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Is The Platinum Coin Idea Clever or Insane?

TheElderScroll
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1/8/2013 7:31:09 PM
Posted: 3 years ago
Someone calls the option a "nuclear option" while someone just says that it is a silly idea. Here are some facts:
"The silly but totally legitimate loophole that lets the Obama administration avert the debt-ceiling showdown with a $1 trillion platinum coin.

As you probably know, sometime in late February or early March the government"s authority to borrow money will run out, rendering the Treasury unable to pay everyone all the money they"re owed. There are several potential ways to avert catastrophe. Treasury Secretary Tim Geithner can order the United States Mint to create large-denomination platinum coins"a $1 trillion coin, say, or a bunch of $10 billion coins"and use them to finance the government.

It all goes back to sub-section (k) of 31 USC " 5112 "Denominations, Specification, and Design of Coins." The opening subsections consists of boring specifications about the coins the United States issues. Subsection (k) says "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."

So there it is in black and white. Geithner can have the Mint create a $1 trillion coin. Then he can walk it over to the Federal Reserve and deposit it in the Treasury"s account. Then the government can keep sending out the checks"to soldiers and military contractors, to Social Security recipients and doctors who treat Medicare patients, to poor families getting SNAP and to FBI agents"it"s required by law to send"and the checks will clear. [http://www.slate.com...]

I am against the measurement. Although it is not illegal for the Treasury to mint the coin, it is an idea that entails unforeseeable consequence. Would the U.S. credit collapse? Would congress still mean anything? (revenue measure must originate in House of Representative.)
lewis20
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1/8/2013 8:00:32 PM
Posted: 3 years ago
I assume lots of problems if the fed trades back its treasury securities for a single platinum coin.
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TheElderScroll
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1/8/2013 8:38:59 PM
Posted: 3 years ago
At 1/8/2013 8:00:32 PM, lewis20 wrote:
I assume lots of problems if the fed trades back its treasury securities for a single platinum coin.

Not mentioned the repercussion. Many leaders on the Capitol Hill, however, seem to be willing to adopt it as the last resort. I tend to believe that Democrats are using the threat (Platinum Coin) to pressure Republicans to accept a bipartisan deal.
Jake-migkillertwo
Posts: 67
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1/8/2013 8:45:22 PM
Posted: 3 years ago
At 1/8/2013 7:31:09 PM, TheElderScroll wrote:
Someone calls the option a "nuclear option" while someone just says that it is a silly idea. Here are some facts:
"The silly but totally legitimate loophole that lets the Obama administration avert the debt-ceiling showdown with a $1 trillion platinum coin.

As you probably know, sometime in late February or early March the government"s authority to borrow money will run out, rendering the Treasury unable to pay everyone all the money they"re owed. There are several potential ways to avert catastrophe. Treasury Secretary Tim Geithner can order the United States Mint to create large-denomination platinum coins"a $1 trillion coin, say, or a bunch of $10 billion coins"and use them to finance the government.

It all goes back to sub-section (k) of 31 USC " 5112 "Denominations, Specification, and Design of Coins." The opening subsections consists of boring specifications about the coins the United States issues. Subsection (k) says "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."

So there it is in black and white. Geithner can have the Mint create a $1 trillion coin. Then he can walk it over to the Federal Reserve and deposit it in the Treasury"s account. Then the government can keep sending out the checks"to soldiers and military contractors, to Social Security recipients and doctors who treat Medicare patients, to poor families getting SNAP and to FBI agents"it"s required by law to send"and the checks will clear. [http://www.slate.com...]

I am against the measurement. Although it is not illegal for the Treasury to mint the coin, it is an idea that entails unforeseeable consequence. Would the U.S. credit collapse? Would congress still mean anything? (revenue measure must originate in House of Representative.)

In real terms, the only way I can see this as problematic is if the bond markets react badly. Investors generally do not trust governments that have resorted to seigniorage, and they may react the same way to this instance.

