Beyond the MSM: the New Wave of Brief Blog Posts on Platinum Coin Seigniorage
MSM bloggers and cable hosts weren't alone in creating the new wave of posts and video segments on Platinum Coin Seigniorage (PCS) at the beginning of December. The blogosphere also produced brief posts from a number of bloggers, as well as a few more substantial ones. I'll review the brief ones in this post, and the more substantial ones in future posts, but won't include my own recent posts on PCS during December.
Reviewing the Posts
First off the mark on December 3, was David Dayen at FireDogLake who mentioned the “trillion dollar coin” as something thee President could do to strengthen his hand in dealing with the Republicans. His mentioned was quickly followed by Atrios, later in the morning, who wrote a very short post saying:
I really don't know why the administration doesn't take the "mint the trillion dollar platinum coin" option seriously. It is, as far as I can tell, perfectly legal.
This triggered a post by Michael Sankowski at Monetary Realism announcing that the “Trillion Dollar Coin Goes Mainstream” which says that if Atrios knows about the coin that everyone on “the smart left” knows about it!
Mike Sankowski then blogged again on December 6, wondering out loud where Zerohedge's rant on the Trillion Dollar Coin (TDC) was? In that one Mike refers to the mainstream blogs by Yglesias, Drum, and Carney all on the TDC and then makes fun of Zerohedge for not picking up on the subject.
Cullen Roche at Pragmatic Capitalism, then blogged on the TDC on December 7, in a piece called “Platinum Coin Easing,” which draws its title from some views of JKH's I'll be reviewing in a future post. Cullen railed against the debt ceiling conflict calling it “stupid,” and also says that while PCS may look “Zimbabwean” it does solve the debt ceiling problem. Cullen points to JKH's post and says:
“The coin would replace some of the bonds that the Fed currently holds solving three issues:
1) A non-inflationary way for the US Government to spend.
2) It circumvents the debt ceiling by effectively reducing the debt balance by $1T.
3) It’s a completely legal workaround.”
Donald McClarey at The American Catholic blog also posted on December 7, on “Of Trillion Dollar Coins and Fiscal Lunacy.” calls it a lunatic nostrum, quotes the WaPo article by Plumer, and refers to the “wacked out left.” That's right, he offers no reasoning at all. Just name-calling and this:
“The country is in debt sixteen trillion dollars. By the time Obama finally leaves office we will probably be at least 20 trillion in debt. Of course this does not take into account dozens of trillions of debt in entitlement obligations coming due over the next few decades. We are rapidly reaching the point where it is mathematically impossible to ever pay off this debt without currency depreciation and/or hyper inflation. This scheme is basically currency depreciation as the US currency swells by two trillion dollars in a year’s time. If attempted I think it would lead ultimately to hyperinflation. The left are not all loons. Something like this will eventually be done by people who realize it is economic poison, but who are willing to do it anyway to get out of dealing with an unpayable debt. The impact on our economy would be likely catastrophic.“
Of course, McClarey, was in too much of a hurry ranting against the coin to notice that the first nearly $6.5 trillion of debt paid off using PCS couldn't cause currency depreciation because it would not enter the economy at all, since it would be used to pay interagency debt and Fed-held debt. Nor does any other seigniorage spending need to be happen except when debt instruments fall due, and Congress appropriates deficit spending. So, to back his hyperinflation currency depreciation rant, McClarey has to show that PCS-based spending would be more inflationary than normal spending after debt issuance, along with normal scheduled repayment of debt. Of course, he does not, and, I think, cannot show this.
Next, brief mention needs to be made of a post at “Twitchy – Tweet on the Platinum coin.” This post also happened on December 7. The tweets are entertaining but contribute little, if anything to the debate. On the other hand, they do make more sense than McClarey's post on PCS.
On December 8, James Hamilton at Econobrowser offered a post objecting to using the coin “from an institutional perspective.”
It basically amounts to the assertion that the Treasury Secretary has the unilateral power at any time to monetize completely the entire U.S. debt. The Treasury could issue a dozen or so of these coins and then pay off the Treasury's debtors at maturity just by writing a check written on its resulting ginormous account with the Fed. The creation of this power is I suspect something that Joe and every other sensible economist would view with abhorrence.
It's good that Hamilton sees the implications of the coin so clearly, but he fails to explain why Joe Gagnon of the Peterson Institute, and “sensible” economists would object so strongly to the Treasury being able to fill the public purse so that the debt could be paid off without throwing the economy into a decade of recession, depression, or stagnation due to running continuous surpluses to “fix the debt.” If there are any economists who prefer this way of “fixing the debt” to PCS, then I think the proper label for them is “insane” rather than “sensible.”
