The coin lives on.
Far from being a gimmick, having the U.S. Treasury mint high-denomination coins is a solution that cuts to the root of America’s financial problems. And Benjamin Franklin would have liked it, too.Yes!
The Trillion Dollar Coin: A Debt Solution for the People
Ellen Brown
(h/t Dan Lynch in MMT Deficit Owl USA Committee at FaceBook)
Ellen handwaves a bit in explaining the existing system of creating money in a sentence or two, but it's no big thing. Otherwise, good framing of the issues and citation of expert opinion. Word is getting around.
BTW, props to Ellen for first noticing the potential of coin issuance.
19 comments:
We have been brainwashed into thinking that it makes more sense to do this than for the government to simply create the money itself, debt- and interest-free.
One thing I don't understand about the debt-free money folks is that they always seem to assume that if we didn't have commercial bank intermediation of the process of supplying money to the economy, money would always be introduced debt-free.
Suppose for the sake of argument that we had no commercial banks at all, just a single government-run central bank. There would still be two ways in which the government could inject money into the system: the Treasurer could spend it, or the central bank could loan it. The second channel would thus not be "debt-free" money.
Does anyone think we could have a viable system in which the only channel the government uses is the Treasury spending channel? How would that work? Certainly Treasury spending could be a major factor, and more important than it is now. But there is no way in which you could have a system in which every single person who wants to start a business, or invest in the purchase of resources, simply gets free money from the Treasurer as a a debt-free transfer payment. The government would still want to lend some money into the economy as a way of maintaining discipline over the process of capital development
Even if the loans were interest-free or subsidized so as to carry negative interest, the process would not be debt-free so long as the recipient was required to re-pay all or most of the principle.
The debt-free money camp responds that lending, whether by private or public banks, should be 100% from stocks of previously-issued money. So the guy who wants to open a pizza shop either has to use his own savings, or effectively borrow from the pooled savings of others.
But I don't at all see why this is at all a good idea. It seems to me like a recipe for stagnation. A system in which the injection of new money into the economy occurs at the point where a reasonable entrepreneurial idea meets an agent of the government who is authorized to make a loan strikes me as a good way to do things, whether that agent is a commercial banker or an employee at a government lending office.
Dan, I think the issue is "no-bonds."
Yes, this is a big point of contention with Cullen where he claims that this road (no-bonds) inevitably lead to total nationalization of banking industry. I must say that I see merit in his argument that the govt would want to supply bonds to stabilize the banking system and prevent bubbles caused by savers moving into alternative risky instruments, but I still do not see why private banks would still not be in business of lending to individuals and corporations. Hard to discus it with him as he gets hot really fast - I think some MMTers really got under his skin at some point - but I would like to think it thru.
It's interesting that in the Frances Coppola discussion below she suggested that the current facts of the banking system support the logic of nationalization. Risk is already nationalized, etc. The problem with nationalization is political. My impression is that her take on the money system as a whole is more conservative than MMT in some ways.
The strongest point the "debt free money camp" makes is about direct spending into the economy. MMT holds that bond financing of deficit spending is not functionally much different from "printing money" and spending it into the economy. Yet the impression remains strong among the general public and among the vast majority of the economists that the government must borrow its own money. Money which must be "paid back with interest," etc. To understand the MMT view requires a more subtle understanding than the basic idea of monetary sovereignty itself.
It's the lack of transparency that has causes such a fuss. Why not spend the money into existence - debt free - and then issue bonds as a savings tool after the fact and by the FED not the Treasury.
"An attorney named Carlos Mucha, who at the time was blogging under the pseudonym “ Beowulf ,” proposed issuing a platinum trillion dollar coin to capitalize on this loophole, after he heard me mention the trillion dollar coin in a Thom Hartmann interview."
Dan, I think the issue is "no-bonds."
That's part of it Tom. But the main talking point of the debt-free money groups, as I read them, is that they don't want the banks "creating" money, and especially dislike the idea that the way the money is introduced in the process of making loans. If you look at Ellen's Web of Debt site you will see that that is the headline concern.
MMT holds that bond financing of deficit spending is not functionally much different from "printing money" and spending it into the economy.
Right, especially in the current system with interest on reserves. Whether the Treasury issues an interest bearing bond, or creates dollars and sends them into the economy where they earn interest in reserve accounts, it's the same thing. And remember that a good part of the reason why the banking system is able to pay interest on household savings balances is because the government is itself continually supplying interest payments to the banking system.
I think the public banking option is definitely something that is worth exploring, but I don't think that this will lead to a system in which money is introduced debt-free. Even if the government stops issuing interest-bearing notes itself, I suspect it would continue to inject a large proportion of newly-created money into the economy via lending.
Also, the debt-free money folks often seem to be grounding their arguments in older 19th and early 20th century arguments about banking that preceded the creation of the FDIC.
