Some more information about the $1T coin, the law, and why it can only be made from platinum:

[Poll_Blind]

I think a lot of people are getting hung up on the concept of the minting of one or more $1 Trillion dollar coins as means for the President to bypass Congress to keep our nation from defaulting. Probably 90% of you who are reading these posts about a "Trillion Dollar Coin" think is sounds absolutely absurd. Whether or not you agree with me that this is a more legally viable and defensible position than "invoking the 14th Amendment" is moot. You're going to hear a lot more about this option in the next few days and this describes the hows and whys such a thing is a considerable, defensible option. Certainly more defensible than "invoking the 14th Amendment" which would almost certainly yield lawsuits which would invariably wind their way to the Supreme Court.

That Supreme Court.

Excerpted from this CNN article.

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.

--snip--

The "jumbo coin" and "exploding option" strategies work because modern central banks don't have to print bills or float debt to create new money; they just add money to their customers' checking accounts.

More information in this DU thread, among others. This excellent video in the DU forums describes several ways around a Congressional impasse, including the "$1 Trillion coin".

PB

[Ruby the Liberal]

1. I am loving the idea ever since I first heard of it earlier in the week.

k&r - thanks for posting this.

[hugo_from_TN]

2. What's to keep Geitner from pocketing them and handing over to his banker buddies?

[Poll_Blind]

3. Treasury guards with sidearms.

I also wouldn't mind getting creative with it. I mean, I can think of no better shape for the new coin than a solid platinum statue of The Fonz from Happy Days jumping over a solid platinum shark.

PB

[TheWraith]

4. I like this strategy. It at least seems legally defensible.

The 14th Amendment thing really isn't.

[supernova]

5. Gold-pressed Latinum

of course.

[Frank Cannon]

42. No. Unobtainium. Gotta be Unobtainium. n/t

[girl gone mad]

6. It may seem like it came out of nowhere, but it's been the topic of heated debate for months.

Economists, lawyers and policy wonks have gone over this plan with a fine tooth comb, and the bottom line is, it would work.

Here is the http://my.firedoglake.com/beowulf/2011/01/03/coin-seigniorage-and-the-irrelevance-of-the-debt-limit">original post from economic blogger/commentator beowulf that first laid out the coin seigniorage strategy back in January.

There's also additional information in Joe Firestone's New Economic Perspectives piece which I posted last week:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x1531957

[jberryhill]

7. Those Yap Island coins would be cool

Stick a platinum medallion on one.



Whose picture should go on the face?

[Poll_Blind]

8. These:

PB

[OxQQme]

9. Make it even easier

Make one $2 T coin from unobtainium.
Hand carved.

[Poll_Blind]

10. CLINK!

CLINK!

PB

[Proles]

11. Reminds me of that Simpsons episode

where the government is trying to find a lost trillion dollar bill.

But I honestly think the 14th amendment option is more likely than this trillion dollar coin option -- despite its supposed legality.

I remember Obama saying something about "No Gimmicks," and that sounds like quite a gimmick -- but I must admit the absurdity of minting a trillion dollar coin does not even reach the absurdity of this outrageous debt cieling debate.

[Pab Sungenis]

12. The law in question

refers to coins for collectors and investors, not for currency.

[Poll_Blind]

17. That's NOT accurate. Here is the law and it 100% provides for currency: (LINK)

HERE

(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.

I have a number of bullion coins and proof coins and all of them are legal tender for the denomination stated on the coin, though they are (of course), worth much more. Look at the reverse side of a http://en.wikipedia.org/wiki/American_Silver_Eagle">Silver Eagle, for instance, and you'll see that its denomination is $1. It can be traded as bullion for much more but it is absolutely acceptable to go in and purchase a Slurpee at a 7-11 with...but it is only worth its stated denomination when used as currency, $1.

PB

[Trailrider1951]

13. Uh, the last president to issue Treasury money (notes) in defiance of the Federal Reserve

was JFK. :-(

[Leopolds Ghost]

26. Yeah, and we all know how that worked out for him. :-(

[Manifestor_of_Light]

14. Platinum makes beautiful jewelry. Far more durable than gold.

Much higher melting point, and much more difficult to work with than gold or silver.

