Stop the Kabuki: It’s About “the Great Betrayal”

By Joe Firestone

MSNBC continues on with its campaign to cast the Tea Party Republicans in the role of principal villains in the imminent Government budget/ government shutdown crisis and the likely coming debt ceiling crisis. The teabots, you see, are using the Republican majority in the House to demand more austerity in government and defunding of the Affordable Care Act (ACA). They’re using their bloc of votes in the House, along with the Hastert rule requiring a majority of the majority Republican caucus to veto any possible compromise vote of the whole House on a budget or a continuing resolution that would get bipartisan majority support keeping the government open past October 1.

Speaker Boehner is coming in for his share of the blame, being called feckless, spineless, weak, a failed leader, and unpatriotic for his decision to respect the Hastert rule, give into teabot “lunacy,” and help them pass a budget implementing further budget cuts and defunding the ACA. MSNBC’s thrust is clearly to call the Republicans bad names while painting the Democrats and the Administration as the adults in the room, willing to compromise to keep the Government running and prevent a default which could crash the world economy. The Washington Post is also reflecting this Party line in its wonkblog Posts with Ezra Klein leading the charge supporting the Administration’s adulthood and the Republicans perfidy at both the Post and MSNBC.

I think this campaign is hiding the real story here, as it is designed to do. Let’s stipulate, to begin with, that the tea party Republicans are mean, evil, stupid, and crazy dudes and gals funded by Ayn Randian billionaires whose primary interest is to replace society with a state of nature in which life is nasty, brutish, and short for those of us who don’t have private armies. It’s still true that they do not bear the sole blame for this crisis, because it is simply not the case that there is nothing the Administration can do to both short circuit the crisis and defuse its impact. It has a number of options it can pursue to completely defuse the debt ceiling crisis and at least a few to create even more pressure on the Republicans to avoid a Government shutdown.

TINA does not apply in this case, and the President’s choices are not limited to just refusing to negotiate or giving in to defunding Obamacare. By framing things in this way, the media are echoing the Administration’s framing of the situation and absolving the President of his share of the blame for the crisis. They are also preparing the way for a compromise, that if it doesn’t defund Obamacare, will, almost certainly, result in hurtful cuts to Government spending including renewed consideration of the Great Betrayal, also known as the Grand Bargain, and probably passage of the chained CPI cuts to Social Security over the objections of a large majority of the American people.

In my last post, I mentioned the following five options the Administration can use to lessen the impact of the Republican thrust:

1. A selective default strategy by the Executive, prioritizing not paying for things that Congress needed, and perhaps not paying debt to the Fed when it falls due and working with the Fed to get the $2.05* Trillion in bonds that it was holding canceled;

2. An exploding option involving selling a 90-day option to the Fed for purchasing some Federal property for $ 2 Trillion. Then when Congress lifts the debt ceiling, the Treasury could buy back the option for one dollar, or the Fed could simply let the option expire;

3. Using the authority of a 1996 law to mint proof platinum coins with arbitrary face values in the trillions of dollars to fill the Treasury General Account (TGA) with enough money to cease issuing debt instruments, and even enough to pay off the existing debt; and

4. Using the authority of the 14th Amendment to keep issuing debt in defiance of the debt ceiling, while declaring that the debt ceiling legislation was unconstitutional because it violated the 14th Amendment in the context of Congressional appropriations passed after the debt ceiling mandating deficit spending.

5. Beowulf has offered yet a fifth option for getting around the debt ceiling by issuing consols. Consols are debt instruments that pay a fixed rate on interest in perpetuity, but never promise principal repayment at a maturity date. The debt ceiling law is written in such a way that what counts against the ceiling is the principal repayment guaranteed by the instrument. Since consols provide no principal repayment, one can have unlimited consol issuance without increasing the debt-subject-to-the-limit.

Yves Smith at Naked Capitalism used the list in this recent post to make the point:

“. . . the larger point is that this budgetary Battle of the Titans is a phony war. Obama can finesse the Republicans if he needs to. . . .

