Thursday, May 4, 2023

US Treasury Can Print $1,000,000,000,000 Coin To Pay Bills, Avoid Debt Ceiling Crisis — Economist Paul Krugman

Krugman backs the coin. Very short post.

Daily Hodl 
US Treasury Can Print $1,000,000,000,000 Coin To Pay Bills, Avoid Debt Ceiling Crisis: Economist Paul Krugman
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31 comments:

Peter Pan said...

That a Dem is in the WH is purely coincidental.

Konrad said...

The US Treasury can create trillion-dollar coins, but it can’t create money out of thin air like it always does. Got it.

The fake “debt ceiling crisis” is like a “crisis” over how many unicorns we can imagine.

Matt Franko said...

It’s not unreasonable to have Congress approve of the aggregate amount of government securities that are issued…

Matt Franko said...

What is unreasonable is that Congress is composed overwhelmingly of Art degree morons who think “money!” is real and they can run out of it…

Matt Franko said...

Popularly elected GOP Congress doesn’t want to approve of additional UST issuance which would finance certain Democrat fiscal priorities…

Too bad Democrats…

NeilW said...
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NeilW said...
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NeilW said...

I've never understood the fascination with the coin. If the Fed is belligerent then they will reject the face value of the coin and just discount it at the bullion value - because the value of the coin depends upon there being sufficient reserves in the TGA to cash it - just as with Notes.

If it then came to a court battle the Republican Supreme Court would back the Fed's discount, and the Fed's explanation that it is *their* money that is actually US dollars - because that's what the Federal Reserve Act implies.

If the Fed isn't belligerent then they will always cash a Treasury order to pay - even if that means the TGA going overdrawn. Because if Congress ordered that X is spent, and Y is issued in bonds, then X-Y will end up as a Fed overdraft.

From an MMT point of view we want the 'empty chest' argument to die. It seems to be that reading 'futurity' into the Federal Reserve Act clauses is the correct approach. The language imposes no timeframe on the deposits the Treasury can draw upon. Therefore future deposits are up for grabs.

Matt Franko said...

“ From an MMT point of view we want the 'empty chest' argument to die.”

You can’t correct a reification error with another figure of speech…

iow MMT thesis “the chest is not empty “ is just another figure of speech…

I’ve had substantial training in Accounting Science for a non Accounting major and there was never any “chest!” mentioned… empty or non empty..

Various accounts were debited or credited… had positive or negative balances…

Matt Franko said...

https://www.rasmussenreports.com/public_content/lifestyle/general_lifestyle/november_2022/most_parents_oppose_drag_queen_story_hour

“ The latest Rasmussen Reports national telephone and online survey finds that 60% of American Adults consider “Drag Queen Story Hour” not appropriate for children, including 44% who say it’s Not At All Appropriate. Only 29% think “Drag Queen Story Hour” is appropriate for children, including 11% who consider it Very Appropriate.”

So eg if GOP does not want to fund the politically unpopular Pedocrats sexualization of children by limiting the UST issuance which would finance it then there is nothing wrong with that.. Pedocrats will have to prioritize fiscal spending between their pedophilic grooming operations and other federal spending until either party again achieves unanimous control of government institutions…

It’s not the end of the world next election less than 2 years away…



NeilW said...

Well there was a chest when the US left the British empire, and they still don't appear to have got over it.

Ours was burned in 1834.

There is no chest *is* the MMT argument. There are just orders to pay which the central bank either executes or refuses. It is then up to the courts to decide if they have the legal authority to refuse the order.

Biden ought to just tell the Treasury to write the checks and dare the Fed to refuse to execute them - then settle it in court.

hoonose said...

Please correct me if I'm wrong.
It is the Executive/Treasury that mints the coin.
And the coin is deposited into perpetuity at the Fed.
Meaning the value of the coin is exactly and always $1T.
So $1T is forever subtracted from the National Debt number. For each coin minted.

Tom Hickey said...

@ hoonose

Yes, but the proceeds are only subtracted from the National Debt number if they are used to redeem part of the existing debt. The Fed would credit the TGA for the proceeds of the "the coin" and then debt the TGA for debt redeemed. To the degree that the proceeds are used for new spending, then the total amount of debt contributing to the limit would remain the same.

