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Can Trillion Dollar Coins Save the Economy?

fredmertzz

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Can Trillion Dollar Coins Save the Economy? - Yahoo! News

I just don't understand the argument for this solution. In my mind, this is an equivalent of defaulting on our debt.

But when I think of differently, from the 'inflation' standpoint instead, it seems this is exactly what all of us "Flat-Tax" promoters have been asking for...

If $1T were created to pay down the debt, which equally devalued every dollar in the economy equally, say by 5%, we would all have a buying-power income decrease of 5%. Whether you make $1M/yr or $20k/yr, your pay is decreased 5%...

For once, I won't argue w/ the Keynesians - you go ahead and do what you think is best. You'll be your own undoing.
 
Why do you think Treasury bonds are issued in the first place, as opposed to just creating currency to pay for everything?
 
Money doesn't even have to be printed. Just move the decimal places in government computers. I wouldn't, but that is all you really have to do. Devaluing the dollar makes a lot of economic sense, but then there is what happens in reality when you do......
 
Why do you think Treasury bonds are issued in the first place, as opposed to just creating currency to pay for everything?

I'm not sure I understand your point... I'm not in favor of treasury bonds/government debt, but to answer your question: Treasury bonds are created to sell our debt to buyers in order to maintain a level of spending higher than our level or revenue. The idea is that in the future, by the time the bond matures ideally (HA!), the government will have revenue in excess of its expenditures and can pay for the previous over-spending, with interest.

Again - why are you asking me to clarify this?
 
From the article:
At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the "specs" of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be "determined by legislation," creating the potential for another congressional impasse

I've seen more than a few democrats call for this over the past month or so. At least the fact that they have to get congressional approval for the design means that republicans can act like the grown-ups and stop it, which will obviously lead to more whining democrats claiming that republicans just won't compromise.
 
This is the third or forth thread I have seen on this idea here.

It is essentially default.
 
If the US does this.. you have to remember you are not the only country that gets hit and hit hard. There are quite a few countries that either have bound their currency to the dollar or even worse actually use the dollar as their currency. They too could easily go bust over night.
 
I'm not sure I understand your point... I'm not in favor of treasury bonds/government debt, but to answer your question: Treasury bonds are created to sell our debt to buyers in order to maintain a level of spending higher than our level or revenue. The idea is that in the future, by the time the bond matures ideally (HA!), the government will have revenue in excess of its expenditures and can pay for the previous over-spending, with interest.

Again - why are you asking me to clarify this?

I didn't ask you to explain what government debt is. I asked you to explain why federal debt securities are used instead of simply creating money to fund spending.

Once you answer that question you will have your answer as to why such a coin will never be created.

Also, as an aside, I don't know why you brought up Keynesians in your OP. They would obviously oppose this.
 
From the article:


I've seen more than a few democrats call for this over the past month or so. At least the fact that they have to get congressional approval for the design means that republicans can act like the grown-ups and stop it, which will obviously lead to more whining democrats claiming that republicans just won't compromise.

Know what man...republicans when they are in power call for the exact same thing...the debt limit has risen with every republican president...its not just a democrat thing.
 
They could always ask Zimbabwe.
 
Everyone says the trillion dollar coin is like a default or raising a 5% tax on every dollar spent. It's true that devaluing the dollar in the short term with this de facto default would set the books right for years to come but you'd have to watch out for the market reaction. They know it just means Congress has no intention of cutting spending, shrinking gov or increasing revenues and as usual it would affect average to low income spenders more then the cushioned elite.
 
Everyone says the trillion dollar coin is like a default or raising a 5% tax on every dollar spent. It's true that devaluing the dollar in the short term with this de facto default would set the books right for years to come but you'd have to watch out for the market reaction. They know it just means Congress has no intention of cutting spending, shrinking gov or increasing revenues and as usual it would affect average to low income spenders more then the cushioned elite.

I'm not enough of an economist to know this answer, but I pose it to you or anyone that wants to answer:

Is the only consequence market reaction? Is there not the consequence of inflation? One side will say: Creating money without increasing production means more dollar per each product in the market, so each product in the market will be worth more dollars, or said another way: one dollar will buy you less.