So hang tight for way too much unnecessary melodrama over the next month. It’s another round of watching the two parties play chicken, with each posturing that it won’t be the one to steer out of the impending crash. The fact is that Obama really wants his Grand Bargain. All of this high drama is necessary for him to pretend to his base that he was forced to do what he’s been trying to do for years: sacrifice old people since he perversely believes that “reforming” Social Security and Medicare will get him brownie points in the presidential legacy ledger. . . .

Yves and I agree on that. The Administration is raising the zombie Grand Bargain, Great Betrayal again. In addition, she thinks:

Of all the items on the list, option 1 looks far and away the most likely, although an Administration with more guts might try a bit of option 2 along with it. Unlike a platinum coin, which just sounds too weird to people who haven’t heard about the idea (and the Administration would need to be selling it hard now to see if it could legitimate it in the court of public opinion), options are something the public hears about regularly and sounds less gimmicky.

This is a brief analysis of the relative likelihood of the various options. Let it serve as an introduction to this more detailed analysis.

Option 1: I agree that this is a pretty likely option. It allows the Administration to prevent default for a time with both skillful management of cash flow from tax collections and some risk (increasing over time), and to pressure Congress with partial government shutdowns. It also keeps the risk of default in front of people, and is consistent with the President’s likely goal of getting that Grand Bargain through, at last. The first part of Option 1 is classic shock doctrine, so it’s likely the President will select it. However, I don’t think the parts of this option relating to the Fed allowing the Treasury to default temporarily by not paying back the debt it owns when it falls due, or the Fed canceling part of the Treasury debt it owns, will work.

First, the Fed is prohibited by law from giving the Treasury any appreciable credit facilities, and letting Treasury be late in their bond principal and interest payments would be extending it credit. That’s what prevents the Fed from buying Treasury securities directly from Treasury in the first place.

Second, nor can the Fed just cancel the debts the Treasury owes it. The reason why not is that the actual debt instruments are owned by the Fed regional banks, which, in turn, are privately owned. The Treasury bonds are assets of the Fed regional banks. If they just canceled those assets, then they would be violating their fiduciary duty to their stockholders.

Option 2: I think this is less likely than Option 1. I don’t agree that it is less “gimmicky” from a person in the street point of view. People have heard of “options,” of course, but relatively few people could explain what an option is, or how one works, or have ever used an option. And the idea of options generating Trillions in reserves for the Treasury would sound at least as “gimmicky” to the lay public as minting a platinum coin will.

Just from a personal point of view, the idea of the Government minting a platinum coin with a particular value is very familiar to someone like myself who has worked widely in political science, and the social sciences and more recently in economics. I can easily understand the idea applied to a coin with a $60 Trillion face value, as long as I think that minting such a coin is legal.

So, to me the coin idea is not “weird,” so long as it can be shown that it is legal. I think that “it’s the law,” even though it has never been used before is the sound bite that has to be endlessly repeated to the public to get it legitimacy. And I think the President can make that claim and explain his authority to have it minted under the law in a speech announcing that one has been minted. If people get mad about it, then the proper answer is “This is a democracy, repeal the law if you don’t like it.”

Second, I also think Option 2 may be legally more questionable than Option 3. After all, the Fed is prohibited by law from simply creating money and giving it to Treasury without due consideration. But what is a $2 Trillion option redeemable by the Treasury for $1.00 other than a gift of $2 Trillion to it? Certainly, substance over form governs here, and such an effective grant of $2 Trillion to the Treasury would be considered a violation of the law, and certainly a financial manipulation “gimmick” by the Fed and the Treasury.

Option 3: As people who read my posts know, I’m very much in favor of Option 3. But I wouldn’t say it’s the favorite Modern Money Theory (MMT) option. I think MMT economists, by and large, would rather the current crisis were resolved by repealing the debt ceiling law, or getting rid of it by exercising the 14th Amendment option. It’s true that many MMT writers have mentioned the platinum coin in the past in a favorable context, but MMT views reserves, currency, cash, and government securities as all debts of the Government, so the general opinion is that if the platinum coin has any special value over other expedients for facilitating deficit spending, that value is political, rather than economic or financial.

