’ll reduce Medicare and Social Security benefits, while pursuing other avenues of austerity.

        Watch the GINI ratio continue to grow:

    • I do remember, but the Court majority isn’t just Republican. It has legal theories. These include the theory of the unitary executive. Not good for the Fed!

  6. Good stuff here, Joe.
    But the ‘delegation’ argument really seems to turn more to impeachment of the Fed, than to objection to what is plainly coin seigniorage – something the Treasury does every day. Maybe the argument is that $Trillions are just too much of a good thing.
    Or, for some of us, not enough.
    I say impeach the Fed as the illegal delegation, and VOILA!, the money creation power resorts fully to the Congress.
    Where it should be.
    For the Money System Common.

  7. I feel like the protagonist in My Fair Lady, Dr. Doolittle, who says, “I’m a practical man” to justify what he does, regardless how his friend the Colonel and Eliza (and his housekeeper) may feel about it. The wonder of our law making. Suddenly, for the first time since the law was enacted, it becomes an issue because, it appears, there’s a rational purpose to avail ourselves of its dictates. I love Joe’s article. This was discussed this morning in “UP with Chris Hayes, and Congressman Nadler was there. They gave the “constitutional argument” a brief once-over and there was no concensus reached on that point. I think that it is wonderful, and, should the GOP idiots make a huge deal of extending the debt ceiling, the constitutionally informed president should just tell these boys to back off, or he will simply issue platinum coins in sufficient quantities to overcome their foolishness. Of course, as an MMTer, this makes incredible sense, and should be pursued much further in the future to assist in putting our country back to where it should be.

    • Just waiting for some microphone to ask Boehner or Paul what their response would be to the Platinum Coin option.
      Get some sparks flying about who creates the money.

      • Get some sparks flying about who creates the money. joebhed

        Why argue about that? Let the government create inexpensive fiat (without borrowing) that is only* (de facto as well as de jure) legal tender for government debts and let the private sector create monies that are only acceptable for private debts. Note that government money, while not legal tender for private debts, could be voluntarily used for that purpose if both parties to a contract agreed while private money could ONLY be used for private debts, not govertnment ones.

        * After a universal bailout of the population with full legal tender fiat to force the banks to accept it.

  8. Did you see the coverage on cnbc with joe w yesterday?

    he could have explained why it’s not zimbabwi better, the hosts just dismiss it summararily with no analysis. tv is just getting scarier to watch the more you learn.

  9. Obama would have to quadruple his Secret Service Detail budget. His effigy would be strung up in every front yard from Georgia to Idaho. He’d be impeached (not that it’d go anywhere outside the House).

    You can’t just erase your debts with the stroke of a pen. Contracts are sacrosanct.

    Oh, uh, wait…

    • Bobby
      Debts are created with the stroke of a pen. No?
      Just depends on who has the pen.
      For the Money System Common

    • BobbyG

      The so-called “debts” would not be erased. They would be offset.

      First, they aren’t debts in the classic sense. They are deposits in T-security accounts at the Federal Reserve Bank.
      Second, they would continue to exist after the platinum coin was issued. No contracts would be broken.

      There just would be a credit to offset a bookkeeping debit. No T-security holder would lose a penny.

      Rodger Malcolm Mitchell

    • BobbyG: Minting a coin and its consequences, is not erasing a debt, breaking a contract. There is no reason to think it is inflationary. The Treasury mints/prints Treasury Bonds “with the stroke of a pen” all the time. The Treasury minting a trillion dollar coin is no different, and may be the only way that the Treasury can execute Congress’s laws. If the Congress and Obama subsequently started spending enough for full employment, started a New New Deal, then Obama’s picture would be hanging in rednecks’ houses from Georgia to Idaho, just like FDR’s did.

  10. John Rosenfield

    Unfortunately we may be living in interesting times.

    • Default is unconstitutional. And the final responsibility to avoid it lies <squarely with Congress (via 2/3 override votes should it become necessary). If Obama goes PCS, he’s gettin’ played.

      • I understand the final responsibility lies with the Congress. But what may it have to override? That, I don’t understand. Would you care to explain?

        • A Presidential veto of a bill if they can’t come to agreement on aggregate spending. Congress can say, “OK, we’re gonna honor all public debt pursuant to Amendment XIV Section 4, but to do so here are the spending cuts and tax increases that are required, in our aggregate bipartisan, 2/3+ vote-in-both-Houses view.”

          Yeah: ain’t gonna happen. But that IS in fact the lawful process. Obama doesn’t get to unilaterally decide. He lacks Constitutional authority to appropriate funds (TurboTax Boy pocket card notwithstanding). The responsibility to comply with XIV.4 rests squarely with Congress once the Article 1 Section 8 process has played out post-veto.

          I know the PCS buzz is all increasingly fashionable now, having broken out of the choir rehearsal pews to catch the ears of MSM passers-by always looking to stir the stew and add spice to it, but I remain skeptical.

          One way or another (something apropos), we’ll know in 8 weeks.

          • Or, being Monetarily Sovereign and therefore having unlimited access to unlimited funds, the federal government simply should pay its bills and stop pretending it is broke.

            Why not?

            • That’s just too easy, Roger – – better to pursue a mutual suicide pact for awhile to scare everyone into accepting a little bit of austerity.

              • JonF,

                Understood. Sadly, we’ve been pursuing that mutual suicide pact (aka “austerity”) for several years, and the populace still doesn’t understand what is being done to them.

                Hey, we just raised FICA 2% ($1,000 taken from every %50,000 salary), and all the media can talk about is the phony tax increase on those making $400,000+. Nary a peep from the populace, most of whom think the FICA increase was necessary — even beneficial.

                • To many who appreciate these social programs/benefits, it may be a political imperative that they continued formally as paid-for programs/benefits (even if that may not be the case or even financially necessary). For, otherwise, transfer payments and other benefits to well-to-do recipients would be questioned and curtailed, the programs would slowly turn into anti-poverty welfare programs subject to further strangulation by the political right.

                  I don’t know, maybe you were familiar with this perspective. I wasn’t. Another commenting fellow brought it to my attention, and a day or two later, I heard on TV a democratic congressman say the same as a matter of fact.

          • Bobby, so you disagree with the proponent’s claim that filling the purse and spending from the purse are different things, huh? Somehow, doing the PCS/TDC thing doesn’t strike me as appropriating funds. But what do I know…

        • If Congress wanted not to exceed the current debt ceiling, they could pass appropriations bills for less spending than current tax receipts, so no new debt would have to be created. The President might veto such bills, and that could be overridden.

          However, to view this Congress as a monolithic entity is unrealistic. There is the House, and there is the Senate/Executive coalition. There’s no way the Senate is going to pass anything that Obama would want to veto, and even if they did, no way would the Senate override the veto.

          • The money’s already been spent. The debt ceiling is a ceiling on paying for already appropriated spending.

            • It’s already appropriated, not yet spent. Congress could change the appropriation law and reduce the amounts to be spent.