Hamilton goes on:
The plan requires the Fed and courts to play along. The Fed would need to agree to credit the Treasury's account for the deposit of the coins. I doubt the Fed would voluntarily hand over complete control of the nation's money supply to the Treasury in this manner. And the courts would be asked to confirm that legislation originally intended to satisfy a small group of numismatists in fact ceded authority to the President to monetize the entire outstanding debt of the U.S. Government.
This is, unfortunately, a highly questionable argument. Its first problem is that the Fed would have no choice because 1) the coin is legal tender; and also 2) the law says that in case any power of the Fed appears to conflict with the powers of the Secretary of the Treasury, then the Fed powers shall be subject to the supervision and control of the Secretary. So, the Fed couldn't even take this Court over the objections of the Secretary. See also beowulf's more detailed comment.
More generally, any law suit by anyone objecting to the use of the coin, on grounds of the intent of the law, would require the Court to grant standing to the plaintiff. But what would be the grounds for such standing? We already know that for Congress to have standing to sue, it's not enough to have a member of each House bring a suit to the Supreme Count because during the 1970s two progressives Sen. Phil Hart (D-MI), and Rep. Henry Reuss (D-WI), brought a case to the Supreme Court challenging the Constitutionality of the Fed, and were denied standing by the Supreme Court. So, both Houses would have to agree on an action. That won't happen.
So, both Congress and the Fed are out as plaintiffs, and anyone else would have to show that they were damaged by the use of PCS to acquire standing. No holders of intra-governmental debt could show that, or would be allowed by the President to pursue such a case. And no non-government holders could claim they were damaged by the Treasury's payoff of the debt they hold on schedule. So, again, who would have standing?
The next brief posts appeared on December 10. Louis Golino at CoinWeek posted on “Trillion Dollar Coins?” Golino follows the main line of mainstream bloggers saying that PCS is legal, but other alternatives would be tried first including the 14th Amendment and shutting down the Government gradually.
However, I've never thought that this is a sensible opening position, even though it's not an unusual one. First, because I don't think a 14th Amendment challenge to the debt ceiling law is viable as long as other alternatives exist for spending appropriations mandated by Congress, and one of these is Platinum Coin Seigniorage. And second, shutting down the Government without using an alternative that would avoid such a shutdown by allowing the President to spend Congressional Appropriations would leave him in violation of his oath of office, and potentially open to an impeachment action in the House.
Golino, and others, seem to think that all the options open to the President in a debt ceiling crisis are on all fours, so to to speak, and that he is free to select whichever option makes the most sense to him politically. But legally, if he can continue to spend Congressional appropriations without violating both the debt ceiling, and his obligations under the 14th amendment, then he's legally obligated to use an option that allows him to do that. PCS is the best of those options.
Jim McCraigh, of Precious Metals Digest, in “Trillion Dollar Platinum Coins and Other Dumb Ideas” is another blogger who worries about Zimbabwe and hyperinflation. He thinks the idea would be laughable if the “illiterate”people advancing it weren't “held out as so-called experts.”
… simply failing to understand one of the most basic economic truths… that a critical attribute of real money is as a store of value that remains stable over time. These ersatz coins would not be real money, but a super-sized fiat monetary fiasco sure to lead to political and financial chaos. Our national debt must be paid back the old fashioned way… by earning it through the creation of real wealth and not through the creation of more funny money.”
Unfortunately, for McCraigh, he has yet to adjust to the fact, that all our money these days, is fiat money, and that we can only pay back the national debt by using fiat money because it's the only kind, just as he must pay taxes using that same fiat money. The creation of real wealth is important and necessary for keeping the economy strong and for ensuring price stability; but our national debt can't be repaid with real wealth. It can be only be paid using fiat money. And from the viewpoint of its being paid when it falls due; it doesn't matter whether it's paid by fiat money acquired through taxing, borrowing, or seigniorage.
Dorothy Kosich at Mineweb also wrote a post on December 10: “Can trillion dollar platinum coins solve the US Debt Ceiling Problem?” This one was a “he said, she said” post linking to and citing Chris Krueger, myself, Jack Balkin, Pethokoukis of AEI, Joe Gagnon of Peterson Institute, Brad Plumer, and John Carney. It offers no new interpretations, but just the author's selection of the most important points from previous authors without using specific links to the posts or other documents cited.
In December 11, The MomCat at docudharma offered “The Debt Ceiling Myth and the Platinum Coin.” She reviews PCS and what it does with a focus on some posts of mine. She mentions my $60 T coin post and the distinction between the contents of the public purse and the purse strings. She also notes the difficulty of impeaching the President if he uses PCS, and quotes Jack Balkin on the possible use of the14th amendment and the likelihood of a conviction of the President in case of impeachment.