It's just a matter of the accounting. "The coin" functions similarly to a security issued by the Treasury when spending exceeds revenue. "The coin" is deposited with the Fed and the proceeds are credited to the TGA, which can be used to redeem existing debt or for spending. When spending exceeds revenue, the Treasury issues securities that the Fed sells into the market through its auctions involving primary dealers only. The Fed is not permitted to "monetize the debt" by buying Treasury securities directly.

While there are institutional arrangements in place for the Fed buying and selling securities, this cannot have the appearance of debt monetization. So "the coin" is a workaround for this rule, along with the debt limit rule. These rules are not universal to central banks but rather are particular to the US.

The Fed credits the TGA with the face value of the coin, which is established by the issuer, that is, the US government through the agency of the US Treasury. The face value is the number impressed on the physical token, just like the numbers on FR notes.

Coins have a different cache from paper bills. While now coins are just slugs, previously they were precious metal less the soverefeignnty. This gave coin the appearance of being "real." It's likely where the reification of "money" arose.

So "the coin" is "money" (good) whereas a security is "debt" (bad). Treasury issuance of coin is "coining money," that is, currency issuance. The Treasury issuing securities is debt, regulated by the debt limit. And paper tokens are not regarded as "real" or "real money" — just "funny money" if not backed with PMs

This is all semantics. I call this kind of thing "ledgerdemain" (pun on "legerdemain").

But my impression is that "the coin" is also significant for those who reify "money." The coin is a tangible thing. So it really is legerdemain of a sort. People feel this is the case but seem to be mesmerized by the physicality of the token.

This is all about institutional arrangements, and accounting procedures and standards are one aspect of this. Significantly, Rohan Grey is now spearheading this and he is a law professor.

The only legal pathway for challenging this that I have seen expressed by lawyers is based on an argument that using the law in this way is not consistent with the intention of those who passed it. This would be a matter for the courts to decide if it comes down to this.

Tom Hickey said...

@ Neale

Biden ought to just tell the Treasury to write the checks and dare the Fed to refuse to execute them - then settle it in court.

The US lawyers I am reading say Biden should just direct the Treasury to continue as usual, ignoring the debt limit. There is no remedy other than impeachment and removal.

Here Bien would have the political advantage of arguing that the opposition to his doing so is OK with undermining the public debate (contra the 14th Amendment) and potentially harming the economy.

Tom Hickey said...

@ Neil

Oops, sorry about the name mix-up. Senior moment. Actually, it is kind of funny. I have a good friend named Neale and recently addressed him as "Neil."

Matt Franko said...

Without UST issuance to drain the reserves any cash basis deficit spending would cause USD savings to accrue as bank deposits with corresponding Reserve asset increase at the depositories causing another 2008 type crash from too many reserve assets..

Banks don’t have enough capital to support an additional constant accrual of 150b/month of reserve assets if USTs are not issued to drain the reserves being net spent out of the TGA…

The whole thing is Art degree morons running amuck who can’t figure it out…

We have to get rid of the Art degree morons as job #1…

NeilW said...

Banks can always create more capital by converting some of those deposits into capital notes. The only question is at what price.

Since the Fed is trying to do a capital squeeze anyway with its rate rises, arguably it achieves the same end.

sths said...

The main problem with the 'coin' is that it's a tactic of appeasement. The proponents are trying to appease the 'we can't print money' crowd by using technicality. This will never work because appeasement is only effective where two people have a fundamental respect and likeness of each other but only disagree on an issue. If one person sees the other with contempt and wants to kill them, appeasement is pointless.
There is no point debating the coin because 'the other side' will never ever ever allow it.

NeilW said...

"The Fed credits the TGA with the face value of the coin, which is established by the issuer, that is, the US government through the agency of the US Treasury. The face value is the number impressed on the physical token, just like the numbers on FR notes."

There's nothing I've seen in the US law code that requires that to be the case. The power to do that - when there is nothing in the TGA to back it - would have to be established.

