Downsides to the Platinum Coin; or Just Defense of the Status Quo?

By Joe Firestone

As part of a wonderful discussion thread on the legal basis for using Platinum Coin Seigniorage (PCS), following a post by beowulf (Carlos Mucha), the first to propose the Trillion Dollar Coin (TDC). Michael Sankowski, one of the founders of the Monetary Realism approach to economics offered a very long reply directed at High Value Platinum Coin Seignorage (HVPCS), and the TDC itself. Mike’s reply is a good example of the many misgivings people have about using PCS with face values in the trillions. Since Mike is a supporter, rather than opponent of PCS and believes that PCS is legal, I thought it would be worthwhile to deconstruct his long comment and show that his downsides are pretty speculative and don’t provide good grounds for supporting incrementalism is using PCS.

Mike begins:

There are huge downsides to printing a high value coin. Like it or not, our current setup requires the buy in of a large number of participants.

I don’t think it does. Using PCS requires only a decision by the President and his willingness to command the Treasury Secretary to do his bidding. In turn, the Secretary must command the Director of the Mint, and also the Chair of the Fed, to play their roles in creating the coin and seeing to it that the Fed credits the face value of the coin to the Public Enterprise Fund (PEF) account at the New York Fed. The fact that the President can command the Secretary is well-known. What’s not so well-known is:

 12 USC § 246 – Powers of Secretary of the Treasury as affected by chapter

Nothing in this chapter contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal Reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.

So, one of the powers vested in the Secretary of the Treasury before creation of the Federal Reserve was certainly to spend its legal tender into the economy. But to do that under an arrangement where the Fed is its bank, requires that the Fed deposit and credit its legal tender into its spending account, the TGA. So, I think it follows that under 12 USC 246 the Secretary has the authority to order the Federal Reserve to credit that coin so Federal spending can proceed.

The coin is new. The coin is weird. Even if the effect of the coin is the same – or similar – to quantitative easing, it’s still new and weird for nearly everyone in the United States.

Well, it’s a new use of coinage, sure. That will make it “weird” for some people; not so weird for others. Using the coin forces the Fed to add reserves to the PEF which in turn gives the Treasury the ability to fill the pubic purse with most of the face value a platinum coin. I don’t find that “weird.” I think it’s the way things ought to be done. What purpose is served by using the term “weird” to describe PCS? Is it to discredit the idea because it’s new; or is Mike trying to show that even though he’s a supporter of PCS, he’s still a Very Serious Person (VSP).

Actually minting a very high value platinum coin could easily disrupt markets, it could easily freak out the larger investment community. This proposal is totally out of left field – heck the mainstream is only now thinking about the coin. We’ve had a few years over here at MR and in the MMT community to think through the pros/cons, and I bet we still haven’t covered many of those pros and cons.

First, I think a good many of the pros and cons were vetted in a single thread at Warren Mosler’s site soon after the first blog post by beowulf appeared focused mainly on the coin. And there’s been an awful lot of discussion of it since then, including a lot of mainstream discussion in the Summer of 2011 and for the past two months.

Second, labeling the coin as “out of left field” is is strange because beowulf is certainly not “left,” but a long-time Republican. His idea is new, that’s all, and it’s about Treasury creating fiat money. Looking at the history of the United States, Treasury has created fiat money from time-to-time under strong Executives. So, why is the PCS proposal to do that again “out of left field”?

And third, what exactly does “freaking out the investment markets” mean. I understand that there will be lot of excitement and maybe some hysteria if the President mints a $60 T coin. But if he uses it only to pay down Government and Fed-held debt immediately and to cover deficit spending, then why would people be overly concerned for too long; especially if the Federal Reserve takes care to assure people, that as Treasury Securities get more scarce, it will be compensating by paying Interest On Reserves (IOR), to provide a continuing vehicle for risk-free investment.

Market confidence isn’t something that is easily shaken, but when it is shaken, the results are disaster. The actual flows in the market only shut down for about a month or so in 2008 before they started to recover, but the job losses were horrific. The impact could have been much worse had the fed not reacted like it did.

“Market confidence” is a slogan that the financial community uses to scare the rest of us. Mostly, it’s just the “confidence fairy.” It was lost in 2008; but there was a concrete reason for its collapse in the collapse of Lehman Brothers and the exposure that created for the rest of the FIRE sector. That is, back in 2008, following on the housing crash, and Lehman’s failure, there was reality behind the reaction to hold on tight and panic.

But, if the President mints a $60 T coin and uses it to pay down nearly 40% of the debt subject to the limit; rendering debt ceiling conflicts immediately a thing of the past; then why should that shake market confidence for more than a few days, if at all? I don’t see the factors that would reinforce any initial irrational psychological reaction to that event. Also, I think that if the financial system is that fragile that we have to postpone implementing direct issuance of money by the Treasury, when we need to have that done to defuse austerity; then that is just another reason for taking the big banks into resolution and rebuilding the whole system from the ground up.

