We know by now that fake tough talk from the President on letting the Bush tax cuts above those making $250,000 expire being an absolute was just that, fake. So there's absolutely no reason to believe that Republicans do not have all the leverage in this upcoming debt ceiling fight coming up. They do.
Jay Carney’s press conference today leaves no doubt that the situation is substantially as I described it in my previous post. The White House commitment not to negotiate on the debt ceiling is mainly fluff. Their public position is that the Congress must lift the debt ceiling with a “clean” vote first, before a deal can be struck on the massive spending cuts that will take place automatically in March. Carney implores listeners to believe that the debt ceiling and sequester are “separate” issues, and insists that “this not a negotiation the White House is going to have.” But of course the entire press conference is itself a public gambit in an ongoing negotiation that obviously includes back-channel talks.
There's also no reason to believe the President won't put up huge cuts to our safety net just to raise the debt ceiling thanks to what we know from the austerity memo from Jack Lew's office when he was head of Obama's OMB in 2011.
This was all thanks to the gross incompetence of not adding a raise in the debt ceiling in the original 2010 deal that extended the Bush tax cuts as I have repeatedly pointed out. However more than half of you already know this, so let's get to the here and now; there are only two options.
There is the 14th amendment challenge to the SCOTUS option and there is the minting of a 1 trillion platinum coin to start off with. We know the 14th amendment challenge is the least likely scenario to be pursued now. So given the lack of appetite there, there is only one other option and the President better consider it because no one believes the fake posturing about a debt ceiling raise "not being for debate." Too late. It is.
It didn't have to be, but the President made it that way by trusting John Boehner with the full faith and credit of the US so now political default(the only way it could happen as a currency sovereign) is a possibility thanks to this mess. So a Trillion Dollar Coin (TDC) is the first step and a small chance at redemption that suddenly is bigger than the blogger and the blogs talking about it thought it would be. It suddenly got real and thank goodness it did because we need to go further. To defeat austerity for the future we also should go from a Trillion Dollar Coin (TDC) towards Platinum Coin Seigniorage(PCS) and think about minting coins of a higher value up to 60 trillion. Therefore, as a first step, I urge all of you to instruct the President to...
Now is the time; thanks to the originator of this idea, beowulf, and the tireless efforts and advocacy of our own Letsgetitdone; the TDC and PCS have now gone mainstream. Markos covered it on the front page recently referencing the co author of the law explaining it in very clear terms anyone should be able to understand. Democratic Congressman Jerold Nadler is going to push for it in Congress, and I have even heard that even Hong Kong papers are mentioning #Mintthecoin.
Of course that doesn't mean it won't have its detractors and it does, but it's pretty ridiculous considering our long history of doing so and what is in the Constitution.
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
I don't always agree with Joe Weisenthall on everything; for instance, any amount of face value created with PCS would not be circulated and would not cause inflation(60 trillion in the Treasury General Account (TGA) does not mean Congress could spend it because all money created and spent has to be appropriated by Congress), but I am glad he is on board for the 1 trillion Platinum Coin option. He's right about this debate. He also references what sadly sounds a lot like some people on this site and others who want to scoff at this idea. When they do they sound like GOP Congressman Greg Walden whom is looking to legislate this authority away. However to make up for that he references the ever so wise deficit owl UMKC economist Stephanie Kelton who has long supported the idea.
When GOP Congressman Greg Walden introduced his bill proposing a ban on minting a trillion dollar coin, he specifically likened a government to a small business:
Stephanie Kelton, an economics professor at the University of Missouri Kansas City and one of the earliest defenders of the coin, explained via email:
Until the idea of minting a $1 trillion coin became a reality, most people probably never gave much thought to the government’s financial operations. We understood that the government spent money, and we knew the money had to come from “somewhere”, but we assumed there were limits to how much the government could afford to spend.