The belief - which isn't the case - is that 'Fed dollars' and 'Treasury dollars' are the same thing. They're not. That relationship works by exchange not conversion, and isn't one-to-one. Treasury bills sell at a discount to face value in Fed dollars. If there is nothing in the TGA to allow the holder to sell Dollar bills and coins back to the Treasury in return for a Fed credit, then the same will start to happen to Notes and Coins.

MMTers might wish that there is a solid peg between Treasury and the Central Bank, but mainstreamers see that as where the true floating exchange rate sits.

Footsoldier said...

It's just a one party nation state thing.

So that when the ruling class decide between themselves which path they are going to take and fuck the rest of us. The fringes can't intervene.

See Liz Truss budget for details.


Nothing more than a smoke and mirrors control mechanism that a bunch of unelected technocrats can keep the unelected ruling class in charge. The EU has its own version of it called the treaties.

Geopolitics and world domination is the only game in town. It is what the ruling class wants. Just like the gilded age when they expanded West wards and chased the native Indians off their land.

Nothing has changed since the days of the 5 corners and the gangs of New York apart from how sophisticated the next scam the ruling class introduced to keep their power.

There's no left or right it is all about class. Left or right is for those at the bottom of the class structure. To make them fight and stay divided.

Footsoldier said...

In a nutshell, at the end of the 17th century, and in the 18th century, the British improvised a series of changes in the way their money worked that put private investors in charge of money design and that change had huge ramifications. On the one hand, it broke through old constraints on the amount of money in circulation. At the same time, it elevated the rights of creditors in new ways. And that really restructured governance and the economy.

Everything after that is just noise. The lower classes shouting in classrooms.

John Locke’s intervention changed everything

https://moneyontheleft.org/2021/01/01/money-as-a-constitutional-project-with-christine-desan-2/

in the medieval world, usury, or making money for profit and making profit on money, was considered a vice and a sin. Greed was a sin. It was the office of the church that tried to suppress human motivation for greed and self serving profit.

The advent of circulating public debt is a critical moment in which we change the governance structure of a community and begin to prioritize creditors, use investors as an intermediary, and basically delegate great political power to that group. Along the way, the innovation of public debt underscores and reinforces different ways of thinking about individual self interest and individual profit and the way the individual connects with the government. Locke introduced that thinking.

Monetary silencing is about excluding people from knowledge of monetary institutions and turning them into mere money users and consumers–people whose knowledge doesn’t go beyond using a credit card, depositing a check, or knowing where to get money from a pay-day lender. It’s about silencing anything that comes close to a structural vision.

https://moneyontheleft.org/2019/09/13/money-politics-before-the-new-deal-with-jakob-feinig/

In November 1637, the Massachusetts government declared wampum legal tender. A few months prior, one of the worst colonial massacres occurred at Mystic river, where the English, together with their native allies, killed 400 Pequots within a half hour. Now, there are different interpretations of that event and of the Pequot War in general. To give you a little context, at that time, wampum was first used by natives. The English would buy it first from natives and then export it back to Britain in payment of debts.

Footsoldier said...

It’s a form of shell beads manufactured by natives. They were used in trade and in payment of some local taxes by the colonists. It’s a very labor intensive process to produce wampum. It needs to be drilled. In some histories, wampum is seen as this nice currency that connects settlers with natives. It’s viewed as a symbol of coexistence and mutually beneficial exchange. When in fact, it was a way of organizing trade on a very large scale to the sole benefit of settlers. The English called the Pequots “mint masters” because they were the main group that produced wampum. They could make wampum scarce and expensive. And they were also potential competitors in the fur trade. Because, since they produced this currency, Pequots could buy fur from inland natives themselves.

After the colonial massacre, the Europeans levied a wampum tax on surviving eastern Pequot. They imposed all kinds of fines and forced them to deliver tribute. That meant, from now on, they had a free and plentiful money supply from the group that had formerly controlled the production of the currency. The English made it legal tender status, which meant they could organize local exchanges and pay down taxes in it. This was all based on one violent event, but also on the ongoing threat of violence in the case of not paying tribute. I begin the manuscript with this episode because I write mostly about white men’s moral economies–their understanding of monetary justice and political practices. Many histories of money in the U.S. and North America start with colonial paper money, overlooking the fact that the first legal tender was based on settler colonial violence. So it’s an attempt to not idealize American monetary history by talking about unspeakable settler colonialism.