The world is not ergodic, as Paul Davidson points out. There are random features of the world which cannot be foreseen, cannot be accurately forecast, cannot even be put into a probability distribution. Keynes called this uncertainty, as opposed to risk, and Keynes was right.

Stepping out into the world with something which is in every sense revolutionary for our existing monetary system isn’t something to take lightly. Not only that, there are no boundaries or programs in place to constrain the power to directly issue money. As it stands, we’re just making it up without any constraints at all.

Taleb calls these “Black Swans,” and they certainly do exist. But we can’t deal with Black Swans by pursuing all innovations incrementally, or in safe-fail modes. We have to weigh the likely costs of waiting to fully implement an innovation with the explicit costs we’re experiencing without taking advantage of it.

Right now we’ve got 15-16% of the work force wanting full time jobs and unable to get them. We’ve got millions of home owners underwater. We’ve got 55,000 fatalities due to lack of health insurance, since the ACA hasn’t really gone into effect yet, and even after that, we’re likely to still have 35,000 annual fatalities unless we pass Medicare for All. We have a crumbling infrastructure which needs $3 T in new investment and on and on and on. I won’t counsel an incremental introduction of PCS over a period of a decade when the minting of a $60 T coin could free up the whole political system to begin to solve these problems in a matter of months; because of the possibility of a Black Swan that escaped my analysis.

And as far as constraints are concerned, the ones that are important here aren’t constraints on how much can be put into the public purse. They’re constraints on the purse strings. Those constraints are fully in place even with huge PCS face values. Congress still controls appropriations of deficit spending so that no seigniorage can be spent unless Congress appropriates that. The only other spending of seigniorage that would be allowed is repayment of scheduled debt.

Putting together a program where this change is introduced to the market in small increments seems wise to me. I do like the “target” plan you’ve suggested. It’s measurable. We know how much it will be in advance of the program being implemented.

I’ve already critiqued the “target” plan of beowulf’s Mike refers to, in this piece, which is a lengthy evaluation of incrementalism in using PCS. The bottom line is, that incrementalism won’t work, because it will end in likely repeal of the PCS authority.

Many people who trade bonds are severely freaked out by the inflation prospects of QE. Yes, they are dead wrong. They are terribly wrong. But this doesn’t mean we should flip them the bird and shove $60T down their throats, just because we can. It’s possible, but is it wise – even if some parts of our financial overlords are directly responsible for criminal activity?

No one’s suggesting that $60 T should be shoved down their throats. The $60 T proposal is to end debt issuance accompanying deficit spending and use seigniorage instead, and to repay the $16.4 T debt as it falls due, except for the intragovernmental and Fed debt which would be paid immediately. The other $43.6 T would be spent in accordance with Congressional deficit appropriations over 15 – 25 years. Is this a “wise” proposal? Well, I think it’s a lot wiser than one that leaves austerity politics in place for a decade or more, and costs our fellow citizens so much in foregone government financial investment in the public purpose.

Like Bill Black, I am pissed the banksters never got charged with any crimes. They knew. They freakin’ knew. They did bad things. But not everyone did bad things, and I’d argue even most of the finance industry did not do bad things. But this does not excuse the criminals, and there were many criminals.

If you’re so pissed at the banksters then why aren’t aren’t you out there doing something about them. There’s an institutional structure out there that nourished the banksters and the fraudsters. At the center of it is the big banks and the Federal Reserve which refuses to regulate them. The Fed needs to be subordinated to the Treasury if this system is going to placed under control. And the first step toward doing that is minting very big coins as part of a process of subordinating monetary policy to fiscal policy.

So we’re here, with a slightly better understanding of how the world of money works. It’s not a perfect understanding, because you see disagreements even among people with a deep level of understanding of the monetary system on our side. But it is better than the current status quo.

So What do we do? First, do no harm.

Pushing the country into another recession because we flip out the repo market by taking away every last safe asset they are using is probably not a good or wise path. Even if this was a good way to strip the bankers of their power – and I don’t agree with it being a good method – it would probably be worse for most people in the United States. There would be many job losses.

Beowulf’s plan to use a series of coins to pay the interest owed at the end of the year is a pretty good one.

The $60 T coin, in itself, does no harm. In fact, it does a lot of good by allowing the political issue of austerity to finally be taken off the table, and allowing the political system to get back to legislating to meet the real issues face. I also don’t think that “flipping out the repo market” will be a problem because IOR means the continued existence of a risk-free, interest-earning place for USD reserves.

That place is at the Fed in reserve accounts. What’s so bad about that, if IOR interest is comparable to bond interest? Why should there be any job losses as a result of this move; and if there are, then the $60 T in the kitty will allow the Federal Government to quickly respond with MMT policies that would have the economy roaring in 3-6 months, in contrast to the economic stagnation we have now.

Finally, the plan to pay interest on the debt using seigniorage isn’t good enough; because it leaves the national debt still in place, even increasing it. So, it leaves austerity politics in place, and fails to create the political background needed for economic legislation that will finally end the Great Recession. That is, it’s a big fail; as are so many attempts at incrementalism.