But those other governments have used seigniorage when it really did lead to runaway inflation, but there's absolutely no reason to think that this will lead to any more inflation than simply borrowing a trillion from the bond markets.
malcolmxy
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1/8/2013 9:45:48 PM
Posted: 3 years ago
At 1/8/2013 8:38:59 PM, TheElderScroll wrote:
At 1/8/2013 8:00:32 PM, lewis20 wrote:
I assume lots of problems if the fed trades back its treasury securities for a single platinum coin.

Not mentioned the repercussion. Many leaders on the Capitol Hill, however, seem to be willing to adopt it as the last resort. I tend to believe that Democrats are using the threat (Platinum Coin) to pressure Republicans to accept a bipartisan deal.

1st of all, thanks for posting this (I had no idea...). Second, this is brilliant. Third, what's the issue? Money is all (mostly) electronic these days, anyway. For a bank the size of the FED, what do they care if they get a wire transfer of $1 trillion or a single coin of the same denomination.

If anything, the security around housing the coin will be the biggest concern of this move...If we have sufficient National Platinum Reserves (though, I assume the intrinsic value of the coin needn't actually be $1 trillion, and really, if there are only a handful of them, it's not as if a thief could even spend it if they wanted to), I say go for it.

What a great way to stick it to the FED. We need to nationalize that organization at this point, anyway. This would be a first step in that procedure.
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malcolmxy
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1/8/2013 9:47:07 PM
Posted: 3 years ago
At 1/8/2013 8:45:22 PM, Jake-migkillertwo wrote:

In real terms, the only way I can see this as problematic is if the bond markets react badly. Investors generally do not trust governments that have resorted to seigniorage, and they may react the same way to this instance.

But those other governments have used seigniorage when it really did lead to runaway inflation, but there's absolutely no reason to think that this will lead to any more inflation than simply borrowing a trillion from the bond markets.

good point.
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lewis20
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1/8/2013 9:55:28 PM
Posted: 3 years ago
The point is that the govt would be buying back its treasuries from the fed. The fed, without securities to sell off will have fewer tools if it decides it wants to raise interest rates. Though I admit I don't know what portion of the feds interest rate setting power is a result of its open market operations and what portion is attributed to the discount window rate and changes in the reserve requirement.
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lewis20
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1/8/2013 9:58:53 PM
Posted: 3 years ago
Security around the coin wouldn't be important because the coin itself won't be worth more than its weight in platinum. Obviously Nobody would get away with stealing it and using it as legal tender.
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imabench
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1/8/2013 10:01:03 PM
Posted: 3 years ago
Wouldnt a one trillion dollar coin literally allow inflation to run to infinite levels?
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OberHerr
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1/8/2013 10:02:12 PM
Posted: 3 years ago
At 1/8/2013 9:58:53 PM, lewis20 wrote:
Security around the coin wouldn't be important because the coin itself won't be worth more than its weight in platinum. Obviously Nobody would get away with stealing it and using it as legal tender.

At the very least they'll make a James Bond movie about it.
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lewis20
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1/8/2013 10:09:12 PM
Posted: 3 years ago
At 1/8/2013 10:01:03 PM, imabench wrote:
Wouldnt a one trillion dollar coin literally allow inflation to run to infinite levels?

Its not adding money, its basically just erasing the trillion dollars of t bills the fed holds, thus allowing the treasury to issue a trillion in new bonds without raising the debt limit. It was actually proposed a while back. Not the coin part but the eliminating the treasury security holdings of the fed part.
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malcolmxy
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1/9/2013 1:56:39 AM
Posted: 3 years ago
They wouldn't use it to pay off any of the t-bill held by the FED. Why would they? If there's one group of T-bills on which the US Federal Government could default, it's the group held by the FED.

This is the one (and only) good thing about the FED - they are so interdependent on the success of The US Government, that they likely wouldn't report the fact that we defaulted on the payments for their stock of T-Bills. If they did, all of the currency that their member banks held in reserve would plummet in value.

The Federal Government isn't going to say anything (assuming the information can be controlled by the Executive Branch), because that would cause a monetary crisis which, in addition to being chaotic, would pretty much assure that they incumbent, or their party, would lose at election time.

If any T-Bills would be paid with these funds, they would be those held as foreign debt (because if we default on China's T-Bills, they might say something, though because they hold so many, it may not be in their best interest, assuming we simply fall behind on payments and don't appear to be heading toward defaulting on their investments.)