The platinum coin made The Daily Beast on December 11, with a post by Matthew Zeitlin called: “How a Platinum Coin Could Solve the Debt-ceiling Problem!” Zeitlin reviews the usual background on the TDC and then asks whether “. . . isn’t this what banana republics do, print money to fund the government when they can’t collect enough in taxes or sell their debt at a reasonable rate?”
And he answers the question yes, but also thinks it only becomes a problem when “printing money” is used regularly to cover the gap between tax revenues and spending. And he ends by saying that the platinum coin option really shows how odd the debt ceiling legislation is in applying a constraint to the Government spending on what has already been approved, and on interest payments it is already obligated to pay. He says that's a legal limit on spending and not an economic one, and that that is “the real joke,” rather than the platinum coin itself. In short, Zeitlin says nothing very different from other commentators and contributes very little to the earlier MSM discussion.
After December 11, brief replies to the PCS MSM posts seem to quiet down somewhat. But on December 17, two more appeared. One was by Fred E. Foldvary at Foldvary calls the TDC a joke, and says it would be inflationary; but he fails to specify any kind of causal mechanism for showing that this would be the case. Instead, he basically repeats the increasing the money supply leads to money inflation which leads to real inflation, Quantity Theory of Money (QTM) meme. In doing this, he ignores discussions about why QTM isn't applicable to economies like ours experiencing output gaps. He also ignores specific posts analyzing the relationship of PCS to inflation which focus on types of PCS spending, and show that these would not be any more inflationary than spending accompanied by sale of debt instruments.
A second brief reply to the MSM new wave on December 17 is from John Slater at Seeking Alpha and is called: “Balanced Budgets, Seigniorage And The Strange Case Of The Trillion Dollar Coin.”
“It appears that there is serious discussion afoot aimed at pressuring President Obama to engineer a transfer of power to the federal executive branch comparable in scope to the historical shifts engineered by Lincoln and Franklin Roosevelt during previous times of great crisis in America. This topic has gotten little coverage to date in the serious economic and political press.
“Don't doubt for a minute that we will begin to see such suggestions in spades should the Republicans stand firm when the debt ceiling issue again comes to the fore in early 2013. There will be tremendous pressure to give the President unfettered authority to spend all budgeted funds. Since the Congress seems incapable of adopting a budget, does this mean that all de facto spending authority will soon be transferred to the executive branch? The implications for the debt (TNX), foreign exchange (DXY) and equity markets (SPX) of such a transfer of power are more significant than any single factor currently driving the markets.”
I find Slater's reasoning here, a bit slippery. Congress may be avoiding doing formal budgets, but it's still appropriating money for deficit spending under continuing resolutions. So, Congress still has the purse strings in its hands, and the President won't be able to deficit spend any seigniorage profits without Congressional approval, which it can refuse to give whenever a CR comes up. In addition, of course, it could decide to do its job and arrive at a budget. Insofar, as PCS facilitates that, which it would if a $60 T coin showing that the US isn't running out of money were minted, then this is an advantage and not a disadvantage of that PCS option.
The brief posts on PCS don't add very much to the picture, Many of them just reflect stereotypical fears about inflation. Others review previous literature just spreading the news as it were. Still others attack the idea as silly, pretty much based on a psychological reaction rather than on any reasoned critique of the PCS idea.
The best understanding of the idea is in Cullen Roche's post. The best review of PCS posts is probably MomCat's. The posts by Hamilton and Slater bring forth legitimate institutional concerns. But to take Hamilton's seriously; you have to be supportive of the Fed's independence, which some, like myself, do not support because we view that “independence” as, in practice, subordination to Wall Street. Slater's post, voices the different concern that more de facto power still, will be shifted over to the presidency and away from Congress by PCS.
About that, I can only say that PCS gives to the presidency the power to prevent an abuse of power by the Congress, namely the debt ceiling legislation itself, and also gives the President the power to avoid interest bearing debt instrument-based financing of Congressional deficit spending appropriations if he/she desires. I think both of these are very good things, especially since the key power of controlling the purse strings still remains with the Congress, and not with the President. It seems to me that any greater leverage that falls to the President as a result of using PCS is leverage that can always seized back by Congress anytime it wants to do its collective job and represent the majority of the American people. On the other hand, if it wants to continue to represent narrow and plutocratic interests seeking to block any Federal spending that doesn't directly benefit them, then PCS profits may be viewed as a check on such an abuse of power by the Congress, and a reminder to Congress that the "how are we gonna pay for it" excuse for not legislating Federal programs people desperately need won't work anymore!
(Cross-posted from New Economic Perspectives.)