Mint a trillion dollar coin?

I really don't know why the administration doesn't take the "mint the trillion dollar platinum coin" option seriously. It is, as far as I can tell, perfectly legal. - Eschaton

The quote above is in reference to this Firedog Lake post on the Fiscal cliff and the latest Republican Doomsday plan for dealing with the fiscal cliff:

It’s quite simple: House Republicans would allow a vote on extending the Bush middle class tax cuts (the bill passed in August by the Senate) and offer the president nothing more – no extension of the debt ceiling, nothing on unemployment, nothing on closing loopholes. Congress would recess for the holidays and the president would face a big battle early in the year over the debt ceiling.

FireDog Lake responded to this news of the GOP economic bomb with:

if the vote includes just the Senate bill, where does that leave us? On January 1, taxes go up on not just the top marginal rates, but on every income earner, when the Bush tax cuts expire. Two million people immediately lose their unemployment benefits. Medicare reimbursement rates drop 30%. The sequester on defense and discretionary spending goes into place, and while OMB has the ability to lessen the impact there for several weeks, they can’t hold back the tide forever. And the country will hit the debt limit by the end of February or the beginning of March.

There is now the seemingly facetious suggestion of the Treasury minting a $1 trillion dollar coin to pay off part of the debt and avoid having to deal with Republicans using a possible U.S. sovereign default, by refusing to raise the debt ceiling, as leverage to get their way on tax and budget issues.

If the President doesn’t go that route, and he doesn’t direct his Treasury Secretary to mint a $1 trillion platinum coin....

My question to all you egg heads out there is this: Would this be legal as Eschaton suggests, and are there any reasons why it would be bad policy? I understand how the creation of new money can devalue a currency, but increasing the money supply has been done already by the Federal Reserve and is perfectly legal. Would the printing of such coins to lower the debt be any worse for the value of the dollar than a Congressionally instigated default?

According to The Economist is just might work:

Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time. Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

Even Paul Krugman is saying this is legal:

KRUGMAN: ... to print — to mint a $2 trillion platinum coin, which is ridiculous, but the whole debate is ridiculous, right? If you've got somebody who's holding the American economy hostage and trying to extort policy concessions that they could never actually pass through Congress and that they could never get past the voters, you go for whatever you can do to stop it. But he won't do that.

The idea seems to originate from Yale University Law Professor Jack Balkin and he notes while printing money is limited, there is no limit to coinage, hence the $1 trillion coin.

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

Balkin has other ideas as well, such as creating an option to buy government property and sell it to the Federal Reserve:

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

If two $1 trillion coins are legal, is this where America is at? Having to pull ridiculous tricks in order to pass even the most common sense legislation that the majority of the country wants? We don't even know the consequences of such a sudden money increase. We do know there is a majority in Congress who will not act in the national interest, no matter what the cost to the country.

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Atrois, really?

Not exactly a financial or economics expert there and to boot he has "Media Matters" one of the most biased "hit groups" out there, (their title is on the same oxymoron title as Fox put together with "News") as his top link. Just a little wee bit spin and bias and we don't like to reference the great spin machine on EP, any political flavor.

We're an economics site, lets stick with credible sources.

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"financial or economics expert"

FYI, from his wikipedia page:

"After obtaining his BA from the Indiana University of Pennsylvania, Black obtained a Ph.D. in economics from Brown University in 1999. He has worked at the London School of Economics, the Université catholique de Louvain, the University of California, Irvine, and, most recently, Bryn Mawr College."

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I don't think it would have much effect

For it wouldn't really be in circulation per say, just a round about way of raising the debt ceiling, which has it's own problems. Officially that would be a dramatic increase in M0, but one would assume those coins would be put in a vault somewhere and hopefully later destroyed. Officially it should cause increased inflation, but since the Fed is so busy with QE, they could simply diminish QE (sell their various assets and Treasuries they have been buying and holding) to cancel out the effect.

If such a coin ever existed the real worry would be those trying to gain physical possession of it. Be a real good idea to turn around and make a $1 trillion dollar coin illegal as Roosevelt did on double Eagles, gold or something soon afterwards.