Just saying this as a woman who likes nice jewelry. :D

[Pab Sungenis]

15. If you want a precious metal solution

at current prices there are $220,800,000,000 worth of gold in Fort Knox right now.

The Act of March 3, 1863 allows the Government to issue Gold Certificates. The President could just lift Executive Order 6102 and instruct the Treasury to issue a couple billion dollars or so in Gold Certificates redeemable upon demand after a certain date.

[Egalitariat]

18. Your post is cute. It reminds me of Austin Powers asking for "$1 Million Dollars". All the gold in

Fort Knox - which you quoted as $220 Billion - wouldn't put a noticable dent in our fiscal problems. It would be a rounding error at best.

You also mentioned printing "a couple billion dollars or so" in gold certs. A couple billion dollars is how much we rack up in new debt every couple of days.

[Pab Sungenis]

24. It's as realistic as the "$1 Trillion Coin" idea is.

Platinum is trading under $2,000 an ounce. Without driving the price of platinum through the roof (which would be disastrous for industries that need platinum) you'd need 5 times more platinum than we have gold in Fort Knox.

This is why we abandoned metallic standards for money ages ago. For modern economics they don't work and the only people that believe in them have no idea how these things actually function.

[Egalitariat]

28. Except the $1 Trillion Coin would only take about 5 grams of platinum

Stamp it at the US Mint with a $1 Trillion face value and there you have it. Mint two of them and deposit in the Federal Reserve and the problem is solved.

You should read more about the $1 Trillion Coin idea if you think it was going to take $1 Trillion worth of Platinum (at its commodity price) to make the one coin.

[Pab Sungenis]

29. But as I said, without real value, then the coin is inflationary at best

and devastating at worst. Even if it didn't completely disrupt the precious metals market or the stock market (which it obviously would do) it would be such an obvious ploy that foreign investors would dump our bonds and not buy new ones.

[girl gone mad]

30. It's less inflationary than just issuing more debt would be, actually.

It's an asset swap so no new net financial assets are created.

http://www.nakedcapitalism.com/2011/07/scott-fullwiller-qe3-treasury-style%E2%80%94go-around-not-over-the-debt-ceiling-limit.html">Read here for some more insight into the technical aspects:

6. The increase in reserve balances is not inflationary, as Credit Easing 1.0, QE 1.0, and QE 2.0 already have shown. Banks can’t “do” anything with all the extra reserve balances. Loans create deposits—reserve balances don’t finance lending or add any “fuel” to the economy. Banks don’t lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its target—that’s what it means to set an interest rate target. Widespread belief that reserve balances add “fuel” to bank lending is flawed, as I explained here over two years ago.

7. Non-bank sellers of the bonds purchased by the Treasury now have deposits earning essentially 0%. Again, this is not inflationary. There are three points to make in explaining why.

First, sellers of bonds were always able to sell their securities for deposits with or without the Treasury’s intervention given that there are around 20 dealers posting bids at all times. Anyone holding a treasury security and desiring to sell it in order to spend more out of current income can do so easily; holders of Treasury securities are never constrained in spending by the fact that they hold the security instead of a deposit. Further, dealers finance purchases of securities from both the private sector and the Treasury by borrowing in the repo market—that is, via credit creation using securities as collateral. This means there is no “taking money from one person to give it to another” zero sum game when bonds are issued (banks can similarly purchase securities by taking an overdraft in reserve accounts and clearing it at the end of the day in the federal funds market), as what in fact happens is that the existence of the security actually enables more credit creation and are known to regularly facilitate credit creation in money markets that are a multiple of face value. Removing the security from circulation eliminates the ability for it to be leveraged many times over in money markets.

Second, the seller of the security now holding a deposit is earning less interest can convert the deposit to an interest earning balance. Just as one holding a Treasury can easily sell, one holding a deposit can easily find interest earning alternatives. Some make the argument that the security can decline in value and so this is not the same as holding a deposit, but this unwittingly supports my point here that holders of deposits aren’t necessarily doing so to spend. Deposits don’t spend themselves, after all.

[Pab Sungenis]

32. But it's NOT asset swap

it's asset CREATION. You can't just arbitrarily claim that a little slab of platinum worth, maybe, a couple of thousand dollars is suddenly worth a trillion. If your debt is suddenly called in you have to produce the assets that are backing it, and the asset will not be there.