34 responses to “Downsides to the Platinum Coin; or Just Defense of the Status Quo?

  1. “and believes that PCS is legal”- isn’t this the crux of this whole discussion?
    I’ve been following the idea since it was posted earlier on this blog and several people have written to question the legality of the concept. Why are there always so many legal “technicalities” involved and it seems impossible to say definitely whether something is legal or not?
    Surely, that question needs to be answered first before spending so much time and energy on the subject. One poster claimed that the platinum coins can only be used for “commemorative” coins and cannot be defined as :legal tender”.
    Is this correct?

    • No! See here. Phil Diehl was Director of the US Mint under Clinton.

      On the legalities, I actually think that the case for PCS is pretty straightforward; but the problem is there are a lot of people who don’t want to see it used. So, there’s a market for anti-PCS legal views. Where there is such a market people will be generating theories constantly trying to find grounds to challenge it in Court. John Carney, who blogs at CNBC, is constantly coming up with theories challenging PCS. His ideological bias is transparent.

      I haven’t evaluated some recent blog posts raising legal issues from some George Washington University Professors. But, I’ll be getting to them soon, and will evaluate how strong their arguments are. I’m sure beowulf will be getting to them pretty soon as well.

    • Guggzie, the Mint already has a $100 platinum commemorative coin for sale for about $1850. If you had one and took it to a FR bank, you could get $100 in FR notes for it. The value of the coin is determined by the numbers stamped on it and the seal of the US and whatever else the Mint/Treasury requires to make it legal tender. It may be commemorative, but if 1,000,000,000,000 is stamped on it, it’s a trillion dollar coin.

      • Well, that puts paid to the argument that a “commemorative” coin isn’t “legal tender. It also confirms that the HVPCS would be legitimate – unless of course, there is some latent precedent in the stature books to say there is a limit on the denominations that can be allotted to a “coin,” commemorative or legal tender. Even if such a limit does exist, and can be dredged up, all that would do is determine how many PCS’s need to be minted.

        • I’ve looked at the GWU blogs now. They’re based on a couple of erroneous assumptions at least. First, that the purpose of the 1996 legislation was to mint commemorative coins. Philip Diehl commented at the site indicating that the purpose of the bill was actually to put constraints on the commemorative coin stuff and to allow other kinds of coins to be minted to get seigniorage. Philip actually drafted the bill, that Mike Castle got passed.

          Second, Dorf and Buchanan think that the coin is really like a debt instrument because as soon as the debt ceiling is raised Treasury will sell enough debt to allow them to redeem the coin. This shows the ignorance of the literature on the part of the lawyers. None of the people proposing platinum coin seigniorage ever proposed that the coin would be redeemed until Paul Krugman recently imported that silly notion into one of his posts.

          So, after two years of blogging about this subject PK decides the money needs to be paid back to the Fed. The rest of us, however, just view this as a straight banking operation. The Treasury gets the legal tender coin and then credits the Public Enterprise Fund of the mint. The NY Fed then keeps the coin as an asset on it balance sheet and in its vault forever. End of story. So, the coin isn’t a debt instrument. Dorf and Buchanan need to get their facts straight, if they want to argue law.

    • Guggzie, re. “… it seems impossible to say definitely whether something is legal or not.”

      That’s an unfortunate consequence of the “cases and controversies” provision of the US Constitution (Wikipedia has a useful entry on the phrase). It has always been interpreted to mean a Federal court cannot vet a legal question in advance. The court may only express itself on the legality of an administrative action (or rarely, inaction) that actually or imminently injures specific individuals or organizations in a distinctive way (i.e., different from injury to the population at large) and for which there is a judicially-prescribable remedy. So … the only way to know with certainty if a $60 billion platinum coin is “legal” is for the administration to coin one and see what happens. Nice system, eh?

      • A fantastic system for the lawyers Bill – no wonder there are so many involved in that profession. So often, it seems impossible to solicit a definitive “opinion” from a “solicitor” – no matter that the issue is, there always seems to be “buts” or “if’s” attached.Their answer usually amounts to referring one to a barrister and thus generate additional income for all involved – except the client, of course. Legality seems to depend too much on which side of the bed a Judge gets up from in the morning and even that decision can be overturned on appeal. So, who really does know “the law” because, “ignorance of the law” seems like a very valid defence in a lot of cases.

        • Sun and aures, Here are some considerations. First, while the Fed system is “Federal” in the sense that it was established by the Federal Government and is supposed to operate in the public interest according to its mandate, the system is comprised of private banks, private regional Fed banks, with stockholders, whose profits are remitted to the Treasury after a modest fee is subtracted from them for expenses, the FR Board of Governors, a Federal Agency, and Federal Open Market Committee, a committee of the BoG, comprised of 7 members of the BoG, including the Chairperson, and 5 Presidents of Fed regional banks, including the President on the NY Fed.