  11. Joe, excellent piece, thanks.

    […] the President uses PCS, cites the legislation, and then prevents a default […]

    Can the debt ceiling cause default? I figure, it can squelch spending. But default?

    Could you (or someone) elaborate? (Is interest due already too big to be covered by tax receipts less absolute minimum necessary spending? That’s the only possible default scenario I can think of.)

    • Use of the word “default” is a politically motivated scare tactic. Interest is about $40B a month, and tax receipts are about $200B a month. There is no reason that interest payments should be the first thing to go if spending had to be reduced, and they would not be. There are other obligated payments, like Social Security and salaries, that would also be met, for sure.

      The President would get to choose, so maybe Defense would take the hit for most of it, because it’s big and it is easy to delay large procurement projects. Also very likely is the so-called “Washington Monument” strategy, to shut down national parks and other things that people really use, but that don’t save much money, so as to inflict the most pain, and bring the most public pressure on the Republicans.

      • John, thanks for shedding light.

      • We may not default on our debt payments, but I expect that deciding not to spend appropriated funds would be seen by markets as dangerously close to default and as a cause for some amount of panic.

        It’s also misleading to say that the president “would get to chose”. Of course, he would end up chosing, because no one else would, but there is no clear principle under which he would chose and no lawful authority to chose. Chosing where the federal government spends is Congresses responsibility. If Congress didn’t appropriate fundings (i.e. a proper shut-down) than the Executive has to use emergency powers to keep core operations (safety & defense). But it’s profoundly dangerous from a constitutional perspective to have the president be the sole appropriator of 200B each month.

        • It’s not a good situation, of course. The combination of the debt ceiling law with the saner (though obsolete) laws about spending and borrowing creates a situation in which Congress legislates deficit spending, mandates borrowing to cover it, and then forbids that same borrowing. I guess by assuming that the situation will be resolved before the end of the fiscal year, the President can say he is simply delaying some spending in order to comply with the debt ceiling, and is therefore not failing to spend what has been appropriated. As far as I know, the law does not require spending to be equally pro-rated over the months, just that it all be spent by the end of the year. (Some “entitlement” spending, of course, is automatic and not appropriated each year. I don’t think the President has any authority or cause to not spend that money.)

          As you say, if Congress had chosen, then the President would have no options. By not doing so, Congress has abdicated its responsibility, and only the President remains to manage the thing. “By default”, we would say in IT 😉 The one solution that maintains spending while complying with the debt ceiling law is for the President to somehow find some other revenue, such as increased coin seignorage.

      • The President is not allowed to choose to “not spend money” which Congress has appropriated. Google “Impoundment Control Act”

    • Nihat, the debt ceiling CANNOT “squelch spending”. The Impoundment Control Act requires the President to spend all appropriated money. We’re discussing money Congress has already appropriated. Congress requires the President to spend it, and not spending it is illegal — there’s a Supreme Court ruling from the Nixon era about that.

      It also can’t cause “default”, because the 14th amendment prohibits defaulting on the national debt.

      In fact, all the “debt ceiling” can do, *legally speaking*, is to require the President to mint Platinum Coins.

      It is sad that everyone is assuming that the President will just break the law rather than following the law by minting platinum coins.

      • Nathanael, the Impoundment Control Act seems to block president’s decision to not spend on his/her own discretion. How that law works (if it applies) when the Congress offers no choice but to forego some spending, is that something tested already?

        There are people who believe the 14th amendment doesn’t apply at all as default and questioning/repudiation of debts are different things.

    • The Treasury pays back and issues a huge amount of debt over a period of a year. For example last FY it redeemed $6.5 Trillion in Treasury Bills and Notes. It can’t redeem debt in that quantity without issuing new debt, as well as collecting new revenues. The balancing act is complex enough that it would default if it tried to juggle without issuing new debt, or replacing monies from debt issuance with large scale seigniorage.

      • Or, it simply could stop requiring the issuance of T-securities in the same amount as the deficit. This would eliminate the so-called “debt,” and bring America to fiscal sanity.

        (But then, what would the debt hawks do with themselves?)

  12. The “intelligible principal” underlying the creation of the nation’s money has finally surfaced and demands an answer especially at a time when the nation is suffering from a second great recession in eighty years. So the question is should the nation’s creation of money be entirely in the remit of the Banksters as a “Bankster’s Fiat Currency” or entirely in the remit of the People as a “Social Fiat Currency since the current split offers no protection against the occurrence of severe recessions?”

    • The Japanese have “saved” by buying up BoJ bonds for 20 years and causing government debt to increase in spite of Japan’s trade balance. So all that accomplished was a strong yen, right? Their economy is now dead and gone. We don’t save squat, but the banksters are more than happy to buy up government debt and in such a greedy manner that our debt will spiral right off the planet if interest rates go up. We need to get money “intelligible” all right. Yes it is social fiat currency, else why are we bailing out the banksters? The banksters and corporations have bled us dry, and now we are going to mint social fiat BEFORE we pass strict regulations on the banks? I can already hear that giant sucking sound. If we are going to have social fiat, and we should, then we should have a socialized financial system. Otherwise this will be a 3-ring circus of irresponsible delegation by both Congress and the President, benefiting the banksters and the quislings, whereby they are all free to take bribes from the very twits we taxpayers are bailing out.

    • Schofield,

      All lending creates money. So, if you restrict dollar creation to the government, you have eliminated private lending. I doubt that would prevent recessions and depressions (on average, one every five years), the cause of which is not excessive bank lending, but insufficient federal spending.

      • Rodger,
        Just in case any part of the notion that a potential recession could be caused by public money creation because the banks NEED to create money when they lend – as they do now – well, that notion is based on a misunderstanding of the basic identity of reform – which is the separation of the banking power (to issue loans as needed for commerce) from the money-creation power, which is rightly the power of the sovereign government.

        The private banks simply do not NEED to create money when they lend.There’s nothing, as in no fact or reality or substance of thought to the notion that the banks NEED to create money when they lend.
        The banks just need to have money TO lend.
        And why wouldn’t they?

        Money would be created/issued in quantities sufficient to achieve GDP potential – with full-employment guidance. The amount of money in existence would be what is needed to achieve our own socio-economic goals, established via the government’s budgeting process.
        All money created would, in the act of creation, become a private bank holding.
        Any amount received in excess of the immediate needs of the depositor can be moved to a term savings account and be lent by the bank.

        Banks can, should and will do financial intermediation and be the lenders for commerce without creating any money. Just like people think they do now.

        • The very act of lending creates money, whether you do it or banks do it. If a bank lends you money, you receive the money and the bank receives your note — which is evidence of money.

          If lending does not generate a note — for instance if you lend your pal $5 — no new money is created.

          That is the fundamental difference between GIVING money and LENDING money. Lending creates a note. Giving does not. A note is fiat money. The U.S. dollar, for instance, is a Federal Reserve note. A note has a fixed denomination, can be spent by assigning it to a different owner, and is collateralized by the full faith and credit of the issuer — as is all fiat money.

          Notes are part of “Debt Outstanding Domestic Non-financial Sectors, which is the broad measure of the U.S. money supply.

