Mint the $1 trillion coin!

Discussion in 'General Chat' started by CitroenSM, Jan 11, 2013.

  1. #1 CitroenSM, Jan 11, 2013
    Last edited by a moderator: Apr 25, 2016
    This is why I will never understand world economy, All you need to do is to mint a coin and say it has a value and then everything is ok.

    In my world you first must have the money to give the coin a value, You can not just pick money out of thin air.

    Quote from businessinsider.com;

    The Former US Mint Director Behind The Controversial Law Explains Why A Platinum Coin Could Avoid A Major Crisis
    Joe Weisenthal | Jan. 8, 2013, 4:22 AM

    The #MintTheCoin movement rolls on!

    Remember, there are a lot of people arguing that an alternative to the debt ceiling crisis is for the Treasury to create a $1 trillion dollar coin made out of platinum, and then ship it to the Treasury's bank account at the Fed.

    Yesterday Paul Krugman came out in favor of this, while on the other hand, a US Congressman came out in opposition to it.

    Last night we got an email from Phillip Diehl, a former Mint director, who also helped craft the legislation allowing coin minting (he also sent it to Cullen Roche).

    Here's his full email, in which he notes that A) Yes it's legal, and B) it would have no adverse economic effects.

    ----------------------------------------------------------------

    I'm the former Mint director and Treasury chief of staff who, with Rep. Mike Castle, wrote the platinum coin law and produced the coin authorized by the law. Therefore, I'm in a unique position to address some confusion I've seen in the media about the $1 trillion platinum coin proposal.

    * In minting the platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years. The Secretary's authority is derived from an Act of Congress (in fact, a GOP Congress) under power expressly granted to Congress in the Constitution (Article 1, Section 8).

    * What is unusual about the law (Sec. 5112 of title 31, United States Code) is that it gives the Secretary complete discretion regarding all specifications of the coin, including denominations.

    * Moreover, the accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the treasury's general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.

    * Once the debt limit is raised, the Fed ships the coin back to the Mint, the accounting treatment is reversed, and the coin is melted. The coin would never be "issued" or circulated and bonds would not be needed to back the coin.

    * There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.

    * This does not raise the debt limit so it can't be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached.

    * This preserves congressional authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amendment option would entail and avoids another confrontation with the Roberts Court.

    * Any court challenge is likely to be quickly dismissed since (1) authority to mint the coin is firmly rooted in law that itself is grounded in the expressed constitutional powers of Congress, (2) Treasury has routinely exercised this authority since the birth of the republic, and (3) the accounting treatment of the coin is entirely routine.

    * Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I'd guess.

    Philip N. Diehl 35th Director United States Mint en.wikipedia.org/wiki/Philip_N._Diehl

    Read more: http://www.businessinsider.com/mint-the-coin-former-mint-director-philip-diehl-explains-why-the-trillion-dollar-coin-law-would-work-2013-1#ixzz2HeEzSaEU
     
  2. Yeah but it's worth $1,000,000,000,000.00

    Plus probably like $49 shipping and handling. So it shouldn't create a problem
     
  3. Is this your first experience with fiat currency? I'm 98% sure the krona is also a fiat currency, as are most major currencies.
     
  4. #4 Aaron, Jan 11, 2013
    Last edited by a moderator: Apr 25, 2016
  5. No, But I still can't understand that they can just take money out of thin air without there being consequences.

    There should be something that guarantee the worth of the money like in the old days when money was based on gold standards.
     
  6. There are consequences, namely inflation. That's how debt financing works and why inflation exists. It's intentional, and works, within some limits.

    I would argue that the gold standard is only a deferred fiat currency. The gold indeed has material value, but that value is largely based on it being valuable historically and on being somewhat scarce. Gold is otherwise not very useful, compared to say, iron or platinum. Because of this, the value of gold is inflated well above its intrinsic value, just as a fiat currency may be.