          So, as entities the BoG, and the FOMC are Federal entities, while the regional banks are private entities. The Federal enities set the policies for the private entities to follow, and they must follow them by law. That’s why the system as a whole is referred to as the Central Bank of the United States.

          Since it’s the regional banks that execute actual banking transactions, it is they to whom the authority to create money out of thin air to expand the money supply and to do QE asset swaps is delegated. They do not have the authority to create money to add to their profits or capital directly; but only to do asset swaps and to increase reserves to implement monetary policy.

          Now, let’s say that as part of their QE or other activities, the Fed buys Treasury securities in the open market. Then who is it, exactly, who buys it? The answer is that it is one of the regional banks. This is not accounted for as the regional banks paying off the securities involved; but as the regional banks swapping their reserves (assets) for the securities. The securities are not destroyed, they are held by the regional banks as assets. If the banks were to view that as paying off the Federal debt, then they would have to strike those assets off their books, and in doing so reduce the wealth of their stockholders. Clearly they cannot do that, and that’s a primary reason why the debt instruments held by the Fed count against the debt subject to the limit.

          Second, it’s important to note that even if the regional Feds were government agencies, it would still not necessarily be true that their buying the debt would redeem it. The reason for this is that the Treasury has about $4.7T in debt instruments issued to other Federal agencies, $2.7 T to the SS “trust fund” alone. These “debts” too count against the debt ceiling. So, even though the debt instruments of the United States say plainly that the principal of these instruments is owed by the US; the way things work, is that these instruments are the obligation of the Treasury to pay off either to other agencies or to the regional Feds as the case may be.

          • Thanks for the clarification, Joe. I think what I was saying was pretty much in agreement with what you wrote. I certainly defer to you on the details of the relationship between the Fed and the Treasury. The point I was trying to make is that, as it now stands, the Fed is not redeeming the national debt when it purchases Treasury securities. That might be a goal for future legislation, but it is something PCS could achieve today.

      • It’s a nice system indeed. Paying a political price for general injury inflicted on the population at large is appropriate, sensible and sufficient. So is keeping the judiciary out of proactive politics.

  2. Just a point of information from BBC. The Bank of England has in its possession both £1,000,000 and £100,000,000 bank notes, their purpose is to back the value of bank notes issued by Scotch and N. Ireland’s banks.

    Not a platinum coin but close.

      • Quite sure? PCS appears as ‘gold buggery’ as well. Why not find some unobtainium for your trinket?

        The abstract of £1,000,000 and £100,000,000 was that there is a real president for the issue of such denominated values and for situations where their special use fulfills an economic need. If the US congress appropriates public expenditures and it is incumbent upon the US executive to execute those appropriations, it might seem appropriate for the executive through the US treasury to issue such instruments to the US Federal reserve to cover payment on the strength of the legislative appropriation for payment. These instruments would be redeemed at such time as congress sees fit to fulfill their statutory obligations or become responsible for the redemption of such instruments through the orders of the courts on complaint of the executive. Or does that constitution still work at all?

        • A bit of housekeeping above- ‘… is a real president …’ should read ‘… is a real precedent …’. My bad, fingers on auto-idiot.

          Since there is little likelihood this comment will be addressed before the post disappears beyond the site’s bottom horizon, it might be noted that there is a dearth in these posts of discussion involving the abstract. This may be due to the direction they are given but more likely to the disabilities in the general education of the participants; in history, in economics, in law, in social understanding, in the humanities, in political knowledge, and in philosophy, all of which have some interplay in these discussions, and when missing leave the playing pitch open for the ideologues and theoconomicly ignorant.

  3. Okay, let me start by saying, maybe, erroneously, I give too much intellectual credit to the President and his advisors, but by-and-large I think they are reasonably astute. If I then consider that he and they are outraged, even if it’s selfish outrage, that the Republicans have held our economic recovery hostage for national and local political advantage, what stops them from advising and him from implementing PCS?

    My cynical self asks… wouldn’t ending this maddening push for austerity, moving closer to full employment and rebuilding America’s infrastructure be just the kind of legacy any self-serving President would want; are there corporate entities or corporate conspirators that lose power if the President implements PCS; doesn’t a strong and resilient economy benefit all; who or what controls him and stands to lose so much that they, also, would hold the economy hostage?

    All I hear are the upsides of PCS and the arguments against PCS, like hyper-inflation or scaring investors, have been pretty well debunked. Beside Republican politics, what and for whom is the downside of PCS?

    • A very good question Jen, I’d be inclined to start looking at the bond holders – nationally and internationally – and from there, delve into the derivative markets. All of these seem to point directly to the top echelon of the financial industry. But then, where is the benefit of having the economy ‘tank’ – is it really just for the opportunity of buying up real time asset at fire sale prices. I have read that that was one of the great benefits of the 1930’s Depression – stuff the losers as long as we win!!!!!

