Laurence Kotlikoff — The Treasury Has Already Minted Two Trillion Dollar Coins

...substitute a $2 trillion piece of paper called a Treasury bond for the platinum coin. Suppose the Treasury prints up such a piece of paper and hands it to the Fed and the Fed puts $2 trillion into its account. No difference right, except for the lack of platinum.

Next suppose the Treasury doesn’t hand the $2 trillion bond to the Fed directly, but hands it to John Q. Public who gives the Treasury $2 trillion and then hands the bond to the Fed in exchange for $2 trillion. What’s the result? It’s the same. The Treasury has $2 trillion to spend. John Q. Public has his original $2 trillion. And the Fed is holding the piece of paper labeled U.S. Treasury bond.

Finally, suppose the Treasury does this operation in smaller steps and over five years, specifically between 2007 and today. It sells, i.e., hands to John Q. in exchange for money, smaller denomination bonds, which Johns Q. sells to the Fed, i.e., hands to the Fed in exchange for money. Further, suppose the sum total of all these bond sales to the public and Fed purchases of the bonds from the public equals $2 trillion. Voila, you’ve got U.S. monetary policy since 2007.

In 2007, the monetary base – the amount of money our government printed in its 231 years of existence totaled $800 billion. Today it totals $2.8 trillion. And it increased by this amount via the process just described – the Treasury’s effective minting out of thin air two $1 trillion platinum coins.

Yahoo! Finance | The Exchange
The Treasury Has Already Minted Two Trillion Dollar Coins
Laurence Kotlikoff | economist at Boston University, co-author of The Clash of Generations, and President of Economic Security Planning, Inc.
(h/t Clonal Antibody in the comments at Monetary Realism)

Props to Laurence Kotlikoff for pointing out that coin issuance and bond issuance are essentially the same in outcome operationally, that is, they provide the Treasury with reserves to settle deposits it creates in non-government accounts through expenditures and transfers. Note that Treasury only "spends" what has already been approved through the appropriations process and commitments made through the various agencies. The Treasury is not authorized to add to spending itself.

Except that in issuing interest-bearing securities the Treasury is providing safe assets to the private sector, which it pays the private sector a premium to hold. Since this premium is not required operationally, it constitutes a special interest subsidy that is unnecessary. Enquiring minds wonder why it exists at all, since the high liquidity of Treasury securities does not reduce the propensity to spend, i.e., "sterlize" the bank reserves created by Treasury expenditure.

Issuing Treasury securities made sense under a convertible fixed rate monetary system such as the gold standard, but it is no longer needed under modern monetary system that uses non-convertible flexible rate sovereign currencies. It is now an obstacle that limits policy space and a subsidy with dubious justification wrt to public purpose. It should be excised with Ockham's razor and replace with direct issuance of Treasury notes in sufficient amount to offset changing saving desire of consolidated non-government in aggregate but no greater at full employment, in order to harmonize growth, employment and price stability.

Considering the growing size of the interest payments to the rest of the budget, the question arises, Is this politically mandated subsidy serving public purpose, or is it catering to interest groups that profit from it inordinately due to their privileged position in society — as landowners, generally the monarchy and aristocracy, did from land rent in the agricultural era under feudalism?

Note: After showing how the coin and bond issuance accomplish the same goal in the government's self-funding, Kotlikoff goes off the rails in claiming that this is "inflationary,"

Now what happens when the Treasury spends its freebee money? It raises prices of the goods and services we buy or keeps them from falling as much as would otherwise be the case. Either way, the money we have in our pockets or in the bank or coming to us over time as, for example, interest plus principal on bonds we’ve bought in the past – all this money loses purchasing power. So we are effectively taxed $2 trillion.

Someone needs to explain to him what inflation is defined as economically, namely, a continuous rise in the price level, and how it occurs, that is when effective demand increases faster than the economy can expand to meet it. One wonders whether a professional economist is unaware of this obvious fact, or he has a political agenda.

Reading the rests of the article, the conclusion seems to be that it is political in that it has no basis in fact, unless Kotlikoff just doesn't know what he is taking about. The proof. He even throws in Zimbabwe! ROFL. He thinks that seigniorage is a sin.