This is also the debt ceiling. the goal to reduce social security benefits and medicare benefits seems to be going under the radar with this ridiculous Congress. It's simply better to let all taxes go up than let them reduce social security benefits and raise the age for Medicare? Unbelievable considering the billions which could be saved if they would confront the for profit sector as well as prescription outrageous prices no one else in the world pays.

What a farce and we've already written many pieces that the real agenda is to destroy social safety nets at a time when most people's other retirement is long gone.

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Let them go full farce, 100% idiocy, corruption, game over

Sure, why not. Instead of listening to people that have ethics and scruples and brains out here that know how to create jobs and balance budgets and want to work and keep our country strong (or at least get us back there), this is what jackasses actually discuss (and get away with) nowadays. People in universities and press rooms and political offices (earning millions, even in the "press" and "academia") can get away with this crap because the people with common sense and a sense of history + right and wrong have no voice anymore. Let these money-whore morons do it. Print it up. Go full Mugabe. Go full Weimar. If they print a $1 trillion bill or mint a coin, can I print a $1 quadrillion bill on my computer? They'll have the same value, but something tells me I'll get in trouble and they won't. Only the people in power can make currency worthless, apparently that's not within our power. And these people have control of our finances, our defense policy, our job "creation," our visa and outsourcing policies, etc.? Hmm, really tough to figure out why our country is being destroyed and who's to blame. It must be the people outside boardrooms and political office, yes, it must be them. It certainly can't be the people that look to wheelbarrows filled with cash as some dream, Benedict Arnold post-West Point as a hero that simply wanted to make some cash (and what's wrong with that - he was a capitalist, right?), and Mussolini as a good political leader because he was good for business, and isn't that what's good for us? Let's wrap up this circus, the idiot clowns in charge have destroyed us in less than 250 years. That's got to be some sort of record, no?

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Printing money is good for Social Security recipients? WTF?

One of the links said that protestors seeking to protect Social Security suggested that the govt. should print more money and inflate the dollar, erasing the value of debts and this would be good for students, homeowners, etc. Uh, inflating the dollar so that it carries no value, increasingthe price of goods like food, heating fuel and gas for the car, rent, etc. does the exact opposite of protecting those on fixed-incomes like Social Security recipients. Even cat food becomes out of reach when hyperinflation inevitably kicks in. More dollars chasing same or fewer goods = inevitable hyperinflation. And despite supporters' claims, the Fed doesn't control inflation, it merely excludes goods that are increasing in price by excluding them as "too volatile" (like food and fuel) or pulls out the BS "substition" principle where if things go up in price, people are assumed to just switch to cheaper good. Thus, the Fed has used creative rules to eliminate inflation from ever happening again. And all that printing, where does it end up many times? Primary dealers like JP Morgan and other banksters so they can pad salaries and bet on derivatives - the very things that helped destroy us in the 1st place. QE1, QE2, QE3, TARP, etc. But now it's good?

This printing into prosperity is madness and seriously floated out there? Yes, printing your way to prosperity, absolutely, that always works out well. Simply amazing, we have people on every side of politics that want to fight wars without paying for them and without worrying about deficits, but then when it comes to helping people within our borders, suddenly deficits matters. Fed and Treasury actions are bad, unless it helps out big banks, or inflates the dollar into oblivion, or whatever side the person supports. Entitlements are bad, unless its subsidies to defense companies, big banks, pay for Congressional health and retirement benefits. There's no where to turn, it's madness on all sides.

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I think you are misunderstanding the post.

This is being recommended for a very specific purpose - to deny Republicans leverage to demand cuts to Social Security, Medicare, and Medicaid payments and other useful expenditures. Republicans are threatening to force a default on government debt by blocking an increase in the debt ceiling. What will be worse for the value of the dollar? A bunch of Tea Party nuts being able to force a default on government debt or having a simple legal way to avert that without caving to the demands to cut the safety net?

Also, would this particular method of creating money end up in the hands of "JP Morgan and other banksters so they can pad salaries and bet on derivatives" as "QE1, QE2, QE3, TARP, etc." did? (which I agree is a bad outcome.)