    • For the bond markets and those who trade in them, $60 T PCS would be a disaster. It would put them out of business here in the US; and if it led to other nations using their own fiat currency authority to do similar things it would end them in all nations sovereign in their own currencies.

      Also, many Wall Street people would be hurt because of their involvement in the bond markets; and in addition everyone involved in pushing austerity politics, some very rich people, would have to find themselves new political issues to use to maintain their power and status. Finally, the whole MMSM structure would have to retool since they’re so committed to the austerity narrative.

      • So the vultures would find feeding tougher. There would still be some work for brokers in the private, muni, and state sectors, and mergers and acquisitions. The rest of the flock might have to find some useful work to do, like driving taxis or building homes for Habitat for Humanity.

  4. Joe
    The $TDC at $60T scares the beejeezus out of everyone because it is an incomprehensible amount to ponder – as a coin, or otherwise.
    Your main argument in its favor is the fact that a President could do this and establish a REAL reserve (not accounting reserves here, Joe) because the Congress would demand its money-creation powers back which it did not believe it transferred to the Executive with passage of 5112(k).
    And as I’ve said before, they would do that.
    But what remains after the discussions about technicalities and legalities is still the potential for understanding the sovereign money truism that DOES exist – the government has the power to create the nation’s money – ALL OF IT – and therefore has the concurrent power to not only cease to issue public debt, but to pay it all off at maturity, and that it is under these very real, very clear, very legal, non-technical reality that we ought to operating our system of national governmental finance.

    As the cadre of monetary reformers of AMI have written,

    the $TDC discussion has its main potential as an educational tool for bringing about the real meaning of monetary sovereignty and autonomy – WHICH WE HAVE – and of monetary independence, which we have given over to the private bankers, and which we NEED to take back.

    For the Money System Common.

    • Hi Joe, I generally agree with this, but I think that this:

      . . . the $TDC discussion has its main potential as an educational tool for bringing about the real meaning of monetary sovereignty and autonomy – WHICH WE HAVE – and of monetary independence, which we have given over to the private bankers, and which we NEED to take back.

      is overblown. We don’t know what the main potential of PCS is yet because its use depends on one man and the behavior of individuals is always somewhat unpredictable as we all know. If the President were to suddenly decide to mint that $60 T coin then you wouldn’t be saying the above that while the use of the coin includes its demonstrative value as an educational tool; it greatest immediate and medium term potential is to free us from debt and artificial financial constraints so that we can solve the nation’s problems!

      In other words, I’m saying that this mantra that the TDC is mainly an educational tool is what the other side wants us to say. But what I want us to say is why the hell why Obama minting that coin so Congress has no excuse for sequestrations, damaging cuts, fiscal cliffs and all the BS shock doctrine they’ve been throwing at us. So, let’s have a little less sophistication about the TDC and a little more combativeness about it. Maybe then we actually have our demonstration of the Government’s ability to create as much money as we want it to create.

      • Joe
        Of course we must occasionally disagree.
        I’m not sure which ‘other side” that would be?
        Perhaps it would be neo-classical economists.
        But to my way of thinking, the lesson to be learned from the consideration of debt-free money resulting from Platinum coin seigniorage at any level would be anathema to that field of ‘economics’.
        In other words, the lesson learned would be that traditional economics is just plain full of shit when it comes to understanding sovereign, fiat money. So I doubt THEY would want you be saying anything ‘educational’ about public money in any form.
        Then there are those who I consider the ‘other side’ in monetary discussions, the monied power who run the country, and their non-learned community banking brethren – actually part of the good guys.
        It is THEY who have the power to create all of the nation’s money, using that power for wealth concentration and global dominance, and they who would lose all of that power were the real-money concepts of a sovereign fiat system to get hold.

        Sorry, Joe, the single actor Obama will never rise to the occasion. He is planning his legacy and his library, and he needs the monied power to ensure his continued presence on the future world scene.
        Absent a real effort to gain coin seigniorage beyond the traditional ‘quarter-dollar’ variety, we continue to waste the teaching moment available from our dalliance with the Trillion Dollar Coins.
        I agree with this AMI take on the situation the Platinum Coin discussion has engaged.

  5. Thanks for your replies. The majority of Americans couldn’t care less if the bond market crashed, unless, crashing, it had an adverse effect on the economy. They, also, couldn’t care less if any ‘vultures’ on Wall Street had to suddenly look for honest work.

    I’m wondering why there’s very little serious discussion. Are the players you mention so powerful they control the entire debate?

    All, the rest of the interested public and me, without an economics background, want is to weigh all sides of the debate on our BS scale or test them with our common sense meter. The arguments against PCS, in the few places I can find them, are so vague they beg more discussion, yet the media’s treatment of the issue is barely above the level of snickering contempt. We also know from experience that nothing is perfect, there must be, at least, the possibility of negative results from the use of PCS.

    If the President has decided not to use PCS as an option in the country’s continuing struggle with economic recovery and a do-nothing anti-Obama House, then it stands to reason he and his advisors have given it thought. How come some brave soul in the White House Press Corps hasn’t asked him what he thinks about it?