[girl gone mad]

33. No, it is an asset swap.

The coin is legally viewed as money, not debt.

The operation wouldn't add a penny to the private sector money supply. If anything, it's deflationary.

[Pab Sungenis]

38. Let me try this again.

The coin can legally be viewed as money, but that does not mean that other nations have to accept it as such. Thus we will be unable to use it to pay our foreign debts. (Countries are not bound to accept other nation's legal tender.)

Since it will have no real intrinsic value it will not be accepted as collateral for future debts.

The only way it would be acceptable as money would be to use it to pay domestic debts. And anyone we gave a trillion dollar coin to in payment would be able to take it to a bank and break it, which would wreck our current money supply.

The entire idea is ludicrous. You cannot spontaneously create one trillion dollars in money without causing extreme inflation. Minting a coin with a few ounces (the largest coin ever produced by the U.S., and they're still working on the tech aspects, is five ounces) of platinum and saying it's worth a trillion dollars is no different than printing a trillion dollar bill. It will not work.

[girl gone mad]

40. I don't think you understand the proposal.

To address your main points:

The Constitution gives Treasury the legal authority to mint coins. The Fed must exchange dollar credits for the coins when the Treasury wants to store the coins at the Fed. Treasury will use those dollar credits to retire bonds.

Foreign countries are not being asked to accept the coin as money. The coin is not being spent, it's being kept in a vault.

We actually created way more than a trillion dollars since the financial crisis, and we are not experiencing extreme inflation.

This coin seigniorage plan would not increase the money supply in the private sector. If anything, it removes money from the private sector and is thus deflationary.

[metalbot]

44. Don't we have to use cash to retire those bonds?

If I have a $100 bond, and you want to retire it, you need to give me $100. Isn't that going into the private sector?

I'm obviously completely misunderstanding the proposal.

[girl gone mad]

47. Bondholders are always free to sell their bonds on the open market..

so it wouldn't be freeing up new money to spend.

[metalbot]

57. Ok, sorry, still confused.

I have a $100 bond. It's paying me interest, and matures in 2020. I can sell this bond on the open market, in which case someone else will own the bond. This transaction is transparent to the government, because they only have to pay out when it matures, or if they retire it early.

To retire the bond, the US government gives me $100 for the bond. That's giving me cash, that now sits in my checking account, that I am free to spend.

If the US government used part of the value of the $1T coin to fund retiring my bond (for $100), how have they not injected $100 into circulation that was not there before? How is that any different from printing paper money and spending it?

[Poll_Blind]

49. +1

PB

[Zebedeo]

53. If it is free money and not inflationary

then why not make it a quintillion dollar coin? That should solve our problems for a long time to come, no?? :sarcasm:

[drm604]

37. How would it disruput the precious metals market?

The choice of platinum has nothing to do with the actual value of the metal. A quarter costs less than 25 cents to mint but that doesn't disrupt the copper and nickle markets. If people were proposing to issue a $1T banknote no one would be concerned about the market values of cotton and linen.

[Pab Sungenis]

39. It works because we are talking about a fungible precious metal.

The reason that collector and investor precious metal coins can carry a legal tender value is because their face value is less than the metallic value. A gold coin with a $50.00 face value actually contains about $1,500.00 worth of gold. A platinum coin with a $100.00 face value actually contains about $1,900.00 worth of platinum. No one would try to spend these coins.

This then gets turned on its head if we try to mint a $1 Trillion platinum coin with anything less than an actual $1 Trillion worth of platinum in it. If we need to draw upon that asset we can't because it cannot be sold for anything near its face value. Thus it cannot be used to back our debt obligations.

The only way it would work would be if the price of platinum suddenly rose, or were set by government fiat, to be close to the equivalent value of the metal in the coin. This would either be unstable on the metal markets, or inflationary, or both.

Even if it's platinum then it's still fiat money. And you cannot simply dump $1 Trillion into the money supply without inflation.

