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Minting the $1 Trillion platinum coin would NOT be inflationary. [View All]

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girl gone mad Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-31-11 05:49 PM
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Minting the $1 Trillion platinum coin would NOT be inflationary.
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Edited on Sun Jul-31-11 05:52 PM by girl gone mad
Since this idea went mainstream, the reaction has consistently been: ZOMG! Inflation!!1!

This response seems to be based on the misconception that the money being created is going to be "spent" in the economy, but that's not what actually happens.

For the uninitiated, the basic idea is:

The US Constitution gives Treasury the authority to mint coins, and there is no legal limit on the face value Treasury can set for platinum coins.

Treasury can mint a platinum coin and stamp $1 Trillion on the face, then swap the coin for $1 Trillion USD credits from the Fed. The coin will be stored in Treasury's vault at the Fed where it will never circulate.

Treasury would then use those USD credits to retire $1 Trillion worth of US Treasury bonds. This is the key to understanding why the operation is not inflationary. $1 Trillion in US dollars are going into the private sector while $1 Trillion in Treasury bond holdings are being removed.

No net financial assets have been created in the private sector. The net effect is actually slightly less money in the private sector because once the bonds are retired, they no longer bear interest and cash reserves pay a much lower interest rate.

This procedure would give the government the ability to pay its debts, but again, this is not inflationary since they are merely paying for spending that was already approved back when the budget passed and not doing any additional spending now. The entities to which money is owed already expect to be paid and have budgeted according to that expectation.

Just wanted to make an OP since this comes up in every single thread on the subject. Feel free to correct any errors or add more details.

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  -Minting the $1 Trillion platinum coin would NOT be inflationary. girl gone mad  Jul-31-11 05:49 PM   #0 
  - K&R  amborin   Jul-31-11 05:50 PM   #1 
  - The other concern is the platinum/precious metals market. Can you address this, please ?  steve2470   Jul-31-11 05:55 PM   #2 
  - The effect on the precious metals market is no different than any individual buying an oz or so of..  JVS   Jul-31-11 06:03 PM   #4 
  - They could use about $100 worth of platinum to create a coin with a $1 Trillion face value  Egalitariat   Jul-31-11 06:08 PM   #6 
  - No effect. This is coinage, not volume/weight.  Ruby the Liberal   Jul-31-11 06:35 PM   #14 
     - I heard that there are standards for the vaue of the coin  OrwellwasRight   Jul-31-11 06:56 PM   #23 
        - I think this is why the requirement for platinum was added  Ruby the Liberal   Jul-31-11 07:09 PM   #25 
  - How does that get any of the bills paid?  dkf   Jul-31-11 05:55 PM   #3 
  - When a bond is retired/redeemed, the debt is removed from the books.  girl gone mad   Jul-31-11 06:06 PM   #5 
  - Why stop at $1 trillion?  dkf   Jul-31-11 06:14 PM   #11 
     - Why stop at the entire amount ($14T)?  Zebedeo   Jul-31-11 06:37 PM   #15 
        - The argument is if you use it to retire current debt you cause no inflation.  dkf   Jul-31-11 06:48 PM   #20 
        - It looks like you answered your own question.  girl gone mad   Jul-31-11 06:48 PM   #21 
  - When we retire $1T worth of debt  drm604   Jul-31-11 06:08 PM   #7 
  - Question  woolldog   Jul-31-11 06:08 PM   #8 
  - No. Retiring the bonds would put us $1T below the current ceiling,  drm604   Jul-31-11 06:10 PM   #9 
     - I saw your repsonse to the other poster after I posted my question.  woolldog   Jul-31-11 06:14 PM   #10 
     - one more question:  woolldog   Jul-31-11 06:17 PM   #12 
        - Good question.  drm604   Jul-31-11 06:30 PM   #13 
  - Great  Zebedeo   Jul-31-11 06:38 PM   #16 
  - I agree with you for the most part. However, there is a limit to this, and that is the amount of  BzaDem   Jul-31-11 06:38 PM   #17 
  - Dupe. Sorry.  drm604   Jul-31-11 06:46 PM   #18 
  - I think you may be misunderstanding the idea.  drm604   Jul-31-11 06:48 PM   #19 
     - The problem is that if we buy the bonds from any non-Fed entity, that is injecting a huge amount of  BzaDem   Jul-31-11 07:04 PM   #24 
        - Money supply would be unchanged.  girl gone mad   Jul-31-11 07:18 PM   #27 
        - If the Treasury uses the trillion dollar coin to buy bonds from private markets, it will increase  BzaDem   Jul-31-11 07:55 PM   #29 
           - It has no impact on money supply.  girl gone mad   Jul-31-11 09:46 PM   #33 
              - Your entire theory relies on bonds being equivalent to cash, and that is ONLY true in a liquidity  BzaDem   Jul-31-11 11:08 PM   #34 
                 - No, it doesn't and no it isn't  girl gone mad   Jul-31-11 11:36 PM   #36 
        - I think buying them from the Fed is the better idea.  drm604   Jul-31-11 07:51 PM   #28 
           - Exactly. It would result in QE/QE2 staying in the economy, which is likely what the Fed was going to  BzaDem   Jul-31-11 07:56 PM   #30 
           - That's another option..  girl gone mad   Jul-31-11 08:05 PM   #31 
              - Yes, exactly. Buying them from the Fed would truly have no effect, and the Fed would be FORCED to  BzaDem   Jul-31-11 11:10 PM   #35 
  - PS Inflation is good for people who owe money (i.e., US) . . .  OrwellwasRight   Jul-31-11 06:52 PM   #22 
     - That's great in theory, however, it's not like everyone's wages  iris27   Jul-31-11 07:13 PM   #26 
        - It's not theory, it's economic facts.  OrwellwasRight   Jul-31-11 08:07 PM   #32 

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