[jeffkrol]

Ahh the human spirit.. I love it..........

PRAGMATIC CAPITALISM – LET’S END THIS DEBT CEILING DEBATE WITH A $1 OZ. $1T COIN

h) The coins issued under this title shall be legal tender… (k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

The simple threat of doing this would end this debate right here and right now. It’s time for Congress to stop playing Russian roulette with the US economy. If you want to take a stand on spending then do so before you pass legislation that causes us to run up into the debt ceiling. Don’t use some phony law to try to scare people into thinking that we are Greece (something that’s entirely impossible anyhow).

Update: I also think Beowulf’s presentation of the coin would be excellent (although I personally think a long and slow presentation on horse drawn carriage escorted by a marching band and a dozen or so M1 Abrams tanks would be the only thing sufficient enough to match the theater that is the Paul Ryan show):

PRAGMATIC CAPITALISM – LET’S END THIS DEBT CEILING DEBATE WITH A $1 OZ. $1T COIN

As far as I’ve been able to determine, it does work operationally. It seems the US Treasury is already legally empowered to simply mint it’s own platinum coin in any denomination it wants and effectively deposit it in its Fed account, rather than sell bonds to the public to fund its Fed account.

This process doesn’t change actual govt spending, so doing it this way doesn’t add to inflation, nor does it change the fact that govt deficit spending adds income and net financial assets to the other, non govt sectors. It’s just that the new financial assets will simply be new reserve balances at the Fed, rather than new Treasury securities (which are also simply accounts at the Fed).

What issuing these coins does do is remove the legal need for the debt ceiling to be raised, and also reduce the amount of outstanding Treasury securities, which is what is called govt debt. So while both reserves and Treasury securities are, functionally, govt liabilities and differ in name (and sometimes duration) only, the headline rhetoric does make that distinction. So technically, this process eliminates the ‘national debt’ and removes any (misguided) notion of solvency risk:

http://moslereconomics.com/2011/01/20/joe-firestone-post-on-sidestepping-the...n-seigniorage/

I LOVE it...............

[MRRiley]

Why not just mint 20 of them then we'd have a comfortable budget surplus...

[Parallax]

Why do we need any of them since, as Jeff has said many times, the government cant possibly go broke?

[Winder]

Cue the theme song to Fantasy Island.

You Tube

You Tube

[jeffkrol]

Why do we need any of them since, as Jeff has said many times, the government cant possibly go broke?

to appease the crazies in Congress..................

[jeffkrol]

Cue the theme song to Fantasy Island.
Fantasy Island TV intro (1978) - YouTube

There is a big difference between fantasy and impractical................

[jeffkrol]

Why do we need any of them since, as Jeff has said many times, the government cant possibly go broke?

again if you are referring to "literally broke" when you create your own money supply.. it is an INDISPUTABLE fact.. sorry you can't see it.

If you want to talk debasement and value of said created dollars that is another story all together.............

I can't believe intelligent people can't see the difference.............baffling................it is NOT a hard FACT to understand.........

B]But countries like the US that 100% controls it's money supply, can NOT go bankrupt and runs no risk of default. Even politically, if politicians were to force a default, the Fed would undoubtedly work with the Treasury to make sure it didn't happen. Markets believe that to be the case, and so do I. [/B]

http://econrevival.blogspot.com/2012/01/us-cannot-go-bankrupt.html

Tell me who needs to tell you for you to "believe"????

---

Last edited by jeffkrol; 12-07-2012 at 11:52 AM.

[Sagitta]

I have a 100 trillion dollar bill printed by the government of Zimbabwe as they struggled to reign in their tanking economy a while back, and we all know how well that went.

[jeffkrol]

i have a doppleganger............

No. The US cannot go broke.
The US government's debt is mostly denominated in the US dollar, which is a currency that it, indirectly (via the Fed) issues. Therefore, it cannot go broke in the same way that you and I (or Greece) can.
Say that the US government keeps on spending far more money than it earns and has to issue ever increasing amounts of debt.
Unlike with Greece, where the debt is denominated in a foreign currency it doesn't control (the Euro), if the US government's interest payments become too burdensome, the (nominally) independent Federal Reserve has the option of buying the government's debt. This is called monetisation, and is one of the main effects of Quantitative Easing.
The effect of the Fed monetising the US government's debt is manifold. In essence, it is as though the Government borrowed money indirectly from itself, as the Fed is a quasi-governmental organisation, and it has to pay the Government any money it makes in interest. That means that when the government pays interest on Fed-owned debt, it ends up paying money to itself.
But where does the Fed get the money to buy the US government's debt? Well, it doesn't get it from anywhere. It makes the numbers up from nothing. Colloquially, this is known as printing money, but nowadays, it's just a computerised transaction.
There is of course a cost in doing this. If the Fed prints lots of dollars, each individual dollar becomes worth a little less. When each dollar is worth a little less, you see prices of most things increase a little. This is inflation and it acts as a sort of currency tax - i.e. over time, the holders of currency lose a little of the value of each dollar they own, and in the long run, the loss of value of all the dollars in circulation is similar to the amount of money the Government "collects" in inflation tax via money printing.
Now, because the US debt is denominated in dollars, when each dollar is worth a little less, so is the value of the US government's debt. Obviously, printing too much money can cause damaging levels of inflation, and has in the past resulted in catastrophe, as was the case in the Weimar Republic. Comparing the US to the Weimar Republic, however, is like comparing apples and oranges.
In the case of the Weimar Republic, Germany's debt was denominated in foreign currencies, so when the government printed money, the value of the Mark declined and the debt in terms of Marks kept on increasing. This is completely different from the situation in the US, where the real value of government debt goes down as extra money is printed. Each dollar becomes worth a little less, and those trillions of dollars of government debt become worth a lot less. Where the debt is in a foreign currency, no amount of printed money can pay it off because as soon as you print some money, its value goes down and you need to print yet more to pay off your debt. Where the debt is in your own currency, a limited amount of money printing can get it under control.