[girl gone mad]

41. That's assuming an extreme degree of irrationality exists in the PM market.

[drm604]

45. Yes, it's Fiat money.

It's all fiat money. That's the system we have. If you're unhappy with that then work to change it, but it's the current system and It's based on the full faith and credit of the U.S. Government.

There's no reason the coin can't consist of materials having an actual physical value much less than the face value. As far as I know, that's the case for all of our currency.

Why couldn't we draw on it? If the U.S. government wants to denominate it at $1T then they have the legal ability to do that and the Federal Reserve will accept it.

Explain to me how it would be inflationary. We would not be "simply dumping $1 trillion into the money supply". We would be using it to buy $1T of Treasury bonds on the open market. This causes no net increase in financial assets in circulation. $1T cash goes into the system and $1T in bonds comes out (and are retired since they're being purchased by the treasury).

The Fed has done something similar in recent years with QE1 and QE2 where they created in total $900B in money and then used it to purchase an equivalent amount in Treasury bonds. Neither of those actions caused inflation. Hell, they didn't even stimulate the economy in the amount that was hoped for. They didn't seem to have much affect at all.

[Pab Sungenis]

50. Well, for one thing

it won't help our situation if we can't issue new bonds to purchase with this magic coin. The problem with the debt ceiling is that we can't issue new bonds and the magic coin can't be used to buy existing bonds in private hands.

[drm604]

51. You're the only one talking about "magic coins".

I don't know where you're getting that from. No one else here is talking about magic.

The coin we're talking about could be sold to the Fed. The proceeds would then be used by the Treasury to buy back Treasury Bonds on the open market. Since the Treasury would be buying bonds that it originally issued, this would retire the debt represented by those bonds. This would bring our debt $1T below the current debt ceiling. We would thus no longer be up against the ceiling and could go on borrowing to meet our needs.

You're getting hung up on the coin. The coin is just a mechanism for legally creating an amount of money beyond what would otherwise be the statutory limit.

The argument here is about creating money, and whether or not it's a good idea. It's not about platinum coins. That's a red herring.

[Pab Sungenis]

58. The same money can be created easier

through another round of quantitative easing. And neither is a good answer because both are inflationary.

[Poll_Blind]

21. The concept that this is a "precious metal" solution seems to miss the point entirely.

The metal in question is chosen not because of its value in any form, but because the way the law is written it is the only metal which does not have restrictions in what denominations it can be coined and who has the authority to determine that denomination.

PB

[Pab Sungenis]

25. But to suddenly declare that a single piece of metal is worth a trillion dollars officially

will so throw off the actual value of platinum so much that it would wreck the economy as surely as a default would.

Platinum doesn't have value simply by fiat; it's an industrial metal. We don't have enough platinum to make an actual trillion dollar coin, and to try and take (say) $100,000 worth of platinum and declare it to be worth a trillion dollars is as inflationary as QE2 times a million.

The concept behind paper money is that it is backed by something, so in theory you could take your money and demand what is backing it. Until 1933 that was gold, and until 1968 that was silver. Now it's Federal Treasury Bonds backing the money.

If you tried to use a fake $1 Trillion coin to back an issue of money, the actual value of that money would collapse.

[BzaDem]

31. Huh? We have far more money than treasury bonds. Fiat currency is just that -- backed by fiat. n/t

[girl gone mad]

35. Federal Treasury bonds are backed by dollars, but not vice versa.

The dollar is backed only by the taxing authority of the US government.

[Frank Cannon]

46. FWIW, I agree with you. I've read all the arguments...

and I still can't see how this would work, or how it doesn't carry the possibility of being even more destructive.

In a fiat-based economy, ANY coin is based on the sheer faith that whoever gets it will see its face value ultimately honored in some fashion. This is why we even have an Amendment that the government can't just blow off what it owes. Doing this is essentially producing entirely imaginary money to try to back up our debts.

One does not just walk into Mordor. Not with 10,000 men can you do this.

[JVS]

55. That's not how it works.

Printing $20, $50 and $100 bills on pieces of paper doesn't fundamentally alter the paper market.

[yawnmaster]

16. Why just a $1T coin. make it $100T! Then we won't have to run a deficit for a few...

years! maybe mint say 1000 $100T coins, then we won't have to deficit spend for many years.
Our govt will have lots of money and we won't have to borrow from anyone.