Also even though Option 3 is the one I favor. I agree with Yves that it is not very likely the Administration will use it. However, I don’t think its “weirdness” is the main problem with it from an Administration point of view. Instead, I think their problem with it is that if they use it, it will be very hard for them to explain thereafter what they mean by saying that “we need a Grand Bargain” or long-term deficit reduction, because “we’re running out of money.”

In any event, I’ve discussed the pros and cons of Option 3 voluminously in my e-book Fixing the Debt Without Breaking America, including the issue of “weirdness.” So anyone interested can read about the pros and cons there.

Option 4: My view of the 14th amendment option, is that a decision to continue issuing debt appealing to the 14th amendment, may very well work because the Supreme Court refuses to grant standing to the House to challenge it. However, if the Court does allow a challenge then I think it will find that the debt ceiling isn’t unconstitutional as long as Congress allows PCS and consols, because those can be used to get credits to pay off securities as they fall due.

I also think that using the 14th amendment option is a more likely move from the Administration, then using the coin, or the exploding option, because the balance of advantages and disadvantages will appeal to the President’s constitutional lawyer side. The 14th amendment option has the following advantages. 1) It makes the President look strong by standing up to the Republicans; 2) It continues current practices, so no one will say it’s “weird,” just illegal; 3) It maintains the air of crisis the President would like to have to go after the Grand Bargain, but also decreases economic risk by putting the debt limit problem on the back burner; 4) It has a good chance of surviving a Court suit through a denial of standing to the House; and 5) It carries with it the chance of getting the debt ceiling law invalidated by the Supreme Court.

Its disadvantages are a few. Unless the Court actually declares the debt ceiling unconstitutional, the House will probably impeach the President, claiming he acted illegally; so this option is risky. If something unexpected happens on the surveillance state front, the risk might unexpectedly increase through a sudden alliance of the left and right against the President.

Of course, the risk of impeachment increases even more if the Court both grants standing and upholds the debt ceiling law. All that said, I think the likelihood of the disadvantages happening is low, and it may be the kind of risk the President is willing to take because, as a lawyer, he will assess its likelihood as low.

Option 5: The advantage of Option 5 is that it would be quick, clean, and easy to implement. There is precedent in other nations for it as well. The UK has issued consols from time-to-time in its history.

The disadvantages are a few. First, it takes the pressure off people to come to the Grand Bargain. Second, the interest on consols will likely have to be higher than the interest on standard debt instruments. Third, this option is a bit “gimmicky,” but not a really strange idea, and only slightly “clever” as a way of getting out of a debt ceiling impasse.

On balance, I’d say this option is very likely if the Administration knows about it, especially after an initial use of Option 1 and possible strong resistance to compromise from Republicans. In that case, as the Administration sees increasing cash flow difficulties in coping with the debt limit, it may ease the way by using consols, and once their use becomes commonplace, then proceed further with a negotiation to get rid of the debt ceiling, since it will have been shown to be of little use anyway.

So, from the likelihood point of view, I think the most likely option is the first half of Option 1, followed by Option 5 (consols); then Option 4 (the 14th); then Option 3 (the coin); and last Option 2 (the exploding option), which I don’t think can withstand a legal analysis.

The option I prefer is Option 3, because, especially in the case of High Value Platinum Coin Seigniorage (HVPCS), it has the most positive effects relative to public purpose, including educating people about fiat money and MMT, and in addition, its political/economic impact over time is likely to be, by far the most favorable of all the options,because the size the reserves in the TGA and gradual repayment of the debt will be a source of constant political pressure on Congress to seriously consider solving our mounting problems regardless of whether the policies required will involve deficit spending.