    All we want is a simple, ‘why not?’, and enough knowledge to ask a follow-up or two. Just enough change in the conversation to bring the idea up to the level of discussion between the interested parties, instead of this hypothetical discussion we continue to have.

    • “I’m wondering why there’s very little serious discussion. Are the players you mention so powerful they control the entire debate?”

      In a word, yes. In the MSM discussion of the TDC, no one gave any space to discussing anything in the way of High Value PCS for paying off the national debt, and most of the discussion was focused on its being ridiculous, or it’s being useful as a trick to get around the debt ceiling. The MSMers were like robots in the way discussed it. And when a petition to use the TDC began to get thousands of signatures and the White House saw a boomlet for it. They quickly squelched that by having the Treasury and the Fed take the option off the table. And, more generally, when has this WH ever done anything that seemed to be against the interests of the banks and Wall Street?

  6. “[…] the effect of the coin is the same – or similar – to quantitative easing […]”

    This is such an interesting observation that I am surprised it was left unmolested (by Joe F or other commenters).

    To be able to say something like this, one must either believe QE works/achieves something, or expect PCS to fail/achieve nothing. What a [bleep]!

    (The other two possible meanings of both working and both failing are discarded because the claimant is reportedly a supporter of the PCS, so he must expect it to be effective if a bit “weird.”)

    • Note: Strike out the last parenthesized part.

      Note to self: Don’t try logical analyses on nonsense.

    • The observation that PCS is like QE, but with Treasury doing it was originally Svott Fullwiler’s, but since then has been emphasized every heavily by the MR people including JKH, Cullen Roche, and Mike Sankowski. I think the point is a good one when it refers to using PCS to pay off Treasury debt instruments without issuing new debt because then all we have is an asset swap, bonds or other securities for reserves. However, PCS isn’t like QE in a few ways. First, to the extent that the PCS credits just sit in Treasury’s account as a demonstration that the Government isn’t broke; we’re not dealing with QE, but with a potent political demonstration that taxes and borrowing are not the instruments for Treasury to acquire reserves in its spending account/ And second, to the extent that PCS-generated credits are used for deficit spending, we are looking at the addition of net financial assets to the economy; and this is something qualitatively different than Treasury-based QE.

      So why haven’t others pointed this out? Perhaps it’s because they’re focused on the TDC rather than higher value platinum coins. The TDC is suggested as an option where people are interested in avoiding the debt ceiling problem. So, they’re about creating head room relative to the debt ceiling by paying off old debt and that, again, is like QE. But when you think about the $60T coin and realize that most of it would be used in the two ways outlined just above, then you realize that PCS isn’t just like QE, but has much broader significance.

      Thanks for getting me to write this down. I’ve been thinking about it for many months; but just neglected to do a post on it.

  7. I was first advocating the $Trillion platinum coin solution, but began questioning whether it would work if the Fed had already redeemed the debt for the United States. In such a case there would be no Congressional authorization for the purchase of the securities at the Fed, since Treasury can only pay existing debts of the United States.
    So, how would it come about that the Fed already has redeemed the debt from deficit spending?
    Recall that when Congress has a deficit, Treasury has to come up with the money to cover it. It does this by issuing securities, (IOU’s with future repayment date), and these are sold to banks at public auction. Banks send money to Treasury’s account at the Fed, and banks have the security. But in doing this the banks’ reserves have been diminished equal in value to the loan. That limits their lending. So, they wish to restore their reserves and put the securities up for sale at public auction. This time the Fed buys them with new fiat money it creates out of thin air and issues into the banks’ reserves. The Fed has redeemed the debt of the United States to the banks, because the banks no longer possess the securities they would need to claim the debt. The Fed has them.
    At this point the question is, “Does the Fed claim to own the debt and to be paid for the full value of the securities?”
    I say “No,” because the Fed is, in this transaction, an agency of the United States government acting for the government, using government powers to create and issue government money delegated to it by Congress to purchase the securities. The claim to be paid for the securities has no more validity than a bank clerk’s claim to be paid the values of securities it buys from bank customers for the bank with bank money.” Just as the clerk is an agent for the bank, the Fed is an agent for the United States in these transactions. Their duties are to handle money and securities, among other things. But the agent doesn’t own or have claims to the money and securities it handles. Those claims are the institutions and entities for which the agent acts.
    Now, Beowulf, in response to this argument has simply said that the Fed cannot redeem the debt because it didn’t issue the securities in the first place.
    This makes no sense because in my view the United States is the issuer and redeemer here, with Treasury and Fed the agents of the United States performing these acts, respectively. The original debt was between the U.S. and the banks. When they sold the securities to the Fed, that debt was redeemed. If your bank sells your mortgage to another bank, you no longer have a debt to the first bank. Ordinarily your debt would then be to the new owner. But in this case the new owner, the Fed, is just an agent of the United States and it has bought the securities, not with its operational money but with the United States’ money it is authorized to create and issue in purchasing securities.
    So, the Fed doesn’t own the securities it possesses. The United States does, and it has redeemed its debt.
    I think the Administration needs to stop rolling over the securities at the Fed. Once redeemed, those securities no longer represent a debt, until a new creditor buys them. So, I think Beowulf owes us a better legal argument than he has given. The Treasury is issuing securities to private investors who seek a safe place for their money for a time that earns interest. I understand the Fed redeems the debt when these securities/bonds mature. So, issuer and redeemer are not the same entity. Providing bonds to private investors serves to control inflation, because the dollars they have deposited otherwise might be injected into the economy at a time when doing so would be inflationary.