More likely, the money would be used as a slush fund to keep the engine running and the lights on (read - Social Security and Medicare payments and any incremental payments due on all outstanding T-Bills).

This isn't your personal finances...the Federal Government doesn't just take a chunk of change like that and pay down the credit cards. They use it to sustain their current debt level long enough to get through the recession's recovery, before raising taxes incrementally once that recovery has been completed.

And, as you can see, upon further reflection, I realized that the coin wouldn't need security, because there would be no place to fence it. It took me a sec, but the lightbulb finally snapped on, on that one.
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lewis20
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1/9/2013 2:08:28 AM
Posted: 3 years ago
We aren't coining it to pay off any debt but that held by the fed, no one else is going to accept the coin as payment. Its basically a work around to eliminate portion of the federal debt held by the fed and buy some time until we hit the debt limit again.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

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malcolmxy
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1/9/2013 2:31:45 AM
Posted: 3 years ago
At 1/9/2013 2:08:28 AM, lewis20 wrote:
We aren't coining it to pay off any debt but that held by the fed, no one else is going to accept the coin as payment. Its basically a work around to eliminate portion of the federal debt held by the fed and buy some time until we hit the debt limit again.

No, we wouldn't be coining it to pay off any debt, simply keep the lights on and make any incremental debt payments due while the money lasted. From the link posted by the OP:

So there it is in black and white. Geithner can have the Mint create a $1 trillion coin. Then he can walk it over to the Federal Reserve and deposit it in the Treasury"s account. Then the government can keep sending out the checks"to soldiers and military contractors, to Social Security recipients and doctors who treat Medicare patients, to poor families getting SNAP and to FBI agents"it"s required by law to send"and the checks will clear. It"s a simple, elegant solution.

The only relation this would have to debt at all is that it would eliminate the need to create more of it (and, because it would devalue the dollar, it would effectively lower the price of all outstanding debt that currently exists). But, if any debt were to be paid off with it, it would be the foreign debt.

Reading is fun...duh...mental.
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malcolmxy
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1/9/2013 2:38:45 AM
Posted: 3 years ago
PS - I didn't read the article until just now, either, but since I actually know how this sh!t works, I didn't need to.

You, on the other hand...you might wanna check this kind of stuff out. God forbid the misinformed, dogmatic ideas in your brain get replaced with something resembling reality, but who knows? Perhaps understanding economics, given your desire to discuss economics, might actually be a thing you find to be helpful.

Just an idea...I don't wanna seem pushy or anything.
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lewis20
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1/9/2013 10:56:07 AM
Posted: 3 years ago
At 1/8/2013 10:09:12 PM, lewis20 wrote:
At 1/8/2013 10:01:03 PM, imabench wrote:
Wouldnt a one trillion dollar coin literally allow inflation to run to infinite levels?

Its not adding money, its basically just erasing the trillion dollars of t bills the fed holds, thus allowing the treasury to issue a trillion in new bonds without raising the debt limit. It was actually proposed a while back. Not the coin part but the eliminating the treasury security holdings of the fed part.

Actually I was wrong, they are simply wanting to print a trillion dollars to keep the govt running. Which means runaway inflation would have to eventually become a concern.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
TheElderScroll
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1/9/2013 11:37:48 AM
Posted: 3 years ago
1st of all, thanks for posting this (I had no idea...). Second, this is brilliant. Third, what's the issue? Money is all (mostly) electronic these days, anyway. For a bank the size of the FED, what do they care if they get a wire transfer of $1 trillion or a single coin of the same denomination.

I believe it is all about the sign that Congress sends to the market. If the administration decided to mint the coin (Obama has adamantly rejected the option), investors might just perceive the measure as a trick adopted by the Washington to avoid confronting the real problem: ever escalating spending. Simply put, President Obama can ignore all potential spending constrains and just keep spending whatever amount Congress can approbate. Currently, the U.S. debt/GDP is about 85%. Greek holds the record which is about 168%. So if the president decided to open the Pandora Box, either for good or for bad, how will investors react would be a million dollar question (well, in this case, it is a trillion dollar question).
1Percenter
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1/9/2013 1:57:08 PM
Posted: 3 years ago
We should mint a bunch of trillion dollar coins and give 3 to the Elven kings, 7 to the dwarf lords, and 9 to mortal men to rule them all!
TheAntidoter
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1/9/2013 2:43:24 PM
Posted: 3 years ago
At 1/9/2013 1:57:08 PM, 1Percenter wrote:
We should mint a bunch of trillion dollar coins and give 3 to the Elven kings, 7 to the dwarf lords, and 9 to mortal men to rule them all!