L.Randall Wray:
What Should Banks Do? A Minskyan Analysis
http://www.levyinstitute.org/pubs/ppb_115.pdf
Warren Mosler:
Proposals for the Banking System
http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html
Scott Fullwiler:
How the Crisis Has Changed the Economic Policy Paradigm
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1658234
Bill Mitchell:
Nationalising the Banks
http://bilbo.economicoutlook.net/blog/?p=12077
James Galbraith:
Statement of Professor James K. Galbraith to the Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, US House of Representatives
http://www.levyinstitute.org/publications/?docid=1165
Eric Tymoigne:
Financial Stability, Regulatory Buffers, and Economic Growth
http://www.levyinstitute.org/publications/?docid=1333
William Black:
Those Who Forget the Regulatory Successes of the Past are Condemned to Failure
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1536531
Michael Hudson:
Reforming the U.S. Financial and Tax System
http://michael-hudson.com/2011/11/reforming-the-u-s-financial-and-tax-system/
Steve Keen:
Manifesto
http://www.debtdeflation.com/blogs/manifesto/
Jan Kregel:
Beyond The Minsky Moment
www.levyinstitute.org/pubs/eBook_2012.pdf
Cullen's concern regarding debt free money is interesting, but speculative too. It's obvious that his displeasure with all things MMT is coloring much of his outlook on this. He certainly will give no quarter to the anti rentier class of thinkers, which surprised me. I'm not sure if he's done a 180 on that score too?
Cullen seems to want much stronger regulation of the banking sector, which is a good thing, but does it alone do enough to move us out from under our present economic malaise? Wouldn't a tightening of the regulatory screws by themselves actually make things worse at this juncture? I do see that as a partial solution, coupled with, say, marginal tax rates at apprx. where they were when banks were leaner and meaner back before Reagan. That, however, would see rates hover in the 70% range for the very wealthy. Perhaps the two (high marginal rates and strict banking oversight) are inseparable? Not sure Cullen and his ilk would go along with that proposal, however. Too much dreaded MMT influence I suppose.
Adam1 Why not spend the money into existence - debt free - and then issue bonds as a savings tool after the fact and by the FED not the Treasury.
The important thing in my view is perception. The perception now is that govt musst tax or borrow to fund itself and, of course, that is not the case under the existing monetary system. The law is contrived to create this false impression, presumably to further rent-seeking.
So what is needed is to break that perceptual link. A good way to do that would be to go to direct issuance by Treasury of $NFA, ending the deficit offset with tsys debt issuance, which is just an indirect way of doing direct issuance when all the veils are stripped off.
Then "bonds" could be issued on demand as term deposits at the Fed in unlimited amounts and various durations, filling the need for "safe assets" by setting price and letting quantity float. The Treasury already makes this option available at the retail level with E/EE bonds.
Thanks MMT Information Service. Promoted to a post.
This platinum coin cartoon is outstanding.
http://imgur.com/htYO5
Not only does it apply to the coin but to the entirety of Keynesian excuse-making for the surreptitious stealing of purchasing power in all of its ghastly permutations. Further, the reaction to the coin proposal proves my suspicious that our present-day eager-beaver Keynesians and MMTers do not understand that the whole funny money regime is a scam that is supposed to remain obscure, mysterious, unintelligible and boring for average people. The coin proposal made the scam transparent and hilarious. Keep it up.
Bob, don't you have to go and build a survival shelter or something?
Mike Sandler at the Huffington Post - The Trillion-dollar Coin's Week of Fame
Quote:
Is the coin forever vanquished? Don't be so sure.
The trillion-dollar coin is a powerful meme because it is grounded in an understanding of how the monetary system actually works. Even coin detractors were often forced to recognize the validity of the coin's premise, if not its broader promise. So watch out: As the Vatican learned with Galileo, the truth has a way of resurfacing. Be on the lookout for debt-free, interest-free money, coming soon to a country-needlessly-plunged-into-recession-by-austerity near you.
Links to Joe Firestone
Thanks, Clonal. Promoted.
@Tom, absolutely agree.
While there is nothing operationally wrong or limiting in the current process it leads the average person to think just the opposite. It needs to end to end the perception. A year ago I would have just said educate everyone. Today I think bond sales need to end.
For the record, I'm not opposed to banks creating money as credit and lending it into the economy. That's how individuals who don't have the sovereign right to issue money, and don't have wealthy parents, have to start out in life. I tried to be clear that by "debt-free" I meant debt-free to the government. There is no need for governments to borrow when they can issue.
I agree, it's a question of perception: everyone is terrified of imposing a massive "public debt" on our grandchildren. It's not just a matter of semantics; it actually changes our lifestyles and well-being. Fear of the growing public debt is used to justify cutting back on all sorts of necessary services, and for failing to pursue opportunities we could pursue if we were confident the money was there.
Thanks for coming by and clarifying that, Ellen. That's what I had assumed.
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