Sunday, January 13, 2013

About that trillion-dollar coin

In a move that shocks absolutely no one, the Obama White House has announced that it wants nothing to do with the Trillion-Dollar-Coin.  As monetary "solutions" go, the big Coin wasn't much of an idea by historical standards.  But for an administration that can't bring itself to prosecute some of the more egregious financial criminals in history, taking on the big actors of monetary policy was literally unthinkable.  I mean, look at the presidents who actually took on the money boys—Jackson, Lincoln, FDR.  Obama has MUCH more in common with W than those three.  To take on money power, one needs both courage and a deep intellectual understanding for why it should be done.  Obama has neither.

Under ordinary circumstances, I would just provide a link to my discussion of money from Elegant Technology.  I worked very hard to write that thing and I am pretty sure I cannot top it.  But this story deserves comment for one overwhelming reason—it has opened up the subject of monetary theory to the general public in a way that hasn't happened since World War II.  This awareness is critical.  Monetary power relies on no one questioning their game.  It's why William Greider called his magnum opus about the Federal Reserve Secrets of the Temple.  It's why the so-called Nobel economics prize is actually a creature of the Swedish Central Bank (Riksbank.)  It's why the Federal Reserve exercises monopoly control over the economics profession.  The folks who create the money want total control of the conversation over the creation of money.

That control has been lost.  And once someone begins to think about a $Trillion coin, cannot more imaginative ideas be far behind?

COINTASTROPHE: White House Rules Out The Trillion Dollar Coin Option To Break The Debt Ceiling

Joe Weisenthal | Jan. 12, 2013

Stunning news from WaPo's Ezra Klein: The Treasury is ruling out the use of a trillion dollar platinum coin to break the debt ceiling impasse.

Klein writes:
That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today. ”Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” he said.
With this, the White House has now ruled out the two best options for preventing a default in the event that the House GOP refused to life the debt ceiling. The White House has been quite adamant that the other alternative (invoking the 14th Amendment) is not acceptable.

So now the stakes are high, as The White House has refused to negotiate with the GOP on a debt ceiling hike.

What bargaining chips does The White House hold? Unclear.

Klein adds another incredibly salient point about the comment he receives:
The inclusion of the Federal Reserve is significant. For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency. If they don’t believe it’s legal and would not credit the Treasury Department’s deposit, the platinum coin would be worthless.
The good news?

The whole #MintTheCoin discussion has been very helpful for teaching people economics, as was evident today on Up With Chris Hayes.

UPDATE: Via email, coin supporter Paul Krugman gives his take: "So, are they planning moral obligation coupons / scrip, are they willing to court disaster, or are they just hopeless negotiators? I guess we'll find out." He also has a full post up here.

UPDATE II: The White House has issued a very strong followup statement.

From HuffPo:
"There are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default," said Press Secretary Jay Carney. "When Congressional Republicans played politics with this issue last time putting us at the edge of default, it was a blow to our economic recovery, causing our nation to be downgraded. The President and the American people won't tolerate Congressional Republicans holding the American economy hostage again simply so they can force disastrous cuts to Medicare and other programs the middle class depend on while protecting the wealthy. Congress needs to do its job."
UPDATE III: On background, a Democratic aide in the Senate says: "it's certainly a strange negotiating strategy to go out of your way to decrease your leverage by taking options off the table." more
As I see it, the ONLY way for the Central Bankers to regain control of the narrative is to become invisible again.  And so long as the economy sucks for such a significant fraction of the population, invisibility is impossible.  The Central Bank austerity ghouls can either convert to a progressive pro-growth agenda or run the risk of losing their "legitimacy."  After all, what central banks do isn't all that hard.

Fed President Who Was Once Against More Easing Now Says Current Fed Policy Might Be Too TIGHT

Joe Weisenthal | Jan. 10, 2013

Narayana Kocherlakota is the head of the Minneapolis branch of the Federal Reserve, and he's one of the more intriguing figures in central banking.

For a long time he argued that monetary stimulus could do verty little for the economy, since unemployment was largely structural.

Then late last year he came to a shocking ideological U-Turn. He said that unemployment was cylical (meaning reflective of where we were in the economic cycle) and that more could be done.

Tonight he gave a talk that ended with this remarkable paragraph:

Congress has charged the Fed with making monetary policy to achieve two Main Street objectives: keep inflation close to 2 percent and unemployment low. Monetary policy tools operate with a lag of a year or two. These lags mean that the FOMC’s policy decisions are based on how it expects the economy to perform over the medium term. My own forecast, conditional on the FOMC’s current monetary policy stance, is that inflation will run below the Fed’s target of 2 percent over the next two years and the unemployment rate will remain elevated. This forecast suggests that, if anything, monetary policy is currently too tight, not too easy.

This is a very deep insight, although one that Milton Friedman understood. Low rates are the symptom of tight monetary policy, because they reflect the fact that inflation is so muted and sub-goal.

Given that the Fed has done all kinds of easing, the normal charge is that the Fed has been too easy. The actual record of the Fed, however, suggests the opposite, as Kocherlakota now says.  more
This links to pretty good categorization of the guys who will set monetary policy for 2013.

