However, you could be right and Fed allows Treasury to use the coins to pay off $2 Trillion in Treasury bonds (has the Fed really bought up that much in Treasuries?!). Then the Treasury could issue the bonds again to borrow another $2 Trillion without affecting the money supply, but rather increase total amount amount of debt without increasing the total amount of Treasury bonds issued that is legally limited by the “debt ceiling”.

I suppose, but can the Fed really keep the $2 Trillion coins on it’s balance sheet forever? The Fed used to keep less than $1 Trillion in assets on its balance sheet TOTAL, before the financial crisis in 2008. What happens when the Fed needs to pay down some of its liabilities, when banks get to the point they aren’t leaving huge reserves in the Fed system? What does it do with the coins then? The Fed has to have some liquidity too. Doesn’t it have to either circulate the coins at some point or have the Treasury go ahead and print up some new paper bills for the Fed to use (increasing the money supply at that point), or use the coins to buy more Treasury bonds later after the debt ceiling is raised (at which point the Treasury would need to destroy or hold the coins forever, if they are not going to affect the money supply). In this latter case, all the coins did was temporarily side-step Congress raising the “debt ceiling” (even though the debt was still increased).

Ultimately, we are either talking increased debt or increased inflation (or both) until Washington gets serious about reducing planned levels of spending.

astonerii on December 9, 2012 at 6:22 PM

Perhaps a little too educated. And not nearly as smart as he is educated.

It destroyed the savings of the middle class, created massive poverty and a flight from German currency, and set the stage for the takeover by the Nazis a few years later.

You say that like it’s a bad thing…… /s

Seriously, that’s their plan. They want that to happen. Though, they’re already a lot further along without that level of economic woe than the NAZIs were.

jd3181 on December 9, 2012 at 4:47 PM

Are you even remotely educated?

As long as all the Fed did was give back the treasury bonds and did not circulate the coins, and as long as the treasury and Fed treated the coins as equivalent to the treasury bonds they were swapped with, there would literally be no change in anything that circulated. Inflation wouldn’t go up, because not one person would have one dime extra to spend on one product (other than the Fed, which in this scenario wouldn’t let the coin out of a vault).

There IS a limit to this, however. This can only happen with absolutely no effect as long as the Fed has treasury bonds it can swap with these coins. And that can only happen up to the value of the Fed’s current collection of treasury debt (which is several trillion at the moment). Once the Fed runs out of existing treasury debt to swap with these coins, then the Fed would have nothing to swap, and it would have to give cash to the government (which as you point out, would circulate and could cause inflation once used by the treasury to pay bills).

At some point Americans are going to have to realize that our form of Government is failing and that the Federal Government is simply a bad Government. Better, maybe, than say the Government of Iran, but still very bad. When did this happen? How did this happen?

Many of our State Governments are as bad or worse than America’s bad Federal Government. Look at California, Illinois, and most other Democrat states. Terrible, anti-prosperity high-tax states. But the fools keep voting for it. Our system of Government is failing. Or has failed.

Any ‘economist’ that gives this theory any credence should forever have their statements on the subject memorialized and repeated whenever their name is mentioned in public.

In theory, this is much like having the central bank print money. But, Gagnon said, the U.S. government would simply be using the money to keep spending at existing levels, so it would not create any extra inflation. And if it did cause problems, the Fed could always counteract the effects by winding down some of its other programs to inject money into the economy.

Isn’t this exactly what they did to create the real estate crisis? They manufactured a bunch of new debt and injected it into the economy, poisoning the market because it was hopelessly mixing debts that were going to be repaid with debt that couldn’t possibly be repaid. All those mortgage-based investments became worthless, just like our dollars will be.

What is being suggested is that a loophole has been found to make the debt ceiling irrelevant. Instead of borrowing money, we print it, and therefore the debt doesn’t go up. Suppose that is true, it just means that Obama has found another way to steal power from Congress. He wouldn’t have to press for Congress to allow him to raise the debt ceiling as part of the fiscal cliff negotiations. He would just claim that power through this platinum coin loophole.

But no one should pretend that the money supply is not being increased the moment Treasury uses the money from the Fed to fulfill debt obligations, and that inflation is the ultimate result.

Before the coins, they would have had to borrow more money by selling bonds, which would have taken those dollars out of circulation. Those same dollars would have turned around and been used to pay off obligations. Money was pulled out of circulation, and then pumped right back in. No increase in the money supply.

With the coins, the Treasury would not sell bonds and take any dollars out of circulation first. Instead, they would use the declared value of the coins to pay obligations, sending dollars out the door. No money was pulled out of circulation, and then money was pumped into circulation, obviously increasing the money supply by the amount of obligations payed.

So in the end, it is not any different than printing greenbacks and giving them to the Treasury. It is just printing money, which WILL devalue the currency and result in inflation.

What is inflation? A general increase in the price level. What causes prices for goods and services to go up? An increase in demand for said goods/services, or a decrease in supply.

What does the creation of a trillion dollar coin (to exchange for the Fed’s current massive pile of treasury holdings) do to the demand of goods and services? Nothing, unless the Fed allows it to circulate. The Fed will just leave it in a vault, in place of an equivalent amount of treasuries. Whether that vault contains a 1 trillion dollar treasury bond or a 1 trillion dollar coin does not affect inflation. The distinction in chemical compounds of an item in a vault at the Fed does not cause demand for goods or services to skyrocket, or supply of such goods and services to decline.

The ONLY thing this does is allow the President to ignore the debt ceiling in a 100% legal way (as long as the Fed does not circulate the money from the coin).

In theory, this is much like having the central bank print money.

We’ve passed the point of no return when a journalist can write that sentence without elaboration.

“In theory”, this is much like having the central bank print money. In reality, it is having the central bank strike money.

But, Gagnon said, the U.S. government would simply be using the money to keep spending at existing levels, so it would not create any extra inflation

So the WaPo is literally suggesting without comment that creating a currency bill made of metal would not create inflation, which is a good thing because creating a currency bill made of paper would.

but the overall tone is, “look how ignorant these ‘low information voters’ on the other side are.”

Alpha_Male on December 7, 2012 at 11:08 AM

Some things are just spot on. When the Dems under Bush controlled the House and the press was trying to blame the repubs for everything they found the majority of Dems thought the GOP ran the House. So yes sometimes these vids buttress the thoughts that dems are ignorant.

You can make your political arguments and still be truthful.

Alpha_Male on December 7, 2012 at 11:21 AM

Yes, it can be done. Try it for once.

rplat on December 8, 2012 at 7:32 AM

I appreciate you giving me something to live for.

StevenCrowder on December 7, 2012 at 12:32 PM

Steven, not sure I ever saw you post here before – good to see you; excellent work as always.

You know it and I know it but does Alpha Male know it? May I point out that that is obviously a name picked for irony since all he ever does is whine like a girl.

Cindy Munford on December 7, 2012 at 11:05 AM

Good one.