So, what's the worst case scenario?

Any sort of catastrophic bankruptcy would be self-imposed, so assuming the US wouldn't choose the masochistic option and would attempt to act in the interest of relative stability, it will always have the option of printing more money to cover its debt interest and expenses.
Provided the US government manages to moderate its spending, the debt-to-GDP ratio will stabilise with economic growth and moderate inflation.
Continued government largesse, on the other hand, may mean that the debt becomes unmanageable and will require a great deal of monetisation to get back under control, which would make for many years of damaging high inflation. This would make the average US citizen significantly poorer in the long run. Still, life would go on, and the government would stay as solvent as ever.
Of course, increasing government debt is but a symptom of far greater economic problems that will be plaguing the European and American economies for years, if not decades, to come. Neither increasing government spending nor significant cuts seem to pave an easy way out of the current mess, and most Western countries are increasingly finding themselves in between a rock and a hard place.

Can the United States actually go broke and what would happen if it did? - Catholic Answers Forums

[jeffkrol]

I have a 100 trillion dollar bill printed by the government of Zimbabwe as they struggled to reign in their tanking economy a while back, and we all know how well that went.

i'm sorry that is just silly.. Zimbabwe's production fell to practically zero.. and is no comparison to the US........but whatever trips your trigger......

[jeffkrol]

A monetarist view[8] is that a general increase in the prices of things is less a commentary on the worth of those things than on the worth of the money. This has objective and subjective components:

Objectively, that the money has no firm basis to give it a value.
Subjectively, that the people holding the money lack confidence in its ability to retain its value.

Crucial to both components is discipline over the creation of additional money. However, the Mugabe government was printing money to finance involvement in the Democratic Republic of the Congo and, in 2000, in the Second Congo War, including higher salaries for army and government officials. Zimbabwe was under-reporting its war spending to the International Monetary Fund by perhaps $22 million a month.[9]

Another motive for excessive money creation has been self-dealing. Transparency International ranks Zimbabwe's government 134th of 176 in terms of institutionalized corruption.[10] The resulting lack of confidence in government undermines confidence in the future and faith in the currency.

Economic mis-steps by government can create shortages and occupy people with workarounds rather than productivity. Though this harms the economy, it does not necessarily undermine the value of the currency, but may harm confidence in the future. Widespread poverty and violence, including government violence to stifle political opposition, also undermines confidence in the future.[11] Land reform lowered agricultural output, especially in tobacco, which accounted for one-third of Zimbabwe's foreign-exchange earnings. Manufacturing and mining also declined. An objective reason was, again, that farms were put in the hands of inexperienced people; and subjectively, that the move undermined the security of property.

Government instability and civic unrest were evident in other areas.[12] Zimbabwean troops, trained by North Korean soldiers, conducted a massacre in the 1980s in the southern provinces of Matabeleland and Midlands, though Mugabe's government cites guerrilla attacks on civilian and state targets. Conflicts between the Ndebele ethnic minority and Mugabe's majority Shona people have led to many clashes,[13] and there is also unrest between blacks and whites, in which the land reform was a factor. An aspect of this reform that seeks to bar whites from business ownership induced many to leave the country.[14]

Self-perpetuation

Lack of confidence in government to practice fiscal restraint feeds on itself. In Zimbabwe, neither the issuance of banknotes of higher denominations nor proclamation of new currency regimes led holders of the currency to expect that the new money would be more stable than the old. Remedies announced by the government never included a believable basis for monetary stability.[15][16] Thus, one reason the currency continued to lose value, causing hyperinflation, is that so many people expected it to.[17]

Zim= US HOW AGAIN?????

An objective reason was, again, that farms were put in the hands of inexperienced people;

Just substitute Congress for farms.. and you might have a small comparison...........

[Sagitta]

i'm sorry that is just silly.. Zimbabwe's production fell to practically zero.. and is no comparison to the US........but whatever trips your trigger......

You do realize that the country just can't print its own money to pay a bill without it having severe consequences on the economy at large, right?

In simplistic terms, if a loaf of bread costs $1 and there are $5 floating around among everyone who wants to buy that bread, by dumping an extra $5 into that group the cost of that bread is going to jump since everyone's dollars are now worth half of what they were before.