          • Slowly.
            The very ACT of lending does not create money.
            If Rodger “lends” me $5, no new money is created, unless Rodger first printed the $5 Bill.
            This is what the banks do when they lend money into existence through fractional-reserved lending.
            Otherwise, using already created money, Rodger lends me that fiver, and I later pay that money back to Rodger. We are users of the money system. We’re not supposed to create money.
            Has everyone read Silas Adams’ book: “The Legalized Crime of Banking”?
            Pretty sure its available free online.

            That ‘note’ word-smithing is a bit hard to follow.

            1. Lending creates a note.
            2. A note is fiat money.
            3. The U.S. dollar, for instance, is a Federal Reserve note.
            4. A note can be spent by assigning it to a different owner.
            5. Notes are part of “Debt Outstanding Domestic Non-financial Sectors, which is the broad measure of the U.S. money supply.
            You hit a lot of ‘notes’ there, Rodger.
            1. A securitized promissory ‘note’, which is what is created when a bank loan is made, is not fiat money and is not legal tender. The proceeds of the loan, when transacted into the national payments system, are legal tender. You can watch the legal tender move around the economy, but the bank still has the note – a monetary asset to its holder, but not fiat money.
            2. If Rodg lends me a fiver and I sign an ‘IOU-Rodg’ for the fiver, that IOU note is not fiat money and not legal tender. Rodg cannot spend that ‘IOU to Rodg’ by assigning it to anyone without my agreement, and there is no collateral. Hopefully the fiver was legal tender.
            3. When Rodg says that ‘Notes” are part of “DODNfS”, I’m not sure if he refers to Federal Reserve Notes, or promissory notes, or government securities or what.
            4. What I know is that DODNfS is not part of the money supply, no matter how broadly measured. Money supply aggregates grow (M1, M2 etc.) according to their liquidity. DODNfS have zero liquidity as ‘money’ – they are again monetary (money-denominated) assets. They are “debts outstanding”. We pay off debts using money that is part of the money supply.
            5. Just because they are money-denominated does NOT make them part of the money supply, and does not make them legal tender. My IOU-to-Rodg falls in this category.

            In summary, lending does not create money. Lending BY the creation of money – that private banking power – is self explanatory. By changing to a real-money system as in the Kucinich Bill, lending would NEVER create money. It’s as simple as me and Rodg. ALL Lending would be done with existing money.
            Here’s the fiver, can I have my ‘IOU a fiver’?

            • “In summary, lending does not create money. Lending BY the creation of money – that private banking power – is self explanatory. ”

              Joe, you’re confusing me. Are you saying that banks create money without lending?

              • Not at all.
                This is responsive to Rodger’s statement – quote:
                “The very act of lending creates money, whether you do it or banks do it.”
                I;m saying it matters who is doing the lending.
                I’m saying that banks – as fractional-reserve lenders – create money when they lend.
                I’m saying that lending – outside that legal grant of the money-creation privilege from the government TO the private banks – does not create money.
                Lending – in and of itself – does not create money.
                Moreover, that the government creating ALL the money , as called for in the Kucinich Bill, does absolutely nothing to stop the banks from doing all the lending with that money that they choose.

            • If you will define “money,” “fiat money” and “money supply,” you will see that private notes are money.

  13. Just wanted to say this blog is rocking right now. Great job team

  14. So let me get this straight. The executive branch is required to spend the funds authorized by the Congress. The President cannot “pick and choose” which funds to spend (Nixon tried this and was soundly rebuked by the Supreme Court). The only way to get the funds, absent sufficient tax revenue, is to issue bonds, which are often bought by that very same government (cf Social Security Trust Fund) which creates them from nothing and also bought and sold by the Federal Reserve to increase/decrease the money supply (via banking ‘reserves’) as now required by law.

    So all of this boils down to arguing about nothing, correct? Seems par for the course to me!

  15. Let’s think more than 2 moves ahead here.

    Does anyone believe there would be no political backlash if the platinum coining were to take place?

    Wouldn’t you expect Congress to change the law?

    Would you really expect Congress to leave the debt ceiling at $16 trillion? They could easily lower it, and would be under immense pressure to show some “fiscal responsibility”. They have done similar stupid things in the past.

    Have any of you so-called MMT advocates thought about the austerity implications of a vastly reduced debt limit? Do you really want to give Congress that kind of power?

    You don’t reduce the spending requirements of the economy by eliminating government “debt”. As an academic exercise, the platinum coin meme has been useful. But it also has shown that economists make poor political tacticians.

    • I suggested before that Congress could lower the debt limit. That law would be subject to veto, though, wouldn’t it? And would the Senate really go along with an apparently partisan act against a President of their own party? Even so, this is another argument for a $20T or $60T coin, not just a stopgap $1T.

      Congress could also repeal the law authorizing the platinum coin, and that surely would be subject to a veto, and even if the veto were overridden, the new law would not apply to coins already issued. Another argument for doing it all the way the first time.

      It is true that the first order effect of lower debt service cost on the deficit requirement is zero, however if aggregate spending were maintained or taxes reduced, and the money from the replacement deficit were to go to people with a higher marginal propensity to consume than the average bondholder, a second-order effect would be to reduce the deficit requirement, and the deficit.

    • @pebird – I’m not feeling quite so lonely here now.

    • pebird: Congress does not possess 2/3 majorities to change the platinum coin law.

  16. John Rosenfield

    Sometimes you have to get into the shoes of your opponent in order to choose your best strategy. History tells us that the 6th Century BC Chinese general, military strategist and philosopher Sun Tzu said, “Know your enemy and yourself and you will always be victorious.”

    So let’s consider a bit more history. In 2011 John Boehner addressed the Peter G. Peterson Foundation (PGPF) about the use of debt ceiling negotiations to force the Democrats and the President to agree to spending cuts. The PGPF later described the resulting Budget Control Act (BCA) of 2011 as a good first step, but that more work was needed to be done especially in the area of entitlement reform.

    Before the BCA of 2011 was passed, Bill Clinton was quoted as saying that President Obama should ignore the Republicans, and if they decide not to raise the debt ceiling then the President should use Article 4 of the 14th Admendment of the Constitution to override the Republicans and order the Treasury to pay the U.S. debt. At the same time, Bill Clinton has served on the advisory board of the PGPF and in fact in 1994 he named Peter G. Peterson as a member of the Bi-Partisan Commission on Entitlement and Tax Reform.

    So what could this all possibly mean?

    I think we need to ask where the PGPF stands on the debt ceiling. Does the foundation really want the Republican controlled House of Representatives to actually decide not to raise the debt ceiling if they cannot get what they want? And if the debt ceiling is not raised, then who has the most to lose? Wall Street investment bankers?? The most wealthy?? The most powerful??

    Sometimes when two cars are going at full speed at each other in a game of chicken, one of the cars can lose control and cause an unforgiving crash. Let’s hope that the PGPF is not sitting in one of the cars advising the driver to avoid a crash at the last second, because by then the driver may have already lost control of the car such that the crash of both cars is inevitable.