And, finally, whatever the options one thinks are likely or one prefers, I think it’s very important that the blogosphere start debating the options once again, as it did in 2011 and during the fiscal cliff/sequester periods, so the President will find it more difficult to plead TINA when he wants to slip through his Grand Bargain. The TINA/kabuki game he is playing is the enemy of the economy, the safety net, and the public purpose.

In addition, the Grand Bargain, along with the upcoming Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TAFTA) are three more nails in the coffin of the middle class. We must not let him, the corporate partisans in both parties, and the cable networks drive the first of these nails home by getting people to accept their narrative about the issues involved here.

To stop it from coming about, the first thing we must do is unmask (as Yves and I have been trying to do) the news networks, the cable media, and the village progressives like Ezra Klein, as actively attempting to constrain debate by ignoring the options the President has, apart from a simple “I will not negotiate, or I must cave stance.” Let us make them come to grips with the alternatives and, in doing so, spread the news that there are a number available, and that whatever unpalatable compromises the President proposes, are his choices and his fault; not necessary expedients, he is being forced into because he has no effective weapons to use in countering the Republicans using the debt limit law to take hostages.

*Previous versions of this item on the list of options used the figure $1.6 Trillion in Treasury securities owned by the Federal. The revised $2.05 Trillion total is current as of close of business 09/18/13.

30 Responses to Stop the Kabuki: It’s About “the Great Betrayal”

  1. Howzabout TINO (There Is NObama!)? Impeach this Wall Street-theatre, Bull-bating Rodeo CLOWN! OR at least Reframe his Company profit-raping as Gran-Buggering by this Grand Bagman getaway driver!

  2. Bayard Waterbury

    Joe, my immense respect for your detailed analysis regarding the Kibuki Theatre being played out by all participants in this bogus “debate” which I find tiresome and incredibly misleading to the average citizen. But then when has the mainstream political establishment or their water bearers in the mainstream media ever been really completely forthright on any matter, especially budgetary and fiscal matters. The national budget debate, all by itself, is one such area, where everyone gets their argument, but reality takes a back seat to posturing and “party” lines. What a tragedy for those of us who wish for sanity and honesty. It makes me more than a little crazy and depressed that my fellow citizens so willingly go along. Such is the power of the almighty pulpit on both sides (or all sides) of every public policy debate. The worst part is that the whole idea of striving to find truth for ourselves is just something that the 99% refuse to do, opting to let others think for them, rather than doing their own thinking, reading and investigation. The internet is rife with sites like this one that provide ample analysis and valid alternative ways of thought. Gee, if more people were willing to think for themselves, Fox and MSNBC would be out of business.

    • “Gee, if more people were willing to think for themselves, Fox and MSNBC would be out of business.”

      I think patience is a virtue. It took the Brits ages to get rid of the bicameral hostage takers from their House of Lords.

      http://en.wikipedia.org/wiki/House_of_Lords

    • Of course, good points. But even though this:

      “But then when has the mainstream political establishment or their water bearers in the mainstream media ever been really completely forthright on any matter, especially budgetary and fiscal matters.”

      is true, that fact makes it even more essential that we keep pointing out the kabuki. I know we all get tired of it sometimes; but the future of democracy depends on our will to see to it that the truth gets through the screens, the filters, the lies, the cynicism, and the corrosive relativism,we see from people like Chuck Todd.

  3. Your last three paragraphs are the nugget. Do another post, shorter, with subheads on this.

    • The last three paragraphs don’t have the analysis, which is important to me and perhaps some of my readers.

  4. Joe, great post, as usual, but I don’t understand why the exploding option is such a “trick”. People often sell options, such as for the right to make their book into a movie, for a lot of money, but for a limited time period. If the buyer fails to make it into a movie within (x) years, too bad. It expires. No need to buy it back. And it wasn’t a trick–movie companies find it worthwhile to pay for options on books: the potential payoff on winners that are actually made into movies outweighs the loss on some that expire unutilized.