However, this money isn't in circulation at the moment. It's already been put into circulation when the bond was issued. Has that inflation already been seen at the time of the bond creation? Would repayment not reduce our money supply today and perhaps even cause deflation (or at least slow inflation)? What real market consequence is there from doing this? An objective answer is very difficult to come by... It's absolutely immoral and I wouldn't support it regardless of the market condition due to its immorality, but I would like to have this answer.
 
What should be obvious to most by now is the path our dear leaders have chosen to <ahem> "get us through this crises".

The choices are:

1.) Default. We haven't defaulted yet, so #1 is off the table.

2.) Tax our way out. Taxes ARE going up. #2 is in play.

3.) Grow our way out. Does anyone really believe we can grow our economy by 40% over the next few years?

4.) Inflate our way out. DING DING DING!! We have a winner!

5.) "Cut" our way out. The government DOES NOT cut spending! Period!

Looks like 2 and 4 is our path to prosperity. Taxes and inflation! Tried and true cornerstones of sound economies!

<puke>
 
I didn't ask you to explain what government debt is. I asked you to explain why federal debt securities are used instead of simply creating money to fund spending.

Once you answer that question you will have your answer as to why such a coin will never be created.

Also, as an aside, I don't know why you brought up Keynesians in your OP. They would obviously oppose this.

Ah, I see what you were saying. The obvious answer is the immorality of simply printing money, the lack of confidence the world would have as a result in the US economy and US dollar in doing so (especially since our dollar is only backed by the US economy), the list goes on and on.

This may be an educational opportunity for me, though. It's been my understanding that Keynesians support monetary manipulation and fiscal policy manipulation to change the macro-economic outlook of the economy. Isn't that exactly what this is? In fact, Keynes' face is one of the options to be printed on this hypothetical coin.
 
If you listen to the people that advocate for this their reasoning goes something along the lines of:

"The more we tax the more demand there is for our dollar and since we print our own dollars we can spend as much as we want as long as we tax enough to keep up the demand for money"

It's called "Modern Money Theory" and we have a few advocates of it running around the site. It's a great theory as long as people retain confidence in the dollar that you keep printing but for some reason or other these MMT knuckleheads can't get it through their heads that people don't value things which have a limitless supply. If we did someone would be selling air for $20 a gallon.
 
Ah, I see what you were saying. The obvious answer is the immorality of simply printing money, the lack of confidence the world would have as a result in the US economy and US dollar in doing so (especially since our dollar is only backed by the US economy), the list goes on and on.

This may be an educational opportunity for me, though. It's been my understanding that Keynesians support monetary manipulation and fiscal policy manipulation to change the macro-economic outlook of the economy. Isn't that exactly what this is? In fact, Keynes' face is one of the options to be printed on this hypothetical coin.

All economists support "monetary manipulation and fiscal policy manipulation to change the macro-economic outlook of the economy". That's the entire point of government economic policy. Even conservative economists who argue for lower taxes are advocating for a fiscal policy that "change the macro-economic outlook of the economy."

Keynesians would oppose this because, as other posters have said, it is basically defaulting on the national debt. Keynesians, as well as myself who agrees with them on many things, realize that paying down the debt in the short- or mid-term would not only be pointless but disastrous to the US economy. There is nothing wrong with maintaining a national debt, or with deficit spending per se.

More specifically, worrying about deficit spending or the national debt right now, or in the short-term, when we are still trying to recover from the recession, is counterproductive. Keynesians advocate counter-cyclical policy, meaning that deficit reduction and tax increases should occur in boom times, while an expansionary policy should be pursued in a contractionary economic environment (i.e. deficit spending right now).
 
I'm not enough of an economist to know this answer, but I pose it to you or anyone that wants to answer:

Is the only consequence market reaction? Is there not the consequence of inflation? One side will say: Creating money without increasing production means more dollar per each product in the market, so each product in the market will be worth more dollars, or said another way: one dollar will buy you less.

However, this money isn't in circulation at the moment. It's already been put into circulation when the bond was issued. Has that inflation already been seen at the time of the bond creation? Would repayment not reduce our money supply today and perhaps even cause deflation (or at least slow inflation)? What real market consequence is there from doing this? An objective answer is very difficult to come by... It's absolutely immoral and I wouldn't support it regardless of the market condition due to its immorality, but I would like to have this answer.