    Again I’ll repeat that unfortunately we may be living in interesting times.

    On a lighter note; isn’t anyone watching the Wild-Card Playoff games?

    • RG III pulled a Boobie Miles in the Seahawks game. Ouch.

      • John Rosenfield

        It was somewhat painful to watch RG III on the field after the first quarter. Hopefully he’ll take the time and get the care to heal.

        That being said, I’d better get back to thinking economics, so the comment moderators don’t cut me off.

  17. Joe, this is the best analysis in any media on the planet wrt this issue… Rsp

  18. From a comment elsewhere, answering a posed question:

    It wouldn’t be backed by precious metals, it would be the same as if you picked up a penny and declared it was worth a billion dollars, just because you wanted it to be worth a billion dollars.

    The whole point is moot, as there is no legal authority to for the treasury to create money, it can only mint and issue commemorative coins. Congress would have to approve the coin, and someone would have to buy it for a Trillion USD, which isn’t going to happen.

    Yeah. Moreover, why would Obama want to own this problem? It’s Congress’s problem.

    • Congress has already approved the coin. I mean, seriously, why do people comment without even reading? And the Fed would have to “buy” it, because it would be legal tender and the Fed must accept it as a deposit.

      • “Congress has already approved the coin.”

        The multi-trillion dollar platinum coin? How did I miss that? It’s already been approved?

        You just watch and enjoy the shitstorm that ensues should Obama try this.

        • We welcome the “shitstorm” you predict. We love watching the populace, goaded on by the politicians, angrily fight against their own best interests.

          • hi rodger, i checked out your blog, good stuff. i’m curious to your opinion on this :

            I think it seems to match up with a lot of your perspectives, let me know…thks jack

            • Kucinich has been promoting his plan for quite a while. I didn’t understand it when I first read it, and I don’t understand it now.

              • There’s a lot in there, but here’s a quick summary of the bill

                (20) Reclaiming the power of the Federal Government to originate money, and to spend or lend money into circulation as needed, eliminates the need to treat money as a Federal liability or to pay interest charges on the Nation’s money supply to financial institutions; it also removes the undue influence of private financial institutions over public policy.

                The fed is absorbed into the Treasury-
                Establishment- There is hereby established the Bureau of the Federal Reserve as a bureau within the Department of the Treasury (hereafter in this section referred to as the ‘Bureau’).

                How does this sound?

                • “Reclaiming the power of the Federal Government to originate money, ”
                  The government (Congress and the President) already has that power. It’s called “spending.” The federal government creates dollars by spending and destroys dollars by taxing. The excess of spending over taxing (otherwise incorrectly known as the “debt”) is the money supply, the most complete measure of which is; Total Debt Outstanding Domestic Nonfinancial Sectors.

                  “eliminates the need to treat money as a Federal liability”
                  Congress and the President could eliminate it tomorrow. Simply stop issuing T-securities, the total of which are the “debt.”

                  “also removes the undue influence of private financial institutions over public policy”
                  I agree. I have suggested eliminating private banking, and having all banks owned by the federal government. See: The end of all private banking

                  ” establish the Bureau of the Federal Reserve as a bureau within the Department of the Treasury”
                  Not sure what this accomplishes positively. However, I can think of some negatives, and they all begin with the words, “Republican” and “Democrat.”

                  • thks, those were just some points. the bill seems to lay out a detailed architecture on how to accomplish those things. i get the govt spending = private sector savings. i just hate having the govt have to do it with debt creation/interest payments, which this bill would have eliminated.

                    i did like your point in the link discussing the negative side to privitization and what happens when public services are provisioned for profit vs. public purpose.

                    i had to look at the private sector in a whole new light after reading about the new monopolies and how they are destroying jobs be eliminating competition:

    • Bobby, the Treasury has the authority to create money. Legal tender. The comment you quoted is just not true.

    • ” there is no legal authority to for the treasury to create money, it can only mint and issue commemorative coins.”

      If this were true, there would be no ordinary (non-commemorative) coins in circulation. Nobody would be able to use laundromats, for instance. The TDC would be a legal tender coin like the ones we use every day (not like the commemorative coins we collect, which have a bullion value far in excess of their face value), just a different value stamped on it.

  19. First, let me point out that the debt ceiling is not some technicality. It is the law and has been since Woody Wilson passed it in 1917, nearly 100 years ago. It appears to me left-wing extremists are recommending that the President usurp the power of Congress to tax, spend and borrow. This is clearly unconstitutional and very well may be a high crime and misdemeanor. Not liking Congress is not sufficient grounds for the executive to usurp their power.

    All of this assumes, of course, that anyone takes this seriously. Incredibly, that does appear to be the case.

    • Ahhh…..Congress does not have absolute power to determine taxing/spending/borrowing policies. That’s why the executive branch has a Treasury Department, a Federal Reserve Board, and federal banking system.

      Secondly….minting platinum coins in order to cover debts that are already owed and committed to is NOT usurping “the powers of Congress”. They still have the appropriation process, and (for the House of Representatives) the power to initiate spending/tax bills.

      Third…you do know that the world doesn’t revolve around John Boehner, right?? The Democrats control the US Senate, and they have some say over what is taxed, spent, and borrowed.

      This is about a political debate as to whether the threat of political blackmail and default to force drastic policies opposed by the majority of citizens (read, looting social spending to buttress defense/wealthy tax cuts) will be countered by the Executive. But, please, Darrell, go ahead and prat on about the “left-wing extremists” while your favored right-wing extremists go and deliberately tank the economy so that they can get revenge on Obama for getting reelected.

    • Who said it wasn’t the law? It’s an out-of-paradigm law, but yes, it is the law, and in this post and elsewhere, it is getting the proper respect it deserves.

    • Besides the debt ceiling law, there are spending laws and taxing laws for this year, and a law saying that spending must not exceed the total of tax receipts and borrowing. Taken together, and absent any source of revenue other than taxing, (like coin seignorage), Congress has obligated the President to spend and to borrow and to not borrow. He cannot comply with all of those laws at the same time. And they all deserve equal respect. Violating any of them might be cause for impeachment. The TDC is the President’s only legal way out of this dilemma.

  20. The president should just veto all debt ceiling bills, and mint monthly coins to cover just that months bills. Keep it small at to scare only the nuts. It would start setting precedents for fiat money concepts in the public eye.

  21. The problem with the TDC is that government by technicality is undemocratic and therefore untenable – IMHO it’s politically naive to think otherwise.

    • It’s true the TDC doesn’t solve all of the problems of government – but it does advance an idea of why the issuance of the nation’s money supply into existence ought to be a governmental function.
      Were that thought to take hold, we would be in a game-changing paradigm, possibly portending the end to the present money-centric political system that funds the corruption of our political process and our body-politic.
      End the money-based corruption that gives us the worst Congress that money can buy, and the people might decide what needs the government should be supporting.
      We’d have both a government and a money system for the Restofus.
      For the Money system Common.

    • What do you think about government by bribery, blackmail, and the like? Did you watch Lincoln?

