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The trillion dollar coin
Posted: Mon Aug 01, 2011 6:17 pm
by Graham Kennedy
Found this idea on another forum recently. I know a compromise has apparently been reached, and will probably hold, so this is really only a flight of theoretical fancy. But it seemed like a fascinating idea...
I keep hesitating to write about this because it sounds insane, but Jack Balkin’s a professor at Yale Law School so I’ll let him say it:
"Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time. Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds."
It’s right here in 31 USC § 5112 “Denominations, specifications, and design of coins.” It’s super-prescriptive about all kinds of things until you get to section (k):
"(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time."
It actually seems to me that there’s a colorable argument that President Obama is legally obliged to order Secretary Geithner to order the mint to start creating large denomination platinum coins. The debt ceiling is legally binding. We can’t borrow any more money. But at the same time, the Social Security Act is still valid. There are appropriations bills that extend through September. The assumption is that starting August 2, the Treasury will start “prioritizing” payments. But whence the legal authority to do that. By contrast, the legal authority to mint platinum coins is right there in the statute. This would, I assume, lead to a downgrading of American sovereign debt.
Fascinating stuff... I wonder what would happen if he at least threatened to do this the next time congress tries to do this stuff?
And think of the possibilities for a movie... what if they did this, and then somebody stole the coins...
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 6:50 pm
by Tyyr
It's an interesting idea. You'd devalue the dollar for certain by pulling two trillion dollars essentially out of your ass.
They'd be worthless though in any kind of robbery aside from pure bragging rights.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 7:06 pm
by Graham Kennedy
Tyyr wrote:It's an interesting idea. You'd devalue the dollar for certain by pulling two trillion dollars essentially out of your ass.
I don't know much in the way of economics, so I'm just guessing but does it count towards inflation when you aren't just dumping it all into the economy but rather using it to back the deficit?
They'd be worthless though in any kind of robbery aside from pure bragging rights.
In reality I suppose you'd just mint new ones and then declare the old ones void.
Still, there might be a way to do it. Suppose you stole them and then used them before the theft was discovered, so they were still technically legal tender... make one gigantic transaction. Say if another government stole them, and then used them to pay off its all of its own debt or something. When the US squawked they could just say "tough, it's legal tender".
Or something...
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 7:08 pm
by Tyyr
It's money, going in circulation. Can't see how it wouldn't lead to inflation. If things were that simple we could just make 15 of these coins and call the national debt done with.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 7:15 pm
by Graham Kennedy
But you aren't putting the money into circulation, you're using it as collateral against the increasing debt. The actual money itself is just sitting in a bank vault.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 7:21 pm
by Tyyr
It's printed money, no new products were created, no new wealth generated. You just minted two platinum coins, said their worth a trillion each because you say so, then paid people with them. That's part of the plan. Instead of borrowing a two trillion, we mint it and use it to pay people money they're owed. It goes into circulation.
Even using it to pay off part of the debt puts the money into circulation because that debt is held by other entities and it represents real worth. If we just minted a couple trillion dollar coins and paid off the debt with them the end result would be much like if we just defaulted to begin with. The dollar would be absolutely worthless over night.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 7:47 pm
by McAvoy
I personally never understood the whole concept.
I mean the dollar is still based on the value of gold right? So if we a certain amount of dollar bills printed vs. the actual amount gold = the value of the dollar right? But if we keep printing money then that value of the dollar goes down because the actual value of gold/whatever remains the same?
Is this right?
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 7:50 pm
by Tyyr
No, we got off the gold standard about 30 years ago.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 7:53 pm
by McAvoy
Ok so what makes the dollar valuable then? As opposed to the paper it's printed on?
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 8:00 pm
by Mikey
McAvoy wrote:Ok so what makes the dollar valuable then? As opposed to the paper it's printed on?
It's valuable because it's valuable. It sounds stupid, but the dollar doesn't need the gold standard anymore (or the silver, for certain old $2 bills) because it has attained its own intrinsic value - there's no place that will tell you a dollar bill isn't worth anything because it can't be turned in for it's value in gold.
In general, Tyyr is correct. Issuing new
currency doesn't create any actual
money - that is, any new wealth in the economy. The total wealth, or spending power, or whatever you want to call it, will remain the same no matter how much new currency the gub'mint issues... which, in turn, means that each dollar will be worth that much less if there are more dollars to account for that same total wealth. I.e., inflation.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 8:03 pm
by McAvoy
Mikey wrote:McAvoy wrote:Ok so what makes the dollar valuable then? As opposed to the paper it's printed on?
It's valuable because it's valuable. It sounds stupid, but the dollar doesn't need the gold standard anymore (or the silver, for certain old $2 bills) because it has attained its own intrinsic value - there's no place that will tell you a dollar bill isn't worth anything because it can't be turned in for it's value in gold.
In general, Tyyr is correct. Issuing new
currency doesn't create any actual
money - that is, any new wealth in the economy. The total wealth, or spending power, or whatever you want to call it, will remain the same no matter how much new currency the gub'mint issues... which, in turn, means that each dollar will be worth that much less if there are more dollars to account for that same total wealth. I.e., inflation.
I'm sorry this is reason why it makes no sense to me. The way i see it is that if dollar is valuable because it is the dollar, then why not have the Mints create a shitload of money?
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 8:06 pm
by Mikey
Because of the explanation you just quoted. A dollar is only worth 1/x of the total outstanding capitalization of the economy, where "x" = the total number of dollars in circulating currency. The fact that this value stands on its own, without being backed by the gold standard, doesn't change that. However, just making more currency doesn't increase the total capitalization... it only changes "x" in the fraction above, which will obviously decrease the value of each dollar.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 8:10 pm
by McAvoy
Interesting, but still makes no sense to me.
As long as I can still pay for food in reasonable prices I will pretend the dollar is valuable for something other than just being a dollar.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 8:43 pm
by Teaos
A short term solution which will mkae paying off the dept that much harder in the long run.
Re: The trillion dollar coin
Posted: Mon Aug 01, 2011 8:59 pm
by Lighthawk
McAvoy wrote:Interesting, but still makes no sense to me.
As long as I can still pay for food in reasonable prices I will pretend the dollar is valuable for something other than just being a dollar.
The dollar is worth something because enough people believe that it is worth something, and will accept that it has a given value. Honestly, its not all that different than its value coming from gold, as that gold first needed people to believe it was worth something and broadly agree on how much a certain amount of gold should be worth.