Like a household, we were told that the government could spend more than it takes in, but only as long as private lenders remained willing to extend credit. Borrow too much, and your credit rating will suffer. From there, it’s a hop, skip and a jump to “shared sacrifice” and “tough choices” to avoid becoming the next Greece.
Enter the coin. An idea so simple the mind recoils. The Treasury has the power to end-run the process by cutting out the middlemen – taxpayers and bond markets –simply directing the Federal Reserve to add some numbers to its balance sheet. Saints preserve us! People are freaking out because the coin appears to remove the constraints on government finance by allowing the government to just “print” money. The truth is, the government is already the issuer of the currency. It is already not revenue constrained. The coin doesn’t change anything fundamental, but most people don’t realize this because they don’t know anything about the mechanics of the way the government currently gets numbers into its account at the Fed.
The ever so wise deficit owl is correct. All denials and fear mongering about macroeconomic effects and scary inflation that will never happen are from those that simply do not understand our system; otherwise they wouldn't be throwing a fit about what already happens on a run of the mill basis; even if the coin was not going to be melted down which it is once the debt ceiling is raised as it is a stop gap measure.
To expand on the point and I have been repeating over and over again, I will turn it to Stephanie Kelton's colleague and brilliant protege of the great economist Hyman Minsky MMT UMKC economist L. Randall Wray.
The Platinum coin has been all over the blogosphere as well as the media. Some have been arguing it will cause hyperinflation. How can issuing a coin to be held at the Fed to allow the Treasury to spend up to budgeted amount lead to hyperinflation? It has no first round effect that is different from selling a bond into private banks and then having the Fed buy the bond to replenish bank reserves (the current operating procedure); the second round effect–if there is any–is deflationary because it can remove interest income. Some “challenged” politicians are advocating that we remove the Treasury’s ability to coin platinum.
You see? This is already how our system works. We will be creating fiat money with legal tender to pay what we already rung up. That's is what this debate is about. No perceived "market confidence" or "market reaction" is going to change the reality Randy Wray spelled out. This will not cause inflation. The mechanics are no different; it's just a slightly different way to turn the wheel.
To expand on that, I also have to reference the brilliant MMT economist Bill Mitchell to alleviate the scare mongering fears of a circulating inflationary trillion dollar platinum monster or even a 60 trillion platinum monster! OMGZ! One that escapes the TGA and drives up prices everywhere, except I already explained that Congress has to appropriate the funds or the monster stays chained at the Treasury.
This is similar to when the Fed buys bonds from commercial banks giving them cash making up private bank reserves on their books. Those "scary" cash reserve monsters do not chase goods either despite any hyper-inflationary fairy tales you might have heard! This is true regardless of QE because private banks create money by creating loans and despite while getting the reserves for free later anytime they want.
So just stop it. None of this is inflationary regardless of the Market Gods some think are going to be angry at the Mount Olympus bond market. Banks' reserves do not expand credit either as the money multiplier theory is false. Therefore with this much unused capacity and demand there won't be any massive expansionary credit that fuels inflation either. Issuing debt that is auctioned off via liquidity points does not really have much of a purpose because it doesn't really finance government spending and neither does revenue.
Issuing debt to be sold is useful as merely one interest rate setting tool out of many such as the Federal Reserve's monetary policy rate, the federal funds overnight rate, and the rate that it pays to commercial banks for excess reserves left in the system overnight; the Treasury and the Fed set all of this together thus decreasing the meaning of issuing debt to be auctioned off it in the modern money age. So what I hear from too many about what we "know about debt and economic policy" denying what the PCS law clearly states in a hyperventilating fashion or willful cognitive dissonance because the POTUS is unlikely to consider it is absolute garbage.
It would be one thing if people were just wrong and that was the damage alone but it's not. The austerity that will be passed to raise what was once routine(debt ceiling) thanks to all the flubs and/or sellouts that led us here will hurt real people suffering. I guess it's a matter of priorities; some people are worried about the tone when it comes to advocating for the disadvantaged, others actually care and are upset about this and read poverty stats.