    • If I understand this argument correctly, the question hinges on whether the FR, acting as agent for the Treasury, is in fact the same entity as the Treasury. If this is the crux of the issue, let’s look at the case where a bank buys a Treasury note and holds it to maturity. Who does the bank present the note to for payment, the Treasury or the Federal Reserve. If the bank presents the note to the Federal Reserve and the Fed creates funds by keystroke to credit the bank’s reserves, then the note is canceled and there is no obligation on the Treasury to come up with funds. If, on the other hand, the note is presented to the Treasury for payment, the Treasury might pay it out of current receipts, but it would have to make up the payment by issuing new notes if the Treasury is running a deficit, as it very often is. So, in the first instance, the Treasury has no need to deficit spend and no need to borrow, but in the second case it does have the need. In the first case, the national debt (the cumulative borrowing of the Treasury) is not increased, but in the second it is increased. It seems to me that if the first scenario is correct, we would have no national debt, but if the second is true we would. Sixteen trillion dollars of national debt would seen to be a pretty good indicator that the Federal Reserve is not the same as the Treasury.

      • [email protected]: “If I understand this argument correctly, the question hinges on whether the FR, acting as agent for the Treasury, is in fact the same entity as the Treasury. ”
        The common entity I envisage here is the United States. All branches of our government, which perform different functions, are organs of a common entity, the government of the United States. Both the Treasury and the Fed are each different agencies of the government. So is the U.S. Forest Service, and the FBI. The government is like the body of a person, with arms, legs, and other organs, each of which performs certain functions. But the right arm is not the left arm, the right arm is not the right leg, and so on. The Fed is not the Treasury. But the security does not represent a debt between the United States Treasury and someone who has lent it money. The debt of the security is between the United States and the lender. You see on the old securities “United States of America”. That’s the debtor. You see the same on our Federal Reserve Notes. You give the Internal Revenue Service your dollars to pay your taxes. The dollars involves a debt the Internal Revenue Service has been authorized to redeem for the United States: to absolve you for the time being of any further dollar obligations toward taxes to the United States. The Fed (your ‘FR’) is not an agent for the Treasury, but both are agents for the United States. The laws that govern their functions are “The United States Code”. Treasury is denied the power it had under Lincoln to issue paper fiat dollars, but it can issue notes. It can also issue coins and securities and bonds. The Fed has been given the power to create and issue paper fiat money, its “Federal Reserve Notes”. It buys coins from the Treasury for issue. These are mutually interchangeable being convertible into digital form, spreadsheet form, coins, securities, bonds, and other forms of money. That’s my civic understanding.
        “Who does the bank present the note to, the Treasury or the Federal Reserve”. As far as I know, the banks will put them up for auction, rather than present them to the Treasury. The Treasury cannot make an immediate payment because it already didn’t have enough money to cover the deficit, and the securities still cover that amount. It would have to wait for taxpayer revenue to come in. The bank needs more immediate relief. And it can get it either from another bank that wants the interest or the Fed. The Fed will have to buy it at public auction. (That is my understanding, but maybe it can be approached by the banks). The Fed cannot be outbid, simply because it can create any amount of money it needs to buy the securities. Anyone who knows about these things, please comment.
        “Sixteen trillion dollars of national debt would seen to be a pretty good indicator that the Federal Reserve is not the same as the Treasury.” I am challenging the idea of the debt in the first place. A lot of this debt is the Social Security Trust funds, which hold trillions in securities left there when Congress raided their funds. I suppose at some point the Trusts can put them up for auction, where a bank will buy them, and then the Fed will buy them from the bank. (The Fed by law cannot directly buy any security from the United States government, and the Trust funds are the government). The funds may be holding on to the securities to earn interest.
        There are trillions in private and foreign investors who have deposited money at the Fed in hopes of earning interest and knowing it is a safe haven. Those are redeemed all the time by the Fed with newly created money as they become due, and really are not a meaningful debt for purposes of limiting deficit spending. These monies are not used to fund government operations, and deficit spending is.
        Each time a security is rolled over at the Fed or at the Trust Funds, the Treasury has to issue new securities to replace the old. That means a transaction fee to the Fed each time. With lots of them, that adds up, even if it is less than the interest per se on the securities, being only 6% of the interest. It’s kind of a cash cow right now for the Fed, although it pays back to Treasury all its profit after deducting expenses of operations.
        Is my argument legally correct?