    The key would seem to be making it a long-term option to buy property cheap, not to expire for, say, 5 or 10 years. With the real-life model of book options in front of them, how could a Court argue that it was a “trick”? If the Fed says it is interested in the potential profit from buying govt. property at a bargain over the next five years, how can a Court say NOW that that is an irrational (fraudulent) interest? They don’t know but that the Fed IS planning to buy govt. property cheap in year 4 and make a profit–could be a great deal for the Fed! Surely a clever Fed lawyer would make mincemeat of claims to the contrary, as the “option” model is very common in the real world.

    Thus, the “exploding option” sounds like the best realistic “option” to me–although don’t get me wrong, the platinum coin remains the BEST option overall, if it could be achieved!

    • Thanks Paul, I know a lot of people don’t go blank when someone mentions taking an “option” on something. But, I also think that the vast majority of people do. Off the top of my head I’d be surprised if more than 5% of the people know what an option is,or understand how you do one, or could understand how it is that the Treasury could get $2 Trillion from the Fed at the cost of a $1.00 option.

      Picture the President making an announcement explaining how he used an exploding option to defuse the debt ceiling crisis. Now picture him explaining that he defused it by using a law passed by a Republican Congress in 1996 allowing the Executive to mint a legal tender platinum coin of unlimited face value, and that he chose a coin of $60 Trillion to end all debt ceiling crises and to pay off the national debt, and then deposited that in the Treasury’s account at the Fed, which was then credited by the Fed. What would be the reaction?

      I think the first reaction would be well, I understand what you did, you created a coin and then deposited it at the bank which credited the Treasury’s account, but can you really do that? And the answer then would be: “It’s the law.”

      “Go read its plain language, there is no limit on the face values of platinum coins we can mint, so I decided to use this never before used legal power of the Treasury to end all this chaos and restore the normal functioning of Government.”

      Many people won’t like this and will be very loud in their opposition. But the ideas of 1) the Government creating a coin with a particular value, and then depositing it in its account; and 2) “It’s the law” are very simple ideas that people can easily understand. In contrast, the ideas behind the exploding option, consols, and the 14th amendment challenge are all more complex and harder to explain. Maybe not to financial types, economists, or businesspersons, but to the 95% of the population with little financial sophistication. What makes the idea of the platinum coin so “weird,” is not the basic notion itself, but just the extreme values of the coins that could be minted, coupled with the fact that the law authorizes minting them.

      So, in my view, confusion over the coin which would ensue if it were used, can be easily cleared up by constant reiteration that “it’s the law. If you don’t like it, then repeal it,” followed by quick use of the proceeds to pay down the debt subject to the limit as it falls due. In short, insisting “it’s the law,” and then coupling that with uses that the vast majority of the people will approve is all that is needed to legitimate the coin, and to dispel the view that it was “a trick.” On the other hand, the exploding option, the Fed canceling Treasury debt, and to a lesser degree issuing consols, all look to me like mere tricks.

  5. Pingback: Joe Firestone: Stop the Kabuki: It’s About “the Great Betrayal” « naked capitalism

  6. I think Option #1 is not politically viable, but I don’t think Joe’s reasons for rejecting it are the best ones.

    The member banks are required to subscribe to stock in the regional banks. But I don’t think this makes the member banks the owner of those regional banks. This so -called “stock” can’t be bought or sold. Subscribing to it is more like paying a membership fee to the Fed for the privilege of membership. Also, the Fed is required by law to pay annual dividends to the member banks in amounts equal to 6% of their paid-in subscription. That’s the member benefit, so to speak. As the issuer of dollars, the Fed’s ability to make those payments is unrelated to the state of its earnings. It can always pay its expenses, pay the legally mandated dividends and equate surplus capital to capital paid-in. If after doing that, it’s net earnings are negative, the Treasury gets no money, and it doesn’t get money until accumulated Fed net surpluses are sufficient to restore that negative number to a positive one .

    So if the Fed decides to forgive massive amounts of Treasury debt, the stockholders are not harmed at all. There is no failure of fiduciary responsibility. So I don’t think there is any legal obstacle to them forgiving the debt. But if that creates a prolonged condition of negative net earnings for the Fed, the Treasury would receive no remittances from the Fed for many years, and would thus have to borrow more in the future than it otherwise planned to do.