Who Claims the dark lord position?

Maybe a Quintillion dollar coin?

Or maybe the coin to rule them all would have the launchcodes for nuclear weapons.
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lewis20
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1/9/2013 3:13:34 PM
Posted: 3 years ago
I wish we had us one of them doomsday machines
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sadolite
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1/9/2013 4:31:02 PM
Posted: 3 years ago
"Is The Platinum Coin Idea Clever or Insane?"

It isn't worthy of a response, but only an indicator of the level of intellect that resides in Washington DC.
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TheElderScroll
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1/9/2013 7:03:59 PM
Posted: 3 years ago
At 1/9/2013 4:31:02 PM, sadolite wrote:
"Is The Platinum Coin Idea Clever or Insane?"

It isn't worthy of a response, but only an indicator of the level of intellect that resides in Washington DC.

Politicians love playing mindless games and they have no fear to show how the public how ridiculous the games are.
TheElderScroll
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1/9/2013 7:18:45 PM
Posted: 3 years ago
At 1/9/2013 1:57:08 PM, 1Percenter wrote:
We should mint a bunch of trillion dollar coins and give 3 to the Elven kings, 7 to the dwarf lords, and 9 to mortal men to rule them all!

One Coin to rule them all, One Coin to find them,
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FREEDO
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1/10/2013 6:54:36 PM
Posted: 3 years ago
At 1/9/2013 1:57:08 PM, 1Percenter wrote:
We should mint a bunch of trillion dollar coins and give 3 to the Elven kings, 7 to the dwarf lords, and 9 to mortal men to rule them all!

This one wins.
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GeoLaureate8
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1/10/2013 7:19:46 PM
Posted: 3 years ago
Obviously this is dishonest fiat tactics, but if that's how they wanna operate why don't they make ten $1 trillion dollar coins and pay off our debt to China.

Why don't they just make 16 of them and pay off the whole damn debt.
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FREEDO
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1/10/2013 7:59:02 PM
Posted: 3 years ago
At 1/10/2013 7:19:46 PM, GeoLaureate8 wrote:
Obviously this is dishonest fiat tactics, but if that's how they wanna operate why don't they make ten $1 trillion dollar coins and pay off our debt to China.

Why don't they just make 16 of them and pay off the whole damn debt.

Because then one one would ever loan to us again.
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TheElderScroll
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1/10/2013 8:10:10 PM
Posted: 3 years ago
At 1/10/2013 7:19:46 PM, GeoLaureate8 wrote:
Obviously this is dishonest fiat tactics, but if that's how they wanna operate why don't they make ten $1 trillion dollar coins and pay off our debt to China.

Why don't they just make 16 of them and pay off the whole damn debt.

And it is not illegal. It is a bad idea even if many economists support it.
darkkermit
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1/10/2013 8:11:57 PM
Posted: 3 years ago
I think this is a great idea. Money creation can't be trusted in the hands of the private organization, the FED. It needs to be put in the hands of the democratic people, the government instead of the banks getting the money first.
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drafterman
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1/10/2013 8:14:13 PM
Posted: 3 years ago
http://www.cnbc.com...

"[I]t may be legal to mint a platinum bullion coin with a $1 trillion face value, but it's not legal to pass it off as actually worth $1 trillion if there isn't $1 trillion of platinum in it."
Jake-migkillertwo
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1/10/2013 8:54:32 PM
Posted: 3 years ago
At 1/10/2013 8:11:57 PM, darkkermit wrote:
I think this is a great idea. Money creation can't be trusted in the hands of the private organization, the FED. It needs to be put in the hands of the democratic people, the government instead of the banks getting the money first.

That's just crazy.