As appealing as just dumping extra cash into the system sounds, there is a big reason its just not done. It wrecks havoc on the credit of the nation as a whole and cascades down through the economy in bad, bad ways.

There is literally no example in history that I can think of where a government was able to fix itself by simply printing more cash. If you can think of one, please feel free to share.

[jeffkrol]

You do realize that the country just can't print its own money to pay a bill without it having severe consequences on the economy at large, right?

In simplistic terms, if a loaf of bread costs $1 and there are $5 floating around among everyone who wants to buy that bread, by dumping an extra $5 into that group the cost of that bread is going to jump since everyone's dollars are now worth half of what they were before.

As appealing as just dumping extra cash into the system sounds, there is a big reason its just not done. It wrecks havoc on the credit of the nation as a whole and cascades down through the economy in bad, bad ways.

There is literally no example in history that I can think of where a government was able to fix itself by simply printing more cash. If you can think of one, please feel free to share.

WE printed a lot of cash to fund WW2.. worked just fine..........(simple answer and it is "complicated")
no simplist terms like US=Greece are not an answer......

Ellen Brown: Is QE2 the Road to Zimbabwe-style Hyperinflation? Not Likely

there is a big reason its just not done. It wrecks havoc on the credit of the nation as a whole and cascades down through the economy in bad, bad ways.

No.

Back in October the economic buzzwords had become "money printing" and "debt monetization" ... [T]he Fed was initiating their policy of QE2 and you'd have been hard pressed to find someone in this country (and around the world for that matter) who wasn't entirely convinced that the USA was about to send the dollar into some sort of death spiral. QE2 was about to set off a round of inflation that would make Zimbabwe look like a cakewalk. And then something odd happened -- the dollar rallied as QE2 set sail and hasn't looked back since.

As a simplistic question to you.. How is Japan doing?? People-wise??? Do they have health care? food? toys? pensions? education? technology? or are they "Zimbabwe"??

Currently, the nation's debt-to-GDP ratio is in line with most other developed countries, says Wyss, and well below Japan's. But it's heading higher.

http://usatoday30.usatoday.com/money/economy/2010-01-13-economic-recovery-depression_N.htm
Debt/GDP
Japan 208.2 2011 est. 229.77 2011 Asia
United States 67.7 2011 est. 102.94 2011 North America
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

I think many Americans would wish we were more "like" Japan.......

Unemployment Rate in Japan remained unchanged at 4.20 percent in October of 2012 from 4.20 percent in September of 2012. Unemployment Rate in Japan is reported by the Ministry of Internal Affairs & Communications.

http://www.tradingeconomics.com/japan/unemployment-rate

The October Consumer Price Index showed that year-over-year inflation pressures were unchanged, bolstering Japanese opposition leader, and likely next Prime Minister of Japan, Shinzo Abe’s stance that the Bank of Japan needs to undertake an unlimited easing approach, in order to boost growth and bring inflation back to the BoJ’s medium-term target of +1.0%

of course for Japan.. there is always the "some day" scenario.............

Ironically, the aging population phenomenon could end up restoring Japan’s economy to equilibrium. The worse Japan’s fiscal problems become, the sooner it will be forced to simply print money, so as to deflate its debt and avoid default. This will stimulate the economy and put upward pressure on prices (solving two problems), and exert strong downward pressure on the Yen. The way I see it, that’s four birds with one stone!

As for the Yen, then, I would expect it to hover over the near-term, since price stability and a strong credit rating don’t signal immediate catastrophe. No, Japan’s economic problems are more long-term, which means it could be a while before they more clearly manifst themselves.

... someday..........how many decades has "someday" existed?????
http://www.forexblog.org/2010/01/making-sense-of-the-yen-forex-intervention-...deflation.html

[Parallax]

again if you are referring to "literally broke" when you create your own money supply.. it is an INDISPUTABLE fact.. sorry you can't see it.

If you want to talk debasement and value of said created dollars that is another story all together.............

I can't believe intelligent people can't see the difference.............baffling................it is NOT a hard FACT to understand.........



Reviving Economics: The US CANNOT Go Bankrupt

Tell me who needs to tell you for you to "believe"????

I'm sorry that you don't seem to understand the difference between "broke" and "having no currency". There is a difference and "I can't believe intelligent people can't see the difference.........baffling............it is NOT a hard FACT to understand....."

[Sagitta]

...

One last post, then I'm out of here.

If the government mailed every income earner in the US $10,000 and just created that money out of thin air instead of taking it from the Federal Reserve, pretty much everyone will go out and spend that cash on Stuff. Be it a car, or electronic goods, or whatever, you'll suddenly see a huge rush on goods across the country. Demand for EVERYTHING will go up because everyone has this magic money that was created out of thin air.

Suddenly, goods on the shelves start going thin, fast. Next step? Retailers jack up prices due to the laws of supply and demand.

Your average retailer has now jacked the prices up to compensate. Congratulations, that $200 cell phone now costs $250, that $2 loaf of bread costs $2.50, that $20 an hour wage is now equivalent to $16 an hour because the cost of everything jumped up 20%.

This is pretty much the textbook definition of inflation and is why you can't just crank out money without something backing it up besides just saying "because we can".