The money owed is to real investors and the gov itself. If they were to essentially write it off with this trillion dollars worth of uncirculated coins it would cause inflation. When sovereign debt has risen to 100% of GDP it takes inflation to jolt an economy stuck out of zero bound closer to potential output. The fear of the investor is to not have a diversified portfolio with hard assets like real estate and precious metals to weather an inflationary period, where debt is being monetized. Nobody knows what the real outcome will be except that I doubt very seriously that they'll consider writing off debt yet.
 
The money owed is to real investors and the gov itself. If they were to essentially write it off with this trillion dollars worth of uncirculated coins it would cause inflation.

I would assume the 'real investors' such as international governments, individuals and corporations would be the ones being paid in dollars, not uncirculated coins. The write off/payoff would be for debt currently held by the government/The Fed -

The question is due to the fact that the money that this debt has created is already in circulation. Would forgiving that debt/paying off that debt really add money to circulation? I just don't see how it could cause inflation.

I'm playing devil's advocate here because I am against this policy move as a moral issue.
 
I would assume the 'real investors' such as international governments, individuals and corporations would not be the ones being paid in dollars, not uncirculated coins. The write off/payoff would be for debt currently held by the government/The Fed -

The question is due to the fact that the money that this debt has created is already in circulation. Would forgiving that debt/paying off that debt really add money to circulation? I just don't see how it could cause inflation.

I'm playing devil's advocate here because I am against this policy move as a moral issue.

I'm not an economist and only have a crude understanding of how the economy works as a whole. I believe the debt incurred is not necessarily represented by currency though theoretically it should be. It exist in the form of bonds, which is a form of currency holding immediate value. But if there's a "run" on the bond market, then their value begins to plummet.

If people become convinced that our government will end up printing money (coin) to cover intractable deficits, they will see inflation in the future and so will try to get rid of dollars today, driving up the prices of goods, services, and eventually wages across the entire economy. This would amount to a "run" on the dollar. As with a bank run, we would not be able to tell ahead of time when such an event would occur. But our economy will be primed for it as long as our fiscal trajectory is unsustainable.

Needless to say, such a run would unleash financial chaos and renewed recession. It would yield stagflation, not the inflation-fueled boomlet that some economists hope for. And there would be essentially nothing the Federal Reserve could do to stop it.
 
All economists support "monetary manipulation and fiscal policy manipulation to change the macro-economic outlook of the economy". That's the entire point of government economic policy. Even conservative economists who argue for lower taxes are advocating for a fiscal policy that "change the macro-economic outlook of the economy."

Keynesians would oppose this because, as other posters have said, it is basically defaulting on the national debt. Keynesians, as well as myself who agrees with them on many things, realize that paying down the debt in the short- or mid-term would not only be pointless but disastrous to the US economy. There is nothing wrong with maintaining a national debt, or with deficit spending per se.

More specifically, worrying about deficit spending or the national debt right now, or in the short-term, when we are still trying to recover from the recession, is counterproductive. Keynesians advocate counter-cyclical policy, meaning that deficit reduction and tax increases should occur in boom times, while an expansionary policy should be pursued in a contractionary economic environment (i.e. deficit spending right now).


The public debt has been on the rise - a rather dramatic rise - since the early 1980's. That's 30 years now. If we're talking no reason to pay the debt down in the short term when should that kick in? I mean, are we talking geologic time scales here?
 
Know what man...republicans when they are in power call for the exact same thing...the debt limit has risen with every republican president...its not just a democrat thing.

Republicans were calling for the issue of a trillion dollar platninum coin when they were in power? Can you provid a link to that?
 
The public debt has been on the rise - a rather dramatic rise - since the early 1980's. That's 30 years now. If we're talking no reason to pay the debt down in the short term when should that kick in? I mean, are we talking geologic time scales here?

Adjusted for inflation, the national debt fell under Clinton, though not significantly.

I see no reason to "pay the debt down" at any time, provided that I am assuming by this you mean actually pay it off or pay it down significantly. Why would we need to?
 
Even better, print a quadrillion dollar coin and we will be in the green again.
 
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