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A Trillion Dollar Platinum coin, Anyone?

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poboxw
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 Posted 01/15/2013  6:39 pm Show Profile Check poboxw's eBay Listings Bookmark this topic Add poboxw to your friends list Get a Link to this Message

A financial post article covering the idea of a trillion dollar Pt coin to solve the debt ceiling problem. Neat read

http://business.financialpost.com/2...cas-economy/

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 Posted 01/15/2013  7:02 pm  Show Profile Bookmark this reply Add SDCrow to your friends list Get a Link to this Reply
Thanks for sharing. I believe this plan as already been nixed, but could someone please explain to me how it wouldn't lead to devaluation of the dollar? I don't understand. . .
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 Posted 01/15/2013  7:53 pm  Show Profile Bookmark this reply Add basebal21 to your friends list Get a Link to this Reply
Theres no way it wouldnt, it was just a way to bypass congressional oversight. You cant pump out money like that and not have inflation happen fast, especially since if ones good why not just pump out 16 and pay off the debt
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 Posted 01/15/2013  10:57 pm  Show Profile Bookmark this reply Add larsdog to your friends list Get a Link to this Reply
It's not pumping out money. Read the article. It's just a parlor trick to make the debt ceiling irrelevant. It would have ZERO effect on the economy or the debt or inflation. It would only make the debt ceiling law meaningless. If that is the goal, a better way would be to try invoking the 14th Amendment argument ["The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."], and if it was shot down by the Supreme Court THEN mint the trillion dollar platinum coin.

Progressive liberals want Obama to do all the above. Tea Party conservatives are convinced he WILL do all the above before outlawing guns, mother and apple pie. Moderates hope the children we sent to Washington will grow up and raise the debt ceiling before damaging our credit rating AGAIN and address deficit spending in the next budget negotiations. It's OK to threaten to shut down government. It's not OK to threaten to not pay our bills.
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 Posted 01/15/2013  11:18 pm  Show Profile Bookmark this reply Add SDCrow to your friends list Get a Link to this Reply
I read the article, and it doesn't make sense to me. If minting one platinum coin would have zero effect on the debt/economy/inflation, than why would minting 5, 10, or 20 coins be any different?

By the way, I would be interested to see what a trillion dollar coin would look like. We throw around the words billion and trillion all the time, but seeing those 12 zeros on a coin would maybe put things into perspective.
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 Posted 01/15/2013  11:38 pm  Show Profile Bookmark this reply Add basebal21 to your friends list Get a Link to this Reply

Quote:
It would have ZERO effect on the economy or the debt or inflation. It would only make the debt ceiling law meaningless.


It makes it meaningless by increasing the supply of money hence the trillion dollar coin. It would absolutely have an effect on the value of our money a new trillion dollars would have just come off the presses.

Its going to get raised, the idea of using it as an opportunity to get spending cuts when we havent had a budget in over 4 years isnt unreasonable.

If it really would have no impact on our money then they would pump out 16 of them call our debts square and say problem solved. You cant increase a money supply like that and have no ill effects
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 Posted 01/16/2013  12:19 am  Show Profile Bookmark this reply Add larsdog to your friends list Get a Link to this Reply

Quote:
I read the article, and it doesn't make sense to me. If minting one platinum coin would have zero effect on the debt/economy/inflation, than why would minting 5, 10, or 20 coins be any different?


There would be no need to mint more than one. It's like writing a hot check (or cold check - depending on where you live) to cover what you can't afford. The trillion dollar coin doesn't PAY any debt or go into the economy. It's simply a deposit to the Treasury's account at the Fed so they don't have to BORROW as much and therefore don't hit the debt ceiling. That would cut the need to issue Treasury notes which may lead to too much cash in the system, but the Fed is sitting on a lot of Treasury notes that it could sell off to decrease the money supply. This would require an unprecedented (and ill-advised) coordination between Treasury and the Fed. And it would only work for the first $1 trillion dollars anyway. After that the Fed wouldn't have the excess T-bills to buy up excess dollars and inflation would be like 1980.

The bottom line is that one $1 trillion dollar coin could theoretically be used to circumvent the debt ceiling law by accounting trickery, but it would not reduce our debt or deficit by ONE dollar. That's why a 14th Amendment argument is more likely since it is easier to understand and could establish a precedent for future debt ceiling debates.


Quote:
By the way, I would be interested to see what a trillion dollar coin would look like. We throw around the words billion and trillion all the time, but seeing those 12 zeros on a coin would maybe put things into perspective.