  22. Whatever the fate of the Platinum Coin, it presents an excellent opportunity to promote understanding of how the government has financed the interests of the 1% for decades. If anyone doubts it, ask how the bank bailout and subsequent ruses like quantitative easing were accomplished. It then becomes apparent how the Platinum Coin might be used to promote the general welfare.

  23. Here’s a real problem with the coin idea: The legal hack only works if the Fed accepts the deposit.

    Let’s suppose that, quite literally, Treasury works up a N-trillon $USD coin and walks it to the treasury. Will the Fed accept the deposit? The question hinges on the authority of the Treasury to issue such an unusual coin.

    Realistically[*], the Fed says “Uh, no, we’re pretty sure that isn’t legal”.

    Now it goes to court. Treasury goes to court for an emergency injunction to force the Fed to take the deposit — or the Fed goes to court for an emergency injunction to refuse the coin. Either way, there’s a delay there and the gov’t shut-down begins.

    Eventually the coin question wends its way up the courts, on an expedited basis — and we have a full blown, major constitutional crisis. SCOTUS won’t have much trouble finding sound reasons to prevent the coin hack[**]. I frankly wouldn’t be surprised if that led to an Obama resignation (if he were foolish enough to go this route).

    The most obvious alternative to the administration — a gov’t shutdown — is politically and legally much more viable. (It also happens to be *just fine* with the GOP but that’s a secondary consideration relative to the problems with the coin.)


    [*] The Fed won’t be inclined to thwart Congress on this one because Congress oversees the Fed. I think the Fed would try to refuse “the coin” because otherwise Congress would, going forward, punish the Fed otherwise. (Also, the Fed board would be skeptical of the idea in the first place.)

    [**] SCOTUS can easily reject the legality of the coin hack if they can find that Congress has passed self-contradictory laws; one which allows this coin and several other laws (like the debt ceiling) that are utterly meaningless in that case. Faced with contradictory laws like that, SCOTUS can easily take the (arguable, conservative, from their perspective) least-harm path by NOT using this as an excuse to upset the understood balance of powers ‘twixt the branches.

    • Right, that great political survivor, Ben Bernanke, is likely to refuse the President’s request that he accept the coin, thereby getting himself fired, for principle.


    • I hope it’s obvious that there’s a typo where I wrote: “Let’s suppose that, quite literally, Treasury works up a N-trillon $USD coin and walks it to the treasury. ” …. should be “walks it to the Fed”. But it was a goofy enough mistake I thought I should explicitly correct it.

    • Maybe.
      Lotsa maybes.

      Like maybe the people at the Fed who realize they are totally without the tools to bring remedy to the debt-deflating, balance sheet recession – with pending financial crisis #2 – and realizes that the way to get the economy back on track is a monetary transmission mechanism that involves the issuer of the currency.
      For real.
      Debt-free money paid into the demand side of the economy.
      Sounds like jobs.

      Maybe they read the IMF Research Paper of Drs. Benes and Kumhof who found that debt-free public money issuance can solve many of the problems associated with our existing financial and monetary structure. Like where we are.
      Maybe they’ll actually figure out that, if well done, it is the right thing to do.
      It only provides money to expenses already approved by the Congress.
      It’s monetary science, manifest.
      For the Money System Common

  24. Clonal Antibody

    The author of the Platinum Coin Act Philip Diehl on this

    On Blog’s related to the PCS
    Diehl was also the Chief of Staff to Senator Lloyd Bentson of TX
    From The Razor’s Edge, John Carney and The Trillion Dollar Coin

    From Philip Diehl, Mint director who wrote the platinum coin law:
    The claim that minting a trillion dollar platinum coin is unconstitutional was no basis whatsoever. Congress has given Treasury broad discretion in minting coins since the founding of the republic, and its power to do so is rooted in the Constitution (Article 1, Section 8). Moreover, the accounting treatment of the coin would be identical to other coins produced by the Mint–no different from a quarter.
    Here’s a brief on the subject:
    I’m the former Mint director and Treasury chief of staff who, with Rep. Mike Castle, wrote the platinum coin law and produced the original coin authorized by the law. Therefore, I’m in a unique position to address some confusion I’ve seen in the media about the $1 trillion platinum coin proposal.
    * In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years. The Secretary’s authority is derived from an Act of Congress (in fact, a GOP Congress) under power expressly granted to Congress in the Constitution (Article 1, Section 8).
    * What is unusual about the law (Sec. 5112 of title 31, United States Code) is that it gives the Secretary complete discretion regarding all specifications of the coin, including denominations.
    * Moreover, the accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.
    * Once the debt limit is raised, the Fed ships the coin back to the Mint, the accounting treatment is reversed, and the coin is melted. The coin would never be “issued” or circulated and bonds would not be needed to back the coin.
    * There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.
    * This does not raise the debt limit so it can’t be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached.
    * This preserves congressional authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amendment option would entail and avoids another confrontation with the Roberts Court.
    * Any court challenge is likely to be quickly dismissed since (1) authority to mint the coin is firmly rooted in law that itself is grounded in the expressed constitutional powers of Congress, (2) Treasury has routinely exercised this authority since the birth of the republic, and (3) the accounting treatment of the coin is entirely routine.
    * Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.
    Philip N. Diehl
    35th Director
    United States Mint

    A similar comment was posted at PragCap
    Further, Kos of Daily Kos seems to have come around to the PCS position because of an e-mail by Diehl

    • Once the debt limit is raised, the Fed ships the coin back to the Mint, the accounting treatment is reversed, and the coin is melted.

      I say, Diehl’s conception is the “smallest ball” idea out there. He just imagines ducking your head to pass under the debt ceiling, when the ceiling is raised down the road, you stand up again, i.e., borrow to pay for the coin.

      • The government does not borrow to pay for anything.
        1. The government does not borrow. Those T-securities are deposits in savings-like accounts at the Federal Reserve Bank. They are not debts of the government, though they mistakenly are called “the debt.” They simply are bank accounts. If you have bought any T-securities, you own one of those bank accounts and all the dollars in it.

        2. The only money the government owes is payment for its past purchases and other obligations. It does not owe the money in T-security accounts. The Federal Reserve Bank owes that money to its depositors, just as your bank owes you the money in your savings account.

        Even if the government stopped issuing T-securities, it could keep spending forever, but the so-called debt would fall to $0.

        • Rodger, why do you lecture me? I perfectly understand the nature of public debt, and I reserve the right to still use English verbs like to pay, to borrow, etc. It’s not like those verbs are not in the books.

          Go lecture Diehl, who is saying the treasury is gonna pay the Fed $1T down the road when the debt ceiling is raised and it is therefore able to borrow again (sell bonds, or T-securities, or whatever).

          Read what he says. First, when the coin is deposited, the Fed will credit/transfer $1T to the treasury’s general fund. Then, when the debt ceiling is raised, “the accounting treatment is reversed, and the coin is melted.” Is there a way to read that to mean anything other than debiting/transferring $1T out of the treasury’s general fund (which is replenished by that amount through new T-sec sales, which are now possible again)?