Those are real people that need resources austerity sucks away from them. Real people who didn't want to be pawns in this sick game of political debt default, automatic recession or slashing their safety net they will die without; all because either our leaders want them to suffer or they forgot how to represent these real people they work for. These real people don't need a polite debate in Washington or anywhere else. They need someone to advocate for them and make no apologies about it.
They need help, not politicians. The fact that we are here today at this moment is sort of a national embarrassment and our entire government is to blame on a bipartisan level. So I am more optimistic thanks to the PCS and #mintthecoin going viral, but if by some miracle the POTUS wakes up or remembers who put him in office on the low end and pushes for this, we need to go beyond just the 1 Trillion Platinum coin solution.
We must ignore Josh Barro and others that would have us legislate this authority away just to raise the debt ceiling. Letsgetitdone is right once again.
In the latest outburst of posts, tweets, articles, and videos about the TDC, we're beginning to see, a feeding frenzy in which the participants self-organize around the TDC meme AND the objective of avoiding the debt ceiling, but without providing any consideration at all to higher value PCS options that could both make the debt ceiling a dead letter and also remove the driving force for austerity politics. This focus on the bare TDC and its application to the debt ceiling is “small ball” policy analysis that ignores larger issues related to PCS. It needs to stop before it totally drives PCS into a defend the status quo solution, that may defuse the debt ceiling, but still leave us in the sorry state of austerity-driven politics.
The focus on “small ball” policy analysis of PCS is emblematic of the superficiality of media outlets and what passes for “journalism” in the early 21st century. Too many content professionals are no more than marketers and propagandists, and don't make even minimal attempts to get at the heart of the larger PCS news story.
If the small ballers get to control the PCS debate it will result in the waste of a remarkable opportunity to change the whole direction of American politics. Progressives need to wake up and try to grasp this opportunity, before the fiscal conservatives save their version of the financial system with its increasing tendency to impose austerity on the rest of us while the 1% get more and more wealthy.
There has been enough deficit terrorism and the bipartisan deficit terrorists can never get enough pounds of flesh to extract for the market bond vigilante confidence fairy Gods. We must take away the power they have literally and figuratively over the collective mindset that drives austerity politics. Assuming this is even considered, and we must use this momentum to make it so, we cannot accept just a "small ball" TDC. We must go beyond to make the high value non inflationary PCS a weapon in our arsenal against the deficit terrorists and those that enable them in any way.
The long term unemployed and everyone else that needs resources they cannot afford have been terrorized enough in this economy. It's time to actually care about them instead of excuses for not pursuing this option because of an arrogant disregard for common law or support of a politician. The fact that we are in this position on top of record income inequality and official 7.8 to 14% real unemployment along with the worst employment to population ratio to workforce participation rate in 30 years as people keep dropping off the rolls not being counted is bad enough. Congress and the White House put us in this position by creating this mess on top of all this.
Now we'll see if they are interested in real solutions to the mess they created or will they play make believe and slap us all in the face as if we don't understand how they are ignoring us; as if we don't remember how we were sold down the river two years ago? If none of these solutions are considered I'll know what was just reported in TIME was true.
“I’m the President of the United States,” Obama told Boehner [in 2011]. “You’re the Speaker of the House. We’re the two most responsible leaders right now.” And so they began to talk about the truly epic possibility of using the threat, the genuine danger of default, to freeze out their respective extremists and make the kind of historic deal that no one really thought possible anymore — bigger than when Reagan and Tip O’Neill overhauled the tax code in 1986 or when Bill Clinton and Newt Gingrich passed welfare reform a decade later. It would include deeper cuts in spending, the elimination of all kinds of tax loopholes and lower income tax rates for all. “Come on, you and I,” Boehner admitted telling Obama. “Let’s lock arms, and we’ll jump out of the boat together.”
Time will tell. There is slight optimism in general just because of the #mintthecoin going viral, but I also share a healthy dose of skepticism given where we are.
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