    Apart from all this, it sends a very bad signal to the world for the Treasury to default on any contracted payments or for any Treasury creditor to “forgive” US government debt. The general public around the world does not have deep, detailed knowledge of the inner mechanics of the US system of public and private finance. The government needs to communicate to the world in simple and clear terms. The US government is perfectly capable of paying all of its debts, and the well-being of the American people depends on everybody in the world understanding that fact. Thus, everybody in the US government has an obligation to present that image to the world.

    • Thanks, Dan. I think this is a very good objection, and I also like your political argument. But whether it holds up will probably depend on its impact on the balance sheets of the regional bank stockholders.

      That is, when the member banks do their balance sheets, don’t they have to record the asset value of the stock they own in the regional Fed they belong to? If so, then a sharp decrease in the value of that asset caused by canceling a large amount of federal debt would affect their net worth on paper and evaluations of their financial viability. So, if this argument holds, I still think there’s a fiduciary issue that is controlling here.

      • Joe, my understanding is that the Federal Reserve stock to which member banks are required to subscribe is classified as a non-marketable restricted security, and is “carried at cost” on the balance sheet. So the value of the stock reported on the balance sheet is whatever the bank paid for it (adjusted periodically for inflation). Nothing the Fed actually does affects the value of the stock. Also, the amount of dividends paid on the stock is set by statute and is purely a function of what the bank paid for it; it doesn’t vary in relation to the Fed’s earnings.

        • If that’s true, then it takes care of the problem and makes option 1 more attractive from a legal point of view. But I still think there’s a problem with the idea of the Fed giving a bailout gift to the Treasury in the form of canceled debt. It might be argued in Court that since the Fed is prohibited from giving credit to the Treasury, it is certainly also prohibited from giving it a gift in the form of canceled debt instruments.

          • My guess is that there is no legal impediment. But going that route would be to play into Ron Paul’s scheme to make the US government look like a busted banana republic that needs to appeal to debt forgiveness and the kindness of strangers to get its books in order. Also, according to the last annual statement from the Fed, Treasury securities amount to over $1.67 trillion in Fed assets, while the Fed’s total capital is about $53.8 billion. If the Fed cancels the Treasury debt, then it will have negative capital of over a $1 trillion. Operationally, that doesn’t really matter. But the Ron Paul minions will then scream, “Look, the Fed is bankrupt!”

            It’s smoke and mirrors anyway. If the amount of Treasury interest payments to the Fed is reduced, then the Fed’s income is reduced, and its remittances to the Treasury over many years will be reduced by more or less the same amount, which means that Treasury will just have to borrow more, and pay more interest to the private sector – which isn’t remitted.

            A more sensible approach would just be to have all debt held by the Fed – which is currently classified as part of “debt held by the public” – re-classified as debt held by government accounts. Also, Congress should make the Fed remittances of net earnings to the Treasury a matter of statute, rather than Board of Governors policy, which it is now and has been for many decades.

            • Well, I guess we’ll have to disagree about there being no legal impediment. I agree with the rest of your comment, but again point out that the current face value of the debt owned by Fed Banks is $2.05 Trillion.

  7. “The Federal Reserve could pay more than $77 billion a year in interest on the excess cash reserves it holds for commercial banks if rates follow the highest path forecast by Fed policy makers.

    The CHART OF THE DAY shows the Fed’s annual interest costs by the end of 2015 could range from $4.3 billion to $77.7 billion, depending on interest rates and assuming excess reserves remain at current levels, according to Bloomberg calculations based on Fed data. The central bank already has paid more than $13 billion [in interest] since 2008 when Congress authorized interest on [bank] reserve balances as part of financial-rescue legislation.” Source: Bloomberg News Fed Seen Paying Banks $77 Billion on Reserves 4/13/13

    The Federal Reserve chairmen Ben Bernanke has admitted publicly that the trillions of dollars to rescue the banks and conduct all this useless QE stupidity does not come from taxes but merely is done with computer keystrokes marking up the accounts banks hold at the Federal Reserve. It is obvious the Federal Reserve creates the money out of thin air for the banks.