          I understand public debt is not exactly the scary household-debt-kind-of thing it’s cracked up to be, today or down the road. I am taking issue with his limited debt-postponement perspective on the matter. Imo, it is exactly the kind that wouldn’t be worth trying.

          $60T or $100T coins are similarly possible according to the letter of that coinage law, clause (k); and Joe seems to be considering those as the actual paradigm-shifting instruments. Can someone exercise Diehl’s coin-use scenario for either of those denominations? It appears to me that, either those coins are not possible, or his use scenario is flawed (or not the only possible one).

      • hhmmmm….

        Why do you think there is any ‘borrowing” to achieve the coinage gains.

        He said it was just like a quarter.

        All of the seigniorage of every quarter minted goes directly do a ‘gainage fund’ within Treasury.
        There is no debt associated with issuing a quarter.


        • Joe, thanks for reading. I gave a piece of my mind to Rodger above, probably answering your question, too. Diehl is just imagining this as a postponement of borrowing that can’t be done today because of reaching the debt limit. I don’t know, I could be wrong. There could be some accounting thing beyond my level of comprehension. Or, postponement of borrowing is all that is needed…

        • Joe, a more direct answer would be, it is different from a quarter in that we don’t speak of treasury’s returning seigniorage gains of a quarter to the Fed, but Diehl speaks of precisely that regarding the TDC.

          • I’m not sure Mr. Diehl says exactly that.
            The problem with his overall explanation is that it contains contradictory methods.
            On the one hand – it is just like other coinage.
            On the other – it is issued in lieu of an accommodating debt-celing level.
            It is either one or the other.
            The gains from coin seigniorage have been 100-percent permanent ‘credit’ to the Treasury US, where it becomes ‘equity’ of the government.
            Key word there being ‘permanent’.
            To use the coin-seigniorage from a $TPC as a substitute ONLY for the debt-ceiling is a political decision that has nothing to do with existing law regarding Treasury’s long-standing authority.
            That limitation as explained by Diehl is strictly in the eye of the beholder.
            Were the objective to be temporary government financing, that should be in the Act, and it is not.
            But I do see your point.

            • * There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.

              Joe, yes, maybe I should’ve read his ‘would’s as ‘could’s.

              Anyhow, forget about Diehl’s accounting reversal, I think Warren Mosler explained it the best. Namely (my paraphrasing), when govt funds deficit spending by borrowing, t-securities are issued draining reserves, and the treasury pays interest on those securities instead of the fed’s paying interest on those reserves. When govt funds deficit spending (or simply spending) from coin seigniorage gains, reserves are added, and the Fed pays interest on those new reserves. So what all the coin does is to shift the interest expense from the treasury to the fed.

              • The government does not borrow and nothing funds deficit spending.

                The misnamed “federal debt” is the total of T-security accounts at the Federal Reserve Bank. No borrowing involved.

                Deficit spending is paid for ad hoc. The government merely instructs banks to increase the numbers in checking accounts. No “funding” necessary.

                These are some of the differences between Monetary Sovereignty and monetary non-sovereignty.

                • Sorry.
                  It never ceases to amaze me the RMM thinks a word of this is true.
                  The government borrows to fund deficits. GUV has to, by law, or to print the money, as authorized.
                  The federal debt involves borrowing. It is debt as defined by the legal aspects of money.
                  ‘Funding’ by either debt-issuance or taxes is necessary prior to instructions by Treasury to any bank to make any payment.

                  That’s just the way it is.

                  • Perhaps you’ll have a better understanding of Monetary Sovereignty when (if?) the government issues its $1 trillion coin. No borrowing. No taxing. Just spending. What a shock to the debt hawks that will be! They’ll squeal like stuck pigs.

                    By the way, you’re confusing an obsolete (as of 8/15/71) accounting procedure with actual borrowing, which passes dollars from someone who has them to someone who needs them. When the government “borrows,” it creates from thin air, T-securities. It just as easily can create dollars from thin air. It doesn’t need your dollars.

                    Apparently you believe the government needs to borrow the same dollars it previously created from thin air, and has the unlimited ability to continue creating from thin air. There is a fundamental difference between Monetary Sovereignty and monetary non-sovereignty. Brush up on it.

                    Anyway, when you buy a T-security (i.e. “lend” to the U.S.), what you really are doing is making a deposit in your T-security account at the Federal Reserve Bank. It is identical with making a deposit in your savings account at your local bank. Do you consider that borrowing, too?

                  • Rodg.
                    It’s always a little funny that some MMTers still cling to the 1971 date of Nixon’s abandoning of Bretton Woods as the date that changed monetary history.
                    After a lengthy go-round with Warren, he now correctly cites 1934 as the year that we got off the gold standard. Bretton Woods merely covered the settlement of current account balances, having zero effect on either fiscal or monetary policy space, let along accounting.
                    But to say that the ‘accounting procedure’ changed on a date certain is just as egregious. If you are familiar with any accounting procedure that ACTUALLY changed on that date, please say which accounting procedure that was. Here’s a fact – you can check with Treasury:
                    On the day before 8/15/71, government borrowed from already created private bank money; on the day after, the government borrowed from already-created private bank money; yesterday the government borrowed from already-created private bank money, and they will again tomorrow unless we put in place a monetary system where the Treasury does not need to borrow its deficit balances.
                    Of course, that fact, as in FACT, Rodger, abandons any notion that the government ever issued the money it later borrowed. The government hasn’t issued any money for over a hundred years, c.e. .
                    And, having watched your government debt = savings account gyrations for many months without comment, I have some really bad news. You’re trying to shoehorn government borrowings into a bank savings account mythology. By the way, the government issues savings bonds – for the SAVERS.

                    There was never a question of what the savers and lenders do. It’s a question of what the government does. The government borrows. The saver lends. There is no mystery here. And for those who want to change the language, do as you will. But it will not change the outcome. The government borrows to fund deficits, and the government must have the positive TGA account balance before it can spend.
                    Yes, the government needs your money.
                    Or the power to create and issue money on its own.
                    Which, of course, I favor.

                  • I probably have asked this before, and you no doubt have refuse to answer, but what exactly is the difference between Monetary Sovereignty and monetary non-soveregnty?

                  • By the way, there actually are several programs labeled “gold standard.” We got off the gold specie standard some time around the Depression (I forget the date), and went to a gold exchange standard. That’s probably what you and Warren were discussing. Then we modified the gold exchange standard by reducing the amount of gold in coins. It was on August 15, 1971 that we got off the gold bullion standard.

                    All the various types of gold standards had one effect in common: They limited the government’s ability to create dollars. That was the whole purpose, as it was thought, inflation was the most serious threat, and limiting money creation would prevent it.

                    Today, nothing but Congress limits the government’s ability to create dollars. And as for paying off the so called “debt.” No problem. Just debit all T-security accounts and credit all holders’ checking accounts. That’s identical to debiting your savings account and crediting your checking account.