What would a $1 trillion coin look like? I doubt it would be bullion. More likely 90% platinum with "ONE TRILLION DOLLARS" instead of the "TWENTY DOLLARS" of a double eagle. I would like to see Mike Myers as Dr. Evil on the obverse ("ONE TRILLLLLLION DOLLARS!") and the Monopoly character with empty pockets on the reverse. I doubt you would see 12 zeros. U.S. coins typically write out the denominations. Bank notes use zeros. I have a one hundred trillion dollar note (14 zeros) from Zimbabwe on my desk to remind me of how serious this stuff is. It's a sobering sight.
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 Posted 01/16/2013  12:29 am  Show Profile Bookmark this reply Add larsdog to your friends list Get a Link to this Reply

Quote:
It makes it meaningless by increasing the supply of money hence the trillion dollar coin. It would absolutely have an effect on the value of our money a new trillion dollars would have just come off the presses.

Its going to get raised, the idea of using it as an opportunity to get spending cuts when we havent had a budget in over 4 years isnt unreasonable.

If it really would have no impact on our money then they would pump out 16 of them call our debts square and say problem solved. You cant increase a money supply like that and have no ill effects


The reason a single one trillion dollar coin would have no effect on anything other than the debt ceiling argument is that the Fed is sitting on enough T-bills to buy up the excess dollars that Treasury would USUALLY buy up with the T-bill auctions. Instead of Treasury issuing T-bills to finance debt, the Fed sells off T-bills because it's sitting on a HUGE IOU from Treasury in the shape of a coin worth one trillion dollars.

The problem is that it transfers even more monetary power to the Fed and once the Fed sells off all the T-bills it has, the game is up. That's why you can't issue a $16 trillion dollar coin. A $1 trillion dollar coin is just an accounting trick. It's NOTHING like printing up $1 trillion in paper money and releasing it into the economy. Not even close.
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 Posted 01/16/2013  12:37 am  Show Profile Bookmark this reply Add basebal21 to your friends list Get a Link to this Reply
The initial effect of the coin may not have the same short term effects as releasing 1 trillion new dollars but it does devalue the money, everyone knows what the trick is theyd be pulling. Plus all bubbles burst at some point tricks or not just look at what happened to housing with all the nifty tricks being used there.

Id actually argue long term this trick is more dangerous than releasing a new trillion dollars. If you release a new trillion youve got a new trillion but thats it. If you realize you can just avoid debt talks with tricks like this spending goes unchecked forever as you can just keep piling up the coins until it looks like the presidential dollar storage facility. Im very happy the idea was killed personally. They could say it would have been a 1 off thing all they wanted but once that gets done 1 time it will happen again. Nothing in government ever just happens once especially a trick that can cause that much power to shift
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 Posted 01/16/2013  12:37 am  Show Profile Bookmark this reply Add SDCrow to your friends list Get a Link to this Reply
Larsdog, thanks for the explanation. I was thinking along the lines of what basebal21 was saying, but figured there was something fundamental I was missing.


Quote:
I have a one hundred trillion dollar note (14 zeros) from Zimbabwe on my desk to remind me of how serious this stuff is. It's a sobering sight.


Absolutely. I actually had the same idea to find one of those a while ago, but that idea got sidetracked.
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 Posted 01/16/2013  12:32 pm  Show Profile Bookmark this reply Add larsdog to your friends list Get a Link to this Reply
SDCrow, they are easy to find on eBay. Right now you can Buy-It-Now for $6.99 and free shipping, but if you watch the auctions you can generally land one for $5 or so, including shipping.

basebal21, you have to remember that this gimmick only works if the Fed sells off some of their T-bills to offset the T-bills that Treasury would NOT have to sell to raise money, so it would only work for a while.
It won't work to issue a $16 trillion platinum coin because the Fed isn't sitting on that much in T-bills. All this gimmick does is have the Fed sell existing T-bills instead of Treasury issuing new ones. The Fed is sitting on about $1 trillion in T-bills as a result of QE1, QE2, etc., so theoretically they could sell those back into the market to maintain the money supply and prevent ANY negative effect caused by Treasury NOT issuing new T-bills to raise cash to pay bills. It's really an effective gimmick, but it doesn't address ANY of the underlying problems, gives too much power to the Fed, and only works as long as the Fed is sitting on a pile of T-bills. Even before the recession the Fed was sitting on about a half trillion in T-bills it could use to regulate the money supply. This accounting gimmick would eventually deplete that stash and remove a powerful tool the Fed has to control inflation because if the economy heats up too much they can just unload some T-bills and park the cash to put the brakes on the economy. With no T-bills to sell, all they would have is a trillion dollar coin that is nothing more than an IOU from Treasury that Treasury would not have the authority (without Congress) to redeem by - you guessed it - issuing a bunch of T-bills to raise the cash to pay for it. That's why I think it's a bad idea. The 14th Amendment argument is better, but better still would be for Congress to do their job.
Edited by larsdog
01/16/2013 12:34 pm
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 Posted 01/16/2013  12:59 pm  Show Profile Check barryg's eBay Listings Bookmark this reply Add barryg to your friends list Get a Link to this Reply
So...