        • Thanks for the response auresdelmulo. I think I now have a clearer picture of what you are proposing. First, I believe from what I have read on Joe Firestone and Beowulf’s blogs that the Federal Code describes the Federal Reserve as the sole banking agent for the Treasury. If that is true, then the Fed has a different relationship with the Treasury than the independent branches of the government have with each other. They may all be parts of the same body, but the Fed is like the fingers of the Treasury hand rather than being like the right and left hands.
          So, to the main question. Are Treasury obligations canceled when they are purchased by the Federal Reserve? If the hand analogy is correct, then one would conclude that they are paid or satisfied by the action of the hand’s fingers; but, the Federal Reserve insists that it is an independent agency and the debt never goes away, it just gets rolled over into new obligations. From the existence of the $16 T national debt, one would have to conclude that the Federal Reserve’s claim predominates, but High Value Platinum Coin Seigniorage (HVPCS) would challenge that conclusion and force the fingers to recognize they are part of the hand, which would be desirable, imo.

          • Thanks for the response. My understanding of the independence of the Fed is that it is set up in such a way as to be independent of political influence. This is done is several ways. (1) The Fed cannot buy securities directly from any agency of government. (2) The Fed does not get appropriations from Congress, but is funded by transaction fees, such as 6% of the interest on each security it buys. (3) The terms of governors of the Fed are longer than any given presidents or other officers and congressmen. (4) Fed is only required to make certain scheduled presentations to Congress in each year. Political independence does not mean the Fed is not an agent of the United States government.

            Back on the issue of Treasury securities. I discovered this at
            It says “Treasury securities are safe and secure, backed by the full faith and credit of the United States government.” That means it is not backed just by the full faith and credit of the Treasury. Since the Fed is also an agency of government (see FAQ’s at the Fed’s web page), that means it could redeem the securities, since it is the creator and issuer of money. It is also authorized to buy and sell Treasury securities.

            MMTers and MMRers need to consider that the Fed redeems the government’s debts whenever it buys securities. What other ways could our present government do it? The $Trillion coin is a possibility, but why focus on this exotic case when there is the everyday case of the Fed doing this all the time? We don’t need to come up with trillions of dollars to pay our debts. They have been paid a bit at a time by the Fed redeeming the securities by buying them. And once we see how this works, we see that the Fed actually issues debt free money and the Treasury gets to spend debt-free money it has borrowed from the banks, because the debt to the banks has been redeemed, and they no longer hold the securities. There is no need to be considering having the Treasury issue greenbacks again. That would be nice and an elegant solution, but why create a whole new system, when the current one works? The problem is to get everyone to understand that it works this way.

  8. The $60 T PCS would still be viable if the Fed were forced to credit their deposit at the Fed with Federal Reserve dollars, i.e. to make change. Even though the PCS would not be used to purchase the securities, it would provide debt-free dollars to cover the deficits and buy back the securities at the Social Security and other government Trust Funds. But this now creates an unnecessarily complex system. Treasury would no longer have a need to issue securities because it would just draw down from its $60 Trillion account the money needed to do government business. But the Fed would lose a partner who issues new securities that the Fed needs to SELL to banks to drain money out of the banks during inflation, so they will lend less. They might continue to issue securities and sell them at auction, and sequester the money from the banks in an account at the Fed, repaying the banks when their securities mature. So, there may be a role for securities in inflation control, but still not for the Fed. So, I can see why the Fed strongly opposes the coins.
    Faced with the choice between conceding there is no national debt, that it redeems the debt all the time, and letting Treasury use its platinum coin creating powers to issue debt-free dollars and redeem its own debt, the Fed would likely prefer the first alternative, to concede it has redeemed the national debt. And the system that would result would effectively produce the same results as the Treasury-only solution. The Fed would redeem the U.S.’s debts of borrowed money, making the money borrowed debt free, and in doing so it also introduces an equivalent amount of new money into the economy.
    So, how do we get the Administration to stop rolling over the securities at the Fed and push either for the PCS or the debt-free Fed solution? Do you ever write the President or Secretary of Treasury, or members of Congress and the Senate? They take e-mail too.

    • The money borrowed would be debt free, but not interest free under the first alternative. Under HVPCS it would be both debt and interest free.

      • Hmm. The Fed pays both the principal and the interest when it purchases the securities from the banks. I think it pays the face value of the security, which are sold at discount, and the difference between the discounted price and the full price is the interest. The Fed is still owed 6% of the interest, and the Treasury has to come up with that and give it to the Fed. That is a transaction fee which frees the Fed from dependence on Congressional appropriations for its operations. Imagine the Fed having to deal with a Congress like the one we now have, with the majority in the Congress opposed to policies the Fed has established for dealing with inflation or deflation, and having to get its money from Congress to do its work. Suppose the Congress is full of economic ignoramuses like we now have….