    So let me get this straight as I am a bit of an amateur at this stuff. The Federal Reserve can pay interest out of thin air to banks. If the Federal Reserve can pay interest to the banks without taxes why can’t it pay the interest on the national debt in the same way? If the Congress were to authorize the Federal Reserve to directly pay the interest on the national debt like it does for the banks the deficit (the yearly addition to the debt) would have been $220 billion lower in 2012. And all that fear mongering about servicing the debt taking an ever increasing amount of the annual Federal budget goes away.

    Everything would remain the same as it is today except the Federal Reserve would pay the interest on the debt rather than the Treasury. Basically, the Treasury would be issuing something akin to writs for accounting purposes and the Federal Reserve could still conduct bond issues to conduct “monetary policy”.

    Could someone explain if such a thing is even doable since I am rather new to MMT. I’ve read a lot of the literature about MMT and some of it does go over my head.

    • Sure it’s doable if Congress will sign off. But they won’t.

      On the other hand, Congress has already approved platinum coin seigniorage, so why not use that to get around the debt ceiling?

      • Yes, I was very surprised Congress left the platinum coin option available after the last time. The platinum coin would upset the banks a lot and take away their ability to earn interest risk free interest from bond sales. What I proposed would not preclude the issuing bonds by the Federal Reserve and the banks might be more receptive. The platinum coin totally eliminates the need for bond issuance. I don’t know if the President could get away with minting a platinum coin by executive order. I know the issuing of bonds to cover deficits is a practice left over from 4 decades ago. We do it because banks like it and we oblige them. Basically, what I am saying is that banks pay interest not the depositor. The bank at the federal level is the Federal Reserve and the Treasury is the depositor. In any case the vested elites probably won’t allow either thing. In fact I am rather pessimistic we can accomplish anything. Look what is happening in Europe. Things are real bad there and still the focus is on rescuing the banks through austerity. The general public doesn’t understand that their household budget is different from a government that issues its own currency. Breaking through to the public given the strangle hold of the media is almost impossible.

        • “I don’t know if the President could get away with minting a platinum coin by executive order.”

          This is a matter of choice for the President. He can force the Secretary to order the mint to do it. And when the mint does it, and wants to deposit it in its PEF account at the Fed, the Fed must accept it in case of disagreement with the Secretary. So, the President can get away with it from a mechanics and legal point of view.

          From a political point of view, he can get get away with it too if he uses the money to repay debt and deficit spend appropriations and makes no attempts to use it for non-approved purposes.

          • Thanks!!!

          • From a political point of view, it doesn’t matter one red cent what anyone thinks of him because he’s not up for re-election in 2016. His biggest concern is getting another Democrat elected then, so all the headaches minting the coin would cost the Dems aren’t attractive to him. If people are this riled up over the ACA yet, what do you think people’s reaction will be to minting the coin?

            • Joe Firestone

              I don’t think Obama has to worry about the popular reaction to the $60 T coin, because he can use its proceeds immediately to pay down the debt subject to the limit, and if he did it right now he could probably get 50% of that debt paid off by the end of this year, incur no new debt, and also end debt ceiling crises. So, why would most people be angry at that? I don’t understand why you think they would. What’s the causal channel? What would they be angry at? The abstract idea that he forced the Fed to fill the public purse by using a law duly passed by Congress? Somehow I doubt that.

              Of course, the Wall Street Journal, the Fiscal Times and the Wa Po would be aghast, and Krugman would be making dire warnings that he should on guard against hyperinflation. And the right wing would be incensed. But how many votes do the first three have? And as for the TP, all their votes are already going to Republicans. So, why the should the Dems care what they think?