                    You’re confusing “borrowing” with an obsolete (as of 8/15/71) law requiring total T-security accounts to equal total deficits. We could eliminate all T-security accounts and still spend twice as much, simply by eliminating that obsolete law (a law that is as obsolete as the “debt” ceiling).

                    Rodger Malcolm Mitchell

                  • I should probably just ignore this but Rodg likes to postulate about things monetary.
                    FYI, Rodg, there was NEVER a gold standard of any type that had the purpose of limiting the amount of dollars that could be in existence. And none of them ever had that effect.
                    The purpose of the gold standard was always, in THEORY, to provide stable purchasing power to the national currency. Unfortunately, the standard often achieved the opposite results for national currencies, with values chasing the wild trans-national flows of the commodity.
                    Controlling purchasing power -the relationship between the price of good and services and unit of currency – that is the ‘pseudo-science’ behind gold-reserve backed monetary actions. Another string-pusher.
                    It was because we abandoned the unworkable 1930s gold standard that the authors of the (1939) Program for Monetary Reform (Fisher, Knight, Douglas, etc) proposed a new monetary ‘standard’ to replace the gold standard as a means for controlling the purchasing power of the currency.
                    They proposed monetary quantity growth by law. This is why Friedman supported such a radical notion.

                    The idea postulated by many MMT advocates that we were constrained in terms of domestic economic policy space by the Bretton Woods agreement is far fetched. That’s why Warren correctly posits MMT’s fiat-money basis in terms of abandoning the real gold standard by FDR.
                    There was less than ZERO purpose of controlling the amount of money in existence in adopting the BW accord. It was strictly aimed at bringing a degree of certainty and stability to cross-country currency fluctuation, and therefrom to promote greater commerce between the signatories.
                    Just another vacuous central bank policy action.

                    And, yes, after answering it many times with reference to Goodman’s “Monetary Sovereignty” and F.A. Mann’s “The Legal Aspects of Money”, both of which provide clear definitions of sovereignty, I am ignoring here your query of my understanding of non-sovereignty.

                  • So exactly what was the “Nixon shock,” and why did he do it?

                    Also, you said two different and seemingly contradictory things:

                    1. “The purpose of the gold standard was always, in THEORY, to provide stable purchasing power to the national currency.”
                    2. “It (Bretton Woods) was strictly aimed at bringing a degree of certainty and stability to cross-country currency fluctuation, and therefrom to promote greater commerce between the signatories.”

                    There is no way a gold standard or any standard can provide “stable purchasing power” without limiting money creation.. If money creation is not limited, varying supplies of money will create unstable purchasing power, as will varying supplies of goods and services. That is exactly the claim of the debt hawks, who accuse us of wanting to create infinite amounts of money, which they say would cause a rerun of Zimbabwe.

                    And, cross country currency fluctuation is a completely different issue from stable purchasing power, which can be wildly unstable while cross country currency fluctuation is zero. One example: Oil.

                    I spoke with Warren, and he said that because (quote) “no nation actually asked for their gold after 1934” we weren’t on a gold standard — a most remarkable definition. In my hometown, we have not had anyone accused of murder in 30 years, so based on Warren’s definition, we must not have a law against murder.

                    Warren may be smart, but he’s human.

                    Anyhow, tell me about Nixon. What did he do about gold, and why?

                    Rodger Malcolm Mitchell

                  • Joe,

                    Yes, “The government borrows to fund deficits, and the government must have the positive TGA account balance before it can spend.”


                    “Yes, the government needs your money” to get out of the way so it can do its spending without causing inflation (whether inflation risk is real and imminent, or not). It achieves that by outright destruction of your money and/or by detaining for a set time some of your disposable monies, a.k.a. taxation and borrowing, respectively. Every deficit-funding dollar in detention is still a dollar, and the corresponding deficit-spent dollar is a newly created one.

                    To be able to attribute a different nature to public debt, for example, to say it’s a need-based debt like my car loan, one needs to show that the government breaks a good sweat to retire that debt like I do to make my car payments. Can that be shown? What is the accounting story associated with retiring, say, a T-note at maturity?


                  • It used to be a debt and a “sweat.” Nixon changed that. We no longer need to sweat the lack of gold. That was the reason for the “Nixon shock.”

                    Now, the “debt” is nothing more than a savings account at the Federal Reserve Bank and “paying off the debt” is nothing more than transferring dollars from the savings account to the “debt” holder’s checking account. No sweat. No debt.

                    I’ve suggested changing the word from “debt” to the far more accurate word, “deposits.”

                    Many banks boast about the size of their deposits, and the word “debt” seldom is heard. We are being ruled by semantics.

                  • That’s a very good question simply because it evidences the fallacy of government borrowing for its expenditures. While some here claim that GUV borrowing is unnecessary, and some say it could be abolished, others say the problem with the government issuing repayable, interest-bearing public certificates of indebtedness just needs a new name, or PR theorem, in order to make them acceptable.
                    You should know that I am an advocate of the type of monetary system supported by Edison and Ford in discussion of the MuscleShoals public development project in Alabama in the early 20s.
                    Both advocated directly issuing currency to pay the bills. Otherwise, by Edison:

                    “People who will not turn a shovel full of dirt on the project nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work. …But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%.
                    Whereas the currency, the honest sort provided by the Constitution, pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.”

                    Henry Ford, of course, concurred. As do I.

                    This is why the Kucinich Bill advocates paying off the public debt as it matures.
                    Any inflation associated with the expenditure is embedded at this time in the national economy.
                    And debt repayment reduces the amount of new money that needs to be created.

                    It’s not the accounting for public debt repayment that needs understanding, rather it is the existence of the national monetary system and the money power that it manifests for the one-percent among us.

                  • 100% correct.

                    Make that 99% correct, for the comment, “Any inflation associated with the expenditure is embedded at this time in the national economy” is a bit off.

                    There is no expenditure associated with paying off the so-called “debt.” It merely is a transfer from one bank account to another bank account. If you own a T-bill, paying it off means transferring dollars from you T-bill account at the FRB to your checking account at whatever bank you use. No new money is created. The money previously was created when the government deficit spent.

                    Rodger Malcolm Mitchell

                  • OK, I’m worried.
                    First, RMM tells me I’m almost correct about something.
                    That’s scary.
                    Second, the part he says I am incorrect about is based on a misunderstanding of what I wrote.
                    This is more typical.
                    Had he thought about what he later wrote, he may have had to conclude that I was correct.
                    The inflation that is ‘already’ embedded in the economy is that associated with the government expenditure for which the government debt was issued.
                    Government debt issued in 1995 either did or did not have any inflationary effect back in 1995 when that money was spent into the economy.
                    Had the government merely printed the money rather than issue the debt, the inflation at that time is more or less the same, having slightly less inflation effect inn the future because interest costs would not be necessary.

                  • We could eliminate all T-security accounts and still spend twice as much, simply by eliminating that obsolete law (a law that is as obsolete as the “debt” ceiling).