    We cannot simply make more of it easily, but if the cost to mine more of it is much less than the value we associate with it, and so long as there are considerable unexploited reserves, it functions in much the same way. In order to run our entire economy on it today, we'd have to up-value our existing reserves tremendously. It could be done, but it wouldn't be easy and it wouldn't solve a lot of problems people seem to think it would, it would only lessen their degree in the short-term. Policy can accomplish the same, if we could agree to it.

    Either way, we're associating a fixed value to an object beyond whatever value it might have without our having deigned its worth as a financial instrument.
     
  7. it's not that much different compared to how things are usually done, except for that there's an awkward symbolic coin now reppin a tril
     
  8. that said, before clicking this thread, I thought this would be about zimbabwe
     
  9. as long as there are rich people who like shiny things, gold will be valuable. plus those same people buy a lot of iphones and theres gold in them things, too.
     
  10. Well, After reading your post I think I have a better understanding of how it works.
     
  11. Both 3rd world countries.

    That said if Krugman is down with it, so am I.
     
  12. Isn't it different in that massive hyperinflation would be impossible with a commodity currency?
     
  13. I don't think there are any historical examples, but I believe its technically possible to have hyperinflation with a specie currency. Through lending and various complex financial instruments, a rapid increase in the money supply can occur even if the currency base remains the same. This is because the vast majority of perceived money is not represented in physical dollars. For instance, lets say you deposit $1000 to your bank. You still perceive that money as your own, even if the bank has lent it to a third party. At 10% fractional reserve and a very large number of individual deposits, a bank can expand the money supply by a factor of 10 while the total currency in the system is maintained constant (as assets are canceled with debts). More complex financial instruments can create much more money that the currency they leverage.

    However, this depends on the existence of willing creditors, as inflation suits the debtor, and in reality it would probably require a concerned effort by a national government to make it happen. Although not nearly as extreme as hyperinflation, you can see the most recent financial crisis as an example of the mechanism above. There was a rapid increases in the money supply; not from increases in the currency base, but from poor regulation of the lending and banking system.
     
  14. And vice versa, in a well-managed financial system the expansion of money is only marginally higher than the expansion of real wealth. In some sense the value of a fiat currency is backed by the value of the hard assets within an economy, and especially those financed with debt such as real-estate and capital goods.
     
  15. Certainly more much less likely with a metallic-backed currency, but not impossible, as VI said. It's also possible, though very unlikely, to happen from unforseen conditions. Aluminum used to be much more expensive than gold, but the Hall-Herout process makes that no longer the case, for instance. It would not strictly be runaway, as it would still have limits in that case, but it would represent a rapid devaluation of the currency. A case for gold could be, say, discovering a trillion tons of it on a nearby asteroid that could be returned to earth for a few dollars a ton, for instance.
     
  16. The factor of 10 applies to the equity (=assets-liabilities) of the bank's balance sheet, not the deposits. So, if you decide tomorrow morning to start your own bank with a $1000 initial investment, you can lend up to $10,000, even if you have received millions of dollars worth of deposits. This rule exists in order to contain risk from non performing loans and the bank defaulting on its own liabilities.
     
  17. Not the deposits, no, but it is indeed an increase in the money supply. For example, there are approximately 500B euros in coins and paper in existence (M0). However, the total money supply of the EU is some 10T euro, created from commercial loans in banking (M1+M2+M3). If Alice deposits money, Alice possesses a deposit (M1-M2, usually). If Bob takes a loan, Bob possesses currency in circulation (M0). That is, both currency in circulation and deposits are considered forms of money; both Alice and Bob recognize the money as in their possession, and as such the money supply has increased.

    Further to that, the purpose of a bank is as an intermediary between those with capital surplus and capital deficit. Thus, if a bank's lending is not a product of its deposits (or other managed assets), it is not, strictly speaking, a bank. Further to that, I ask you what the financial advantage of taking deposits would be for a bank if that were not the case?
     
  18. Why does every African dictator think printing money is a viable option?
     
  19. I hope China takes it.
     
  20. Because what's more baller than fanning out a stack of 100 trillion dollar notes and fvck poor people anyway.
     

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