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commodities speculation

I have heard it argued by progressive economists that the rising food and fuel prices are due primarily to illegal manipulation of commodities markets by speculators, which could be solved by a few strategic prosecutions of the manipulators. Of course, creating money through means like "QE1, QE2, QE3, TARP, etc." contributes to this bad situation by putting more money into the hands of the speculators. But it is not clear to me that it is simply the creation of new money that is causing the high food and fuel costs regardless of the method of creating that money.

Krugman argues that the creation of new money at a time of low consumer demand does not lead to hyperinflation or even high inflation. So far he has been proven right.

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Newly printed money has to chase something - that drives prices

All that money is printed and then disbursed through the banks. It's not coming directly in a sweet paycheck to Joe Citizen. So, part of that money is diverted into what the banks want to spend the money on. And the rest, well, it's not going to sit under Jamie Dimon's mattress. It has to go somewhere, whether that's in oil, food, aluminum, coal, natural gas, wheat, corn, and every other place imaginable. The whole point of the QE3, according to the Fed, per Bernanke, was to make people feel richer based on inflating the stock market. His view was that if people saw their stocks lifted, they would feel more confident and spend more. So per his own logic the money he was printing was going to lift stock prices not based on valuations, but based on more money chasing stocks - the epitome of money lifting prices. The same goes for everything else, they want the money printed so it can be spent, more $ spend chasing fewer goods = inflation. We are talking trillions of dollars, so unless someone is selling a few countries to one buyer for trillions, all that money will be spent in everything available. Especially given the contraction of manufacturing, fewer goods are being produced, of course that will drive prices for the remaining goods up. Now just imagine if there's a supply-shock regarding oil because of mass chaos in Egypt or Syria or Iran or Iraq or some other part of the Middle East along with all that new money floating around. Massive reductions in oil supply, massive influx of newly printed cash will make oil shortage and price hikes following Sandy look relatively mild in comparison.

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Issuing any form of currency

Issuing any form of currency without government backed bonds will inflate the value of the US dollar. The only way to protect the value is for the debt limit to be raised.

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Time for Congress to repeal

Time for Congress to repeal that obscure clause. It wasn't constitutional in the first place. Congress has the power to coin money and regulate the value thereof, but NOT the power to TRANSFER that power.

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I agree

that the whole notion of a debt ceiling is bogus. The debt is what it is. It is determined by the sum total of budget related legislation and economic circumstances. The debt ceiling just tells the world that there's always a possibility that the government will default on its debts if one party wants to punish the other party. It's absurd.

Having said that, you can't just wish this absurd situation away. The possibility of printing trillion dollar coins, while being quite outside-the-box, at least addresses this absurd yet actually existing problem. I will leave it to others more informed than I to speak to the risks. Do those risks outweigh the damage to the working class from giving into Republican blackmail and slashing the safety net? I think the answer is not obvious.

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This will NEVER happen. The

This will NEVER happen. The Federal Reserve (the private bank who we *BUY* our money from, WITH interest) will NEVER, EVER allow this to happen. Where do they get their money you ask? The print it out of thin air!!! Yes, and our country BUYS it from them. You really think they will let this happen? Please people, do some research and educate yourselves.

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Never say never

When I saw this I thought the same thing. Yet, considering we have a Congress who is more than willing to throw the economy into recession over their corporate lobbyist driven agenda to destroy what is left of social safety nets, that being social security and Medicare, who knows these days? We clearly have a bought and paid for Congress, operating at the request of their corporate donor class to the point they will "shoot themselves in the head" in order to destroy social safety nets.

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Fed has no discretion

in this matter. The Mint creates the coin and deposits it in its Mint Public Enterprise Fund (PEF) at the Fed. It's legal tender, so the Fed must credit the PEF with the face value of the coin. If the Fed refuses, the section of the Fed law specifying that in case of disagreement in legal interpretation between the Fed and the Treasury, the view of the Secretary will prevail, kicks in, and the the Mint gets its account credited. The Fed just keeps the coin in its vault as an asset. The Treasury Secretary then sweeps the PEF account for the difference between the cost of producing the coin and its face value. That's the seigniorage or profits resulting from the Fed's crediting the coin. The swept profits are transferred to the Treasury General Account, where they may be used for debt reduction and deficit spending. A better proposal that the $1 T proposal is the $60 T proposal. See: http://www.correntewire.com/beyond_debtdeficit_politics_the_60_trillion_...

