12 votes

Video: The Trillion Dollar Coin Explained

Video from the Wall Street Journal:

More from Seeking Alpha: There is a bit confusion around on the impact of the Trillion Dollar coin that is being talked about these days. Here's the backstory.

The Govt. has hit the debt ceiling, and unless Congress votes to raise it, USA will go into default. The Republicans in the Congress, freshly bruised from the Fiscal Cliff crisis, have pledged to not raise the debt ceiling unless the Democrats agree to major spending cuts. The Democrats have dug in.

So, at least the theory goes, the Treasury can simply mint a Trillion Dollar coin, the Feds can exchange it for freshly minted cash, and off we go without triggering the default. This is perfectly legal, if rather unusual.

Civilized countries usually have a functioning Govt. which would raise the debt ceiling to pay for spending already approved and executed by the Govt. in the form of past legislature. But, if indeed USA doesn't have a functioning Govt., the Magic Coin will be the salvation. Or, so, at least, is the talk of the town.

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Michael Nystrom's picture

Obviously not practical

But the fact that it is being discussed is an indication of the desperate times we live in.

The Fed would never purchase such a coin because it exists for the benefit of its shareholders, the Big Banks. This would clearly be against their interests. The Fed is not part of the government, not really. It is a bank first and foremost, and as such, it puts its own interests first.

Have you ever noticed that it only purchases securities that are backstopped, i.e. guaranteed by the Federal Government? The Fed isn't stupid. But buying a trillion dollar platinum coin would be dumb.

The only way to make sense out of change is to plunge into it, move with it, and join the dance. - Alan Watts

Platinum Coin Preposterous? Maybe Not

I've been looking into the $1 trillion platinum coin idea since it first surfaced over a year and a half ago, which is about when Ron Paul came up with a similar idea of simply canceling the Treasury debt held by the Fed as a a result of its QUANTITATIVE EASING treasury purchases. Interestingly enough, Ron Paul's idea was enthusiastically endorsed by Keynesian economist Dean Baker writing in the New Republic in July, 2011. "Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse"

http://www.tnr.com/article/politics/91224/ron-paul-debt-ceil...

The $1 trillion platinum coin idea does indeed appear to be based on a legal loophole which would make it possible to do an end run around Congress. Some think this is what President Obama had in mind when he declared that he was not going to "Play that game" with Congress with regard to negotiating spending cuts, the deficit and the debt ceiling.

I see the debt cancellation idea and the platinum coin idea as two sides of the same coin... so to speak. Either alternative makes the debt ceiling dilemma go away temporarily while buying Congress about a year or so of time to fashion economic policy that avoids throwing the economy back into recession.

This may not be a popular thing to say here on the Daily Paul, but I think it would be a mistake to allow a debt ceiling impasse to force an automatic cold turkey shut down of all government spending not paid for by current tax receipts. Here is my take on this issue in a video I recorded in July of 2011 when I still worked at Thomson Reuters.

07/21/11 U.S. downgrade would be bullish for Treasuries, says Rombach…. http://reut.rs/oauYJS

Ed Rombach

that's true, but if you

that's true, but if you recall the big banks that composed the cartel and the FED originally supported the gold standard and were wary of Roosevelt, of 1933 devaluation, and of fiat money generally. They went along with that then when threats from far left and far right endangered their interests more than the danger posed by a strong central government with power to create money.

IMO, as long as the President isn't genuinely opposed to their interests, the banks will acquiesce in the gradual centralization of power in the executive, rather than let the children in congress embarrass the country with empty political threats against USG credit rating. '

The $T coin proposal is not just a practical proposal but is used to illustrate the reality that USG isn't constrained operationally by any borrowing, taxing or debt ceiling statutes, despite the institutional and legal arrangements that prevail.

The reality is that a fiat money regime spends money by crediting bank accounts, and taxing/borrowing are just ways of mopping up money they created and setting interest rates. As much as the Austrians are superior on capital theory and being politically realistic, and as naive as the MMT proponents often are about political reality, incentives and complexity of markets, they do have a more accurate understanding of how the banking system an monetary system function and relate to each other in our present monetary system.

i thought this was a joke

like an onion article or something.

In my mind:

It is.

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I love my country
I am appalled by my government