  8. The reality, as MMT’ers are aware, is that sovereign credit is and always has been an equity (credit) instrument, not a debt instrument.

    I wrote this post Debt-free or Date-Free: what can we do with our National Debt on the Labour List blog over four years ago on the subject of Consols, long before I understood the history and different applications of tally stick ‘stock’ and the origins of the expressions ‘tax return’ and ‘rate of return’ to which the stock credit instrument gave rise.

  9. Joe: Has a petition been started to get the people behind any of these great suggestions?

  10. I don’t have an opinion about which solution is “more viable” because my cynical side agrees with the Kabuki “Great Betrayal” argument.

    What I’ve been telling conservatives who fret over leaving a $17 T debt to future generations is this. FIRST some explanations on how the national debt is OUR savings held private commercial banks where you do business, like BoA, Citi, Citizens, any, because that’s what banks do with our money: stash it in federal savings accounts provided as a SERVICE to rich people and corporations as a safe, secure place to store money, that pays interest, courtesy of Uncle Sam.

    To raise some hackles, I offered a solution to pay off HALF the national debt. Everyone remove HALF your savings from your bank, pension funds, 401K, etc. Step 2, do not spend it, or it will wind up back in someone’s bank account, which will buy more T-Securities aka “debt”. Step 3 BURN YOUR MONEY. DESTROY IT. That will reduce the national debt.

    Of course destroying dollars (which is what federal taxation does) won’t help our currency issuer govt be “more solvent” and it certainly won’t help our private sector be more solvent or more vibrant. What it will do is the spreadsheets on the central bank’s computers, where these T-Securities are enumerated by numbers, will have less red pixels and more black pixels, because those accounts will be less “in the red” … and that’s the outcome that conservatives (of either party) wants. Not more jobs or more prosperity or more productivity for Americans. Less red pixels.

    I’m not sure if this has “worked” or not, but I feel it’s provocative, confrontational, outside the box, and fairly factual.

    If I understand Randy Wray correctly, and based on what Zachary18 was saying, another solution would be even less inflammatory. Do nothing, sort of. Congress could simply tell the Treasury to STOP holding Treasury auctions and STOP selling bonds to those middleman banks that are so eager and willing to buy “US debt”, by CHOICE. Almost all existing T-Securities would expire in due time, there would be the routine balance transfer from Securities acct to Reserves acct, and the “debt” would melt away. Congress would ALSO have to change THEIR OWN stupid archaic rules and allow the central bank and Treasury to interact directly and “swap assets and debts” (almost like the option). They could swap Treasury Notes with Federal Reserve Notes, which is kind of how all banks have operated for millenia, swapping IOUs with customers. Thereby, Treasury would be funded.

    However, the financial lobby constituents of Congress would never allow that to happen, because it would cut THEM out of a lucrative deal to earn a nice profit with virtually no risk of default.

  11. um, I forgot to add, AM I WRONG?

  12. Gary I am really new at this stuff but let me clarify as best I can. The Treasury needs money above tax receipts to fund Federal Government expenditures. The Treasury credits the needed funds to its account at the Fed (it could take the form of a platinum coin) and debits that account to cover the spending above tax receipts. The Fed now has a liability on its books in that it owes interest free money to the Treasury. To balance its books the Fed needs a corresponding asset to the Treasury account liability. The Fed could then issue bonds to create an asset on their books. The risk free bond market would still exist and the artificial financial constraint on domestic Federal spending would vanish. If the Fed gets in a balance sheet jam the Treasury could credit money to the Fed above the amount needed for deficit Government spending and that money becomes an asset on the Feds books to pay outstanding Fed liabilities in excess of their assets. Of course, this scenario is highly unlikely as the Fed would have little problem rolling over its interest bearing debt. Admittedly this is a round about way to get to the issuance of debt free money domestically, but it wouldn’t disrupt the current financial system. Banks and those who export to us (very important) would still get interest on the accounts they hold at the Fed. I believe this approach might solve the reserve currency Triffen Dilemma. There would be no default on existing or future debt.