If I understand what folks are saying correctly, it basically boils down to the fact that the Fed currently has enough banknotes printed to pay off our current debt obligations, but they are not allowed to do so until Congress authorizes it by raising the debt ceiling? And the trillion dollar coin is just a way to authorize the Fed to pay the debts without needing congressional approval?

Is that correct?
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 Posted 01/16/2013  1:03 pm  Show Profile Check IndianGoldEagle's eCrater Listings Bookmark this reply Add IndianGoldEagle to your friends list Get a Link to this Reply
Where do you think all those new design $100 bills are? Printing errors, yeah right. Stock piled and ready to go.
Check out my coins and bullion at http://usn6771.ecrater.com/index.php low prices, free shipping for CCF members.
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 Posted 01/16/2013  4:49 pm  Show Profile Bookmark this reply Add larsdog to your friends list Get a Link to this Reply

Quote:
So...

If I understand what folks are saying correctly, it basically boils down to the fact that the Fed currently has enough banknotes printed to pay off our current debt obligations, but they are not allowed to do so until Congress authorizes it by raising the debt ceiling? And the trillion dollar coin is just a way to authorize the Fed to pay the debts without needing congressional approval?

Is that correct?


The first part is wrong, but you have the second part right.

The Fed has about $1 trillion in Treasury notes (T-bills). They buy and sell those to regulate the money supply. If the economy overheats, they sell T-bills to contract the money supply. If they want to boost the economy they can buy securities like T-bills and more controversially, mortgage-backed securities. That was QE1, 2, etc. That injects money into the economy but risks devaluing the dollar.

The Treasury department has an account at the New York Fed. When Treasury writes a check (e.g. your tax refund, social security check, or whatever), there has to be enough money in the account to pay for it. If there isn't, Treasury has to get more cash and they do that by selling T-bills. They do it all the time. They deposit the cash they get from selling T-bills and send you your tax refund, or social security check, or whatever. Treasury is only allowed to borrow to a certain limit, so if they can't auction T-bills they can't pay all the bills. That's the debt ceiling. But if Treasury issued a $1 trillion coin and DEPOSITED it with the Fed, they would have an extra trillion to play with. Treasury could write the tax refund checks and when the Fed paid the cashed checks from Treasury's account they would need cash to do so. If they used the cash they had printed up they would devalue the dollar. However, they could raise cash by selling T-bills. This would not constrict cash since the Fed sales of T-bills would offset the lack of T-bill sales by Treasury. The money supply would be the same either way so there would be no effect on the value of the dollar. The key is that Treasury needs congressional approval to issue additional T-bills but the Fed does not need Congressional approval to sell the T-bills it has on hand. That's why Treasury can't just issue a $16 Trillion coin and erase the debt. The $1 Trillion coin is nothing more than a big IOU from Treasury to the Fed to get around the debt ceiling law. It's an accounting gimmick. It's really quite brilliant, actually, but it would not accomplish anything other than to skirt Congressional oversight of the debt ceiling, and the Fed would no longer have T-bills it could auction off to constrict the money supply if the economy started to overheat. If getting around the debt ceiling is the goal, why not just argue that the 14th Amendment makes the debt ceiling Unconstitutional?
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 Posted 01/16/2013  5:02 pm  Show Profile Bookmark this reply Add larsdog to your friends list Get a Link to this Reply

Quote:
Where do you think all those new design $100 bills are? Printing errors, yeah right. Stock piled and ready to go.


The Fed doesn't pay bills. They issue money and buy and sell securities to control the supply of money. They issue dollars or buy securities to stimulate the economy and sell securities or remove cash to rein in inflation. Treasury has an account at the Fed and pays bills from that account, but the debt ceiling has no effect on the Fed. There is no sinister plan to flood the market with $100 bills. It wouldn't pay down the debt in any way. It would just devalue the dollar. The Fed monitors the money supply and will inject or remove cash as needed. Every year they inject cash before Christmas so there is no shortage for shoppers and then remove it in January because another injection is coming from tax refunds soon.
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 Posted 01/16/2013  5:52 pm  Show Profile Bookmark this reply Add jbuck to your friends list Get a Link to this Reply
A previous thread, for review...

http://www.coincommunity.com/forum/...IC_ID=137903
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