                    Rodger, it’d be a total miracle if those antiquated laws were repealed in the current or any foreseeable political environment. Not gonna happen until we the people stop sending equally antiquated reps to Capitol Hill. Heck, they are trying to write it into constitution. Here is the Balanced Budget Amendment from

                  • I feel as you do. However, IF (big “if”) the platinum coin solution is used, it will reveal the obsolescence of current laws, and could actually begin a discussion of Monetary Sovereignty reality.

                    People might begin to ask such embarrassing questions as: “Why have I been paying taxes if the government simply can create a coin to get rid of its debt”? And, “What is the purpose of a ceiling on dollars already spent?”

                    Then, let the debt-hawk sputtering and double-talk begin.

                  • Joe @11:32 am,

                    Yes, the proof of the debt is in the paying.

                    I agree with you. Separating the fiscal (spending & taxation) from other functions (e.g., providing safe savings instruments) is the best. The people really doesn’t need to feed a mandatory financial sector.

                    By the way, apparently, they are winding down those savings bonds for the savers (ref: wikipedia, no link handy at this time).

                    — — — — —
                    Rodger, I take

                    “Any inflation associated with the expenditure is embedded at this time in the national economy”

                    to mean “any inflation that liquidation of bonds may cause is embedded…” but I could be wrong.

            • Joe, for whatever its worth, I found this article very informative and lucid:


              He touches upon the possible scenario of coins’ going into circulation (rather, their being sold to private interests), instead of being held at the Fed. In that case, they are really like quarters (for hoarders though).

              • I found that article particularly boring.
                Explaining how the monetary authority sets the interest rate and allows the money supply to adjust as needed for the economy really represents about a vacuous 2006 understandings of goings on.
                We have ZIRP, too much debt, a balance sheet recession and not enough money.
                It past time for the same old song and dance.
                And he doesn’t get the accounting outcomes right either.
                He conflates a liability with debt.
                Coins and their seigniorage gains are equity to the Treasury – no matter which side of the balance sheet they are on. They are not a debt to anybody.
                The $TPC option provides an opposite monetary system activity than the one he describes.
                Coins – $TPC – are the money supply in that the seigniorage goes directly to Treasury and Treasury SPENDS that gain directly into existence, jsut as it does tax revenue.
                Put a half-dozen of those $TDCs out there and watch what happens to the dreaded debt-to-GDP ratio.
                Its The Economist fer chrisake.

                • Joe,

                  I’ll have to look at it again to see how “he doesn’t get the accounting outcomes right either. He conflates a liability with debt.” As of now, I fail to see how a $TPC held (not circulated like a quarter) by the Fed differs from a $T treasury paper held by the Fed. Don’t they both create credits to the treasury’s general fund at birth (when booked)? Other than that, of course, different interest rates might apply, and the said kind of paper can be blocked by the debt limit law whereas the coin appears able to sneak in.

                • Joe, it is good to conflate “liability” with “debt” because they are generally synonyms and best used as such. The basic dictionary meaning, the moral meaning of “debt” is the MMT meaning. The monetary system of a monetary economy is a system of morality. Nothing more, nothing less. Often an obscene, grotesque moral system, but a moral system. A system of oughts and ought nots, with the amount of money someone has an indication of how much he has contributed to the issuer’s purpose.

                  Thinking of money as “equity” might be helpful sometimes, but thinking of it as debt is usually much better. Coins are not equity to the Treasury – they are next to nothing to the treasury. What are stock certificates to a company that has not yet issued them, or has bought them back? All coins could ever be is liabilities, best thought of as debts.

                  Some seem to think that thinking of money as “good” equity & not as “evil” debt (=credit) is somehow gooder and groovier. But it is a very weird kind of equity – that the company management forces its “owners” to tender in a effectively mandatory stock buyback schemes (=taxation). And in a way thinking of money as equity is the way that the bad guys do, and is utterly against public purpose & anything either of us would support, is far more evil, more immoral than “debt”.

                  For it then represents a definite, fractional claim on the wealth of the nation. Not a nominal claim like a dollar amount of taxation. Nor even something definite and “real”: as under a gold standard or a JG = labor standard or something inflation adjusted, like SS payments or TIPs. A definite fraction of the whole pie is what they think they deserve, forever, like a hereditary title, and for them the benefit of the gold standard was the finitude, the limitation of the world’s gold, so a piece of gold would often be a definite fraction of “all the gold”. The same thing that made gold standards so easily destructive to real economies. The 0.01%, the Peterson’s, the Koch’s want their money, their monetizable assets to remain the same fraction of the national wealth, the value of the whole be damned.

                  They think their money is (heavily weighted, preferred, voting ) stock in USA, Inc. And they don’t want their stock to be diluted by the lesser people getting any – above all, not by getting it directly from the government for work, no matter how much better off it makes everyone. For it would make the mere employees of USA, Inc. – the 99.99%, more equal to them, the owners.

  25. lurbankohler

    I’m happy to see this discussion. The crazy boom/bust pattern suffered by the real economy results from the manipulations of the “banksters.” We have constant turmoil covering up the fact that one unproductive segment of the economy (the “FIRE” economy?) is milking the productive part . . . taking the cream from the top; relentlessly influencing politicians and their appointed justices with their unearned gains, to keep this unjust distribution of wealth and unjust enclosure and privatization of the commons in place and getting ever more entrenched.

    As “Mary Bess” pointed out in her recent comment, this platinum coin idea presents a rare opportunity to see the problem for what it really is: an entrenched elitist power structure preserving itself by manipulating abundance and scarcity through control of the money supply. “They” are used to having their say about the legality, constitutionality, do-ability of any attempt to undermine (or even understand) the death-grip they have on human activities and commerce and interaction. Don’t look for culprits to blame or punish, just fix this flawed, fraudulant, parasitic system, and the problems will clear up on their own. Get the parasitic overburden off our commons; stop making all human interaction be about money & debt; establish non-debt money and DE-GROWTH! I believe the fix would be very simple, if the will were there to fix it, and I believe this Platinum Coin idea is just the kind of solution that will work!

    AS JFK WROTE IN THE SPEECH SCHEDULED FOR Nov. 22, 1963: “We may not get there overnight, or in my administration, or even in my lifetime, but we can begin . . .

    • “Those few who can understand the banking system will either be so interested in its profits, or so dependent on its favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”

      Rothschild Banker

  26. John Rosenfield

    The last week has produced a rash of back and forth predictions and possible remedies about the debt ceiling. It seems to me that people are very anxious about what is going to happen.

    I am not an alarmist and at this point I do not think we’re going to see a series of events that Naomi Klein’s Shock Doctrine book may have predicted. Yet I do think that the anxiety produced by Congress, the President, Economists, the Media (in all forms), Wealthy Political Foundations and well you name it, seem to feed the fire. And what’s the purpose? It’s to mold individual and group thinking towards whatever group is involved.

    I think it’s fine to be prepared to some degree, and some anxiousness can be beneficial. But overanxiousness interferes with adaptability, and in the end adaptability is our best defense.

  27. Pingback: Ezra Klein Chooses Fear Mongering the Big Coin, I Choose Ending Austerity! - New Economic Perspectives