It handles inflation concerns too, and even includes a speech for the President.

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Doubtful that it would happen

The whole system is designed to be bailed out by the taxpayer. Example of this is the U.S. funded IMF which makes bad loans all the time to other countries than has to make another loan so they can pay back the old loan and have some spending money !! When that money is gone the cycle starts over and another loan is made all on the U.S. taxpayers back . In other words the taxpayers are always bailing out the bad loans. It is these type of entities that we need to get rid of that would save the U.S. taxpayer billions !!! Eliminate IMF , U.N. , World Bank , Fannie and Freddie Mac , Sally May and Import eXport bank !!!! Doing this would save taxpayers Billions !!!!!!

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Trillion dollar coin

The only way this would be a good idea is if the platinum coin was made the size of a ferris wheel,,then we open it as a tourist attraction and charge $5 a head to ride it

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Ferris Wheel

Gee, can you imagine the insurance on it in case of natural disaster damage or theft? I think our Congress is a glorified $1 trillion Ferris Wheel since they continually take the middle class for a ride.

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No insurance required. Loss

No insurance required. Loss of coin would only be the value of the platinum, not the face value.

Face value of coin not limited by law to $1 trillion, it could be $10 trillion or $100 trillion, whatever the Treasury decides.

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$1, $10, $100 Trillion, Whatever the Treasury decides

Exactly,,The Treasury could decide to not even use platinum, they could use a plastic poker chip and write a number on it in crayon, even change the number when they need more. Or better yet, they could decide to make every penny in circulation worth $1000, nickles $5000 and so on.

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It wasn't Balkin

The provenance of the specific proposal to use high value Platinum coins, as well as a lot of other posts proposing it is here: http://www.correntewire.com/coin_seigniorage_a_legal_alternative_and_may...

The Trillion Dollar coin is not the best proposal because it won't solve the problem of faux austerity. This will:

http://www.correntewire.com/beyond_debtdeficit_politics_the_60_trillion_...

Jack Balking did get serious mainstream attention for this when he had the chance to put something on CNN. But others promoted it for 6 months before he got there, and Atrios doesn't have a clue about provenance and hasn't thought much about it either, as is obvious from his post.

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register

we don't allow links in anonymous comments due to security issues (link spam). Register and you can write all of the HTML to your heart's desire.

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authorship

We offer author accounts upon request. I don't know if you're interested but clearly you've really dug into ways around the crazy GOP on the debt ceiling tricks. Anyone else reading Joe's comment, here is the article with alternatives he tried to link to anonymously.

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Joe Firestone is being modest

In fact, the very first post on using the platinum coin option was by Warren Mosler on January 20, 2011 about 6 months before Balkin wrote about it (you can google the link).
"Joe Firestone post on sidestepping the debt ceiling issue with Coin Seigniorage"

I'll be immodest and quote the first sentence,
"Joe Firestone has a new post on Coin Seigniorage, where he gives credit to our own Beowolf’s (sic) comment on this website."
:o)

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Thanks for talking about the Pt coin

Actually, the trillion dollar (or multi-trillion dollar) Pt coin has been endorsed by just about all Post-Keynesian economists, including the Department of Economics staff at UMKC -- Stephanie Kelton, Bill Black, Randall Wray, etc..

I don't recall James Galbraith talking about the coin but suspect he is on board as well, since he is pretty tight with the UMKC crowd.

If I remember correctly, Matthew Yglesias and Erzra Klein have given the coin a thumbs up, along with Jim Carney.

The coin would never go into circulation so all this talk of "printing money" is silly.

The Pt coin would actually be DEFLATIONARY because retiring the debt would reduce interest payments to the private sector.

Pt coins could be used to lower or even completely pay off the national debt. They could also be used to pre-fund government spending for years to come, making our endless budget showdowns seem silly and pointless.

http://www.cnbc.com//id/43931430

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who's on first?

We now have an official history of the $1 trillion coin idea and where it came from. This is assuredly true for we know many of our original posts magically appear elsewhere, the content, calculations uncredited.

Our apologizes for not getting it right on the coinage idea attribution.

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