HAWKS & DOVES: Meet The 12 People Who Will Control America's Monetary Policy In 2013

Lucas Kawa | Jan. 10, 2013

As Chairman of the Federal Reserve, Ben Bernanke does not have absolute power over the direction of U.S. monetary policy. Rather, he must develop a consensus from amongst the differing viewpoints of the 12 members of the Federal Open Market Committee (FOMC).

And with each passing year, the FOMC gets an injection of fresh blood.
The Federal Reserve district presidents for Richmond, Atlanta, Cleveland, and San Francisco are no longer voting members of the FOMC. They've been replaced by the presidents of the St. Louis, Kansas City, Boston, and Chicago.
The Financialist, a digital magazine sponsored by Credit Suisse, has a great set of profiles on each of the voting members.

"Our review suggests the FOMC will remain decidedly dovish in 2013," they conclude. more
This is how the Fed reacted to the idea that Congress MIGHT insert itself in monetary affairs.

Here's The Letter Being Sent Around Capitol Hill About Why Congress Needs To Act To Stop The Trillion Dollar Coin

Joe Weisenthal | Jan. 10, 2013

On January 14, Greg Walden, the GOP Rep. who has said he would introduce a bill to ban Treasury from minting a trillion dollar coin will introduce his bill, the "Stop The Coin Act."

His office is seeking co-sponsors for the legislation.

Staffers on Capitol hill have received this letter.
Staff- Rep. XXXXX invites your boss to join him as original cosponsor of a bill to prevent the Treasury from issuing a platinum coin(s) valued at an absurd level in a scheme to pay off a portion or all of the federal debt in order to avert the fiscal cliff. Yes, this loophole does in fact exist as detailed in the following dear colleague letter and attached one-pager. XXXX will be introducing the bill with original cosponsors next Monday, January 14. Attached is a one-pager. If you have questions, my direct is XXXXX If your boss would like to join, please let me know.
Here's the attached "one-pager" that's being sent around in order to drum up support:
The Constitution in Article 1, Section 8, Clause 5 provides the legislative branch the power to coin money and regulate the value thereof. Federal law provides the Secretary of the Treasury the ability to mint and issue various denominations and types of coins. The law specifies many attributes of the various coins that can be minted and how the Secretary is able to issue them as legal tender. The law also specifies how the sale price of certain coins (i.e. Silver, Gold, Palladium) are to be valued. Currently, federal law allows the Secretary of the U.S. Treasury to mint “platinum bullion coins” and “proof platinum coins” and issue them at a value determined at his own discretion. Unlike other authorities within the law that limit and restrict the Secretary from selling gold coins to the public at a price greater than the market value of the metal at the time of sale plus the cost of producing, marketing and distributing the coins, the law is silent as to how much the platinum coins could be sold for. Within the last week, numerous media reports (example here ) have suggested that the U.S. Mint (Treasury) could create trillion dollar platinum coins, which would then be deposited into the Federal Reserve to be used to pay the federal government’s bills or avoid hitting the debt ceiling.

Purpose The STOP THE COIN ACT would prevent the Secretary of the Treasury from minting platinum coins that could then be sold to the Federal Reserve and used to offset our national debt or prevent reaching the debt ceiling. The bill simply closes a loophole in the law by applying the existing limitations on how the Treasury could price gold coins or gold bullion to the Treasury’s authority to mint and sell platinum bullion coins or proofs platinum coins. This bill would not prevent the Treasury or Mint from producing commemorative platinum coins for circulation or sale, but it would take the coin scheme off the table by disallowing the Treasury from printing mint platinum coins as a way to pay down the debt or avert a debt ceiling fight. Rep. Jerrold Nadler, the ranking member of the Judiciary Committee’s Subcommittee on the Constitution, touted the proposal last week (story here ). New York Times columnist and Princeton professor Paul Krugman suggested the idea in an article as well (click here ). Other leaders in Washington, including House Minority Leader Nancy Pelosi, have urged the President to raise the debt limit unilaterally without permission from Congress.
Of course, there's zero chance this will ever pass both houses, but if it did, it would also need the President's signature. Presuming he ever planned to actually MintTheCoin, there's no chance it would be solved. more
This is a perfect example of the kind of new conversation that has started over money.  Once the conversation gets going again folks will discover how common and understandable this topic is.  They just might begin understand why Franklin, Lincoln, and Jackson are on the money.

Chris Hayes' Brilliant Explanation Of Money Is One Of The Best Things We've Ever Seen On TV

Joe Weisenthal | Jan. 12, 2013

I was fortunate enough to be invited onto Up W/ Chris Hayes this morning to talk about, yes, the trillion dollar coin.

I'm not going to be so arrogant as to say that I said anything brilliant, but Chris' introduction to the whole discussion was marvelous.

In addition to a crystal clear explanation of the politics and mechanics of the idea that a platinum coin could avert the debt ceiling crisis, Chris did something that we've never seen before done: Peel back the curtain a little bit and talk substantively about the fact that money is an artificial creation of government, and that this has profound implications.

He showed a cartoon that was made by Abraham Lincoln's critics, showing him creating cash with a magic money machine, that looks so much like a lot of the anti-Bernanke stuff you see online today.

The point being: Governments always are finding novel ways to fund themselves, and there's a long history of critics thinking it's dangerous magic.

You can watch Chris' whole intro here. It's all great, although the discussion about the nature of money itself comes at the 5:25 mark.  more

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