[metalbot]

34. This is the obvious question that everyone who wants the coin is ignoring

We could mint another one and make our higher education free. Then mint another one and effectively end unemployment. Then mint another one and throw the money at cancer research. The list goes on and on.

Obviously, if we mint $100T, it's inflationary. If $100T is inflationary, why is $1T not inflationary? The explanations that I've read have been focused on the fact that the balance sheets are unaltered. However, balance sheets really only show one of three views that you need in order to understand how a company (or government) is doing.

If the government mints a $1T coin, then uses that money to buy back treasury bonds, it immediately injects $1T in cash into circulation. How could that possibly NOT be inflationary? Once we've demonstrated willingness to deflate the dollar, it's going to force the government to raise interest rates, since that would be the only way to attract investors to a dollar that we've demonstrated a willingness to deflate.

I'd be open to arguments that this could be a valid idea. It's possible that the inflation would be limited and not have a serious impact on bond rates, but I'd want to see the math, not just some hand-waving blog post arguments.

[drm604]

36. It's only obvious to people who don't understand the idea.

I'm not convinced that this is a good idea but your particular objections are based on a misunderstanding of what's being proposed.

Either amount would of course be inflationary if it was just dumped into the economy, but that is not what's being proposed.

The idea is for the treasury to use the trillion dollars to buy back and retire $1T of treasury bonds. This would not cause a net increase in financial assets in the economy so there's no reason to believe it would cause inflation. There are not $100T in outstanding treasury bonds to be purchased so it wouldn't make sense to create $100T.

[metalbot]

43. In order to buy back $1T in bonds, don't you have to give someone $1T?

Maybe I'm completely misunderstanding this. The government has issued bonds - meaning, we've taken money, in exchange for a piece of paper that requires us to pay interest and ultimately repurchase the bond. If we're going to buy back and retire $1T in bonds, we have to pay someone $1T in cash, correct? Doesn't this dump $1T into the economy?

If we're talking about buying back internal debt, that seems even whackier. Would you be comfortable, for example, with the government saying "We're replacing the Social Security Trust Fund bonds with a trillion dollar platinum coin. That way, we owe less money, which frees us up to borrow hard currency again."?

[drm604]

48. Yes, of course you have to pay for them.

No one is suggesting otherwise.

And no, nothing is being "dumped". When you buy something do you consider it as "dumping" your money? It's not being dumped, it's being used to buy back Treasury bonds. Thus $1T in cash goes into the economy and $1T in bonds comes out of the economy, resulting in no net increase in financial assets in the private economy.

The Fed did something similar in recent years with the two quantitative easings. As I understand it, it created, in total, $900B (nearly a trillion) in money and used that created money to buy Treasury bonds on the open market. This did not cause inflation.

No, I would not be comfortable with the government replacing the trust fund with $1T of anything since the trust fund is bigger than $1T so it would be a ripoff.

[ensemble]

19. JMO...

I suspect Obama is quietly keeping some kind of option like this in his back pocket.
He would rather that an acceptable compromise come to his desk (acceptable is a relative term, of course).
In the end, the financial system lackeys like Obama are not going to let the system collapse.

[kenny blankenship]

20. Absurd? Absurd? I won't be happy UNTIL they mint a 1 Trillion dollar platinum coin

and it had better have Ronald Reagan's stupid grin on it. Or Mickey Rat.

[roamer65]

22. There won't be any need for a $1T coin. We're going to have QE3 on steroids.

The Federal Reserve is going to start to convert existing Treasury paper into cash thru commercial banks. Trust me they will then find a way to get it into the Treasury. JP Morgan rescued the US Treasury from a gold crisis in 1895. JP Morgan Chase is the 13th Federal Reserve district.

[Leopolds Ghost]

27. Does JP Morgan Chase basically run the NY chapter of the Federal Reserve?

[joshcryer]

23. Best part is that it'd be a zero interest loan and could in fact help pay off all debts...

...with zero interest.

[Poll_Blind]

52. Kick!

:kick:

PB

[steve2470]

54. k&r nt

[thelordofhell]

56. Just to piss conservatards off........I'd put raygun's face on it

And put the saying, "Thanks for the debt, asshole" around it.