Nothing's changed apart from the sophistication the upper class now uses. Of course how the EU and the treaties and the US rules based order were born. Same shit different century.

Footsoldier said...

70 years is nothing but a blink of the eye.

The ruling class don't give a shit about left or right or the shouting in classrooms. As long as the shouting benefit them. Then they'll run with it.

Any descent dies. The ruling class just simply wait it out and why breeding is very important. Their off spring get a whole different set of skills than the rest of us. Removed from the rest of us at birth.

We live in their version of democracy, not our own and how we would like to live. They do whatever they like as we all die in the blink of an eye.

War and revolution is the only way to take their power away anything else is farting in the wind. Being consumed by the class room or voting charade and trying to educate a bag of spanners with MMT when the whole bag of spanners are so unbelievably dumb. Is a complete waste of one's life. There are a million better ways to live a blink in the eye.

Wake me up when we start bombing and shooting the ruling class. As every tyrant in human history clearly understood. This is the only way real change happens.






Peter Pan said...

Footsoldier is genuinely woke. Good for you!

Footsoldier said...

I'm where I have always been and never moved. Watched how the political spectrum moved further and further away from me. Pushed so far from where I am standing by the ruling class and cheered on by bags of spanners.

Apart from picking up a gun and starting a revolution there is absolutely nothing I can do about it. So live my life accordingly.

Old enough to now fully recognise that you can't help the bag of spanners. That is an impossible task like herding cats. They were broken as children by mass psychosis in education camps from the age of 5.The majority Will defend the system that broke them until the day they die.





Peter Pan said...

From cat herders
https://youtu.be/m_MaJDK3VNE

to modern day spanners. How far we've fallen.

Matt Franko said...

“ Banks can always create more capital by converting some of those deposits into capital notes.”

That is not part of any proposal…

Matt Franko said...

“ Biden should just direct the Treasury to continue as usual, ignoring the debt limit.”

That’s going to soon lead to regulatory leverage violations unless the depositories start to refuse the additional deposits of USD savers and instead refer the would be USD savers to a MMMF to go to the RRP…

Adam1 said...

“There's nothing I've seen in the US law code that requires that to be the case.”

Neil I am pretty sure you are wrong. The FED has no legal power to discount a US government issued piece of currency.

Federal Reserve Act, section 10, subsection 6: “Nothing in this Act 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.”

The face value of a platinum coin, per the Congressional Act authorizing it is at the discretion of the US Treasury. The FED can’t over rule the US Treasury and even if it’s just considered a conflict the US Treasury wins anyhow.

And for those who like the 14th Amendment approach, since US money is really a liability to the US Treasury (US Government) therefore discounting it would likely be an outright violation of the 14th Amendment. In addition, the wording in the 14th Amendment was meant to protect the government in direct relation to all of the Greenbacks issued during the US Civil War. It was meant to give the US government the option to pay back US Treasuries issued during the war (with a promise to pay them back in gold) the option, which I don’t believed was ever used, to pay them back in Greenbacks.

NeilW said...

"The FED has no legal power to discount a US government issued piece of currency."

The Fed also has no legal power to refuse an order from Treasury to pay - when backed by act of Congress to make that payment.

The Federal Reserve Act is very clear that the Fed "shall act as fiscal agents of the United States". It's also the older act, and the doctrine of implied repeal applies.

Therefore they have to make the accounting add up. And the way they do that is debit the TGA, credit the payee bank's reserve account, then debit 'Bank Capital' and credit 'Doubtful Debts'. The TGA account balance becomes a 'contingent asset'.

The appropriation acts have already been read by the courts to include 'futurity'. There is no reason the payment clauses won't be read in that way either.

Otherwise the Fed has the power to override an act of Congress - making it the Supreme Court.

The courts are very good at interpreting conflicting instructions of the legislation and the constitution. If Congress has said spend X and issue Y Treasuries, then X-Y will end up as either an overdraft or 'negative capital' at the Fed, until Congress resolves the mismatch.

NeilW said...

"That is not part of any proposal…"

That's how bank's work Matt. When they need more capital, they sell notes and delete the deposits that pay for them.