6 ms·

Here's my question. As far as the national debit, somewhere on planet earth there are people who are owned this money. They are out there presumably collecting

Here's my question. As far as the national debit, somewhere on planet earth there are people who are owned this money. They are out there presumably collecting interest. How does this whole platinum coin exchange change their situation? Aren't they still owned money?

guipsp 7y ago
Imagine I owe you one trillion dollars. I pay you a trillion dollar coin. Our debt is settled. The way this works out is that every single dollar is worth slightly less after minting this coin.
- lando2319 7y ago
  Ok, by expanding the money supply. Fascinating. Thanks.
  - celticninja 7y ago
    This is why debt holders are usually not in a rush to have the debt paid off. If in doing so it devalues the debt so much that it isn't worth it. If you owe the bank $100,000 you have a problem, if you owe the bank $10,000,000 the bank has a problem.
    - foobarbecue 7y ago
      Ten million? Nah. Ten billion, sure.
      - gambiting 7y ago
        Depends on the size of the bank. I know someone who needed to borrow "just" a few million to purchase a warehouse and I think 3 local banks had to pool up the money to lend him and to spread out the risk. Sure for a giant corporate bank that's literally nothing but there are still small banks all over the country which have relatively little capital.
        foobarbecue 7y ago
        Touché.
- rags2riches 7y ago
  Prices have to change for dollars to be worth less. If prices change depends on how the coin is used.
- crdoconnor 7y ago
  Inflation doesn't kick in when money is minted it kicks in after it is spent. This is why QE didn't trigger inflation in a normal way - minted money was exchanged for bonds (financial assets) not spent on goods and services.
  - paulpauper 7y ago
    this is true. not sure why this got down-voted
    - guipsp 7y ago
      Probably because it's a very "actually..." style reply when I went for a simplistic explanation on purpose.
    - wallace_f 7y ago
      While the economics dogma may agree that this is true, I imagine many people have a hard time swallowing the idea of this never-ending of printing free money and giving it to the banks and government.
      - OscarCunningham 7y ago
        They do (in some sense) give it to the government, but not to the banks. The banks get it in exchange for bonds and shares which they sell to the Federal Reserve. So the banks aren't getting money for nothing, they're exchanging money-in-the-future for money-now, which is why inflation is created.
        wallace_f 7y ago
        If you think about it, when the banks go bust and need a bailout, the Fed debited their balance sheet for 4 trillion dollars but the other side of the balance sheet is buying "toxic assets" or government debt from Wall St banks. So this is essentially free money. Any legitimate organization would need to provide a legitimate good or service. So if they are going to keep printing free money and play monopoly they should at least go buy people something like free healthcare. They always try to defend this with the "we are smarter than you" BS...stuff which I studied formally my degree.
- AtlasBarfed 7y ago
  Depending on the perception of the value of the valueless currency, velocity of information, and "supply" of money. Not that I'm a gold standard zealot, bitcoin self-deluder, or the like, but fiat currency is ridiculous, yet it's the basis of the global economy.
  - geofft 7y ago
    How is this different from dilution of shares in a company? That is, people are willing to invest (cash or labor) in a company in exchange for dilutable stocks, because they expect that if dilution happens, it's a transient discontinuity on the way to making the stocks more valuable overall. By taking another round of funding, the investors' stocks hopefully become worth more than they were before dilution. Don't people with large holdings of fiat currency have the same approach and risk tolerance? The purpose of raising the US debt ceiling would be to grow the US economy.
    - awinder 7y ago
      It’s exactly the same as dilution on shares except for in this theoretical, you’re talking about 1T in dilution while the asset wealth of the US is something over 270T. So this would effectively be one of the kindest dilutions ever — and even then it didn’t actually come to pass. The main reason to raise the debt ceiling is that we are carrying a percentage of debt (which has market stabilizing effects), and our assets are growing, so we should be spending more. And practically this is money already spent so this is arguing about paying the bill after eating the meal. The fact that this is somehow contentious at the highest levels of government speaks to either bad-faith acting or complete financial illiteracy.
  - antonvs 7y ago
    > fiat currency is ridiculous If you think this, it's almost certainly because you don't understand it. The basic concept is incredibly simple: it's an abstraction of value which allows us to avoid having to barter directly with actual goods. Gold and Bitcoin allow you to implement exactly the same thing, but with specific built in supply constraints that aren't connected to the underlying economy. This is a problem for both commodities being used as currency. Ideally, the money supply should be able to expand to reflect the wealth in the underlying economy - otherwise, you get severe inflation or deflation, both of which have negative effects. Of course you didn't say what aspect(s) of fiat currency you consider ridiculous. If you're just saying that governments are too free with their manipulation of the abstraction, there's some merit to that. But that's not a problem with the concept of fiat currency.
- lez 7y ago
  It's only half of the truth. The other half is, the government has to tax you out of your slightly stronger dollar to pay back the loan to the bankers. Minting the coin only cuts the bankers future profits, which - as it's a zero sum game - benefits the worker class in the long term.
atq2119 7y ago
It entirely depends on what is done with the coin. Initially when the coin is minted, yes, they are still owed money. Nothing has changed for them. Eventually, the treasury bonds that they hold will expire and the government will pay them back. At this point, they would usually just buy new treasury bonds. However, if the government stops issuing new treasury bonds after minting the coin, then they will no longer have that option. They could buy other (foreign government or corporate) bonds, but the money they use to do so just changes hands. It ultimately stays in the system at some bank account, which ultimately translates to high-powered money held by a commercial bank in a Fed account, where it only earns interest as long as the Fed pays interest on reserves. Does that really change anything? Arguably no, other than possibly interest rates, but interest rates are near zero anyway. The trillion dollar platinum coin idea is an absurd exercise that people only suggested because US politics is absurd to begin with: congress orders the US government to spend money (via the budget bill), but then forbids the US government from actually implementing that spending in practice (via the debt ceiling and refusing to raise taxes). Congress wants to eat the cake and have it too. That is the reckless behavior here: putting the US government into a completely Kafkaesque situation. The way I see it, the platinum coin is mostly a rhetoric tool to highlight just how messed up the system is.
- tzs 7y ago
  > US politics is absurd to begin with: congress orders the US government to spend money (via the budget bill), but then forbids the US government from actually implementing that spending in practice (via the debt ceiling and refusing to raise taxes) I believe it is actually even worse than that, because many government purchases of goods and services are pay on delivery. The budget authorizes some department or agency to make a purchase, they do so, and then later after the purchase is delivered and the bill presented--the department or agency can't pay the bill because of the debt ceiling. The debt has already been incurred, so the debt ceiling does nothing to reduce the deficit or the national debt--all it does is stop us for making payments on debt already incurred.
ajross 7y ago
The concept isn't really about how one would use or spend such a coin. In practice, if this were ever to happen, they would be issued to banks who would throw it in a vault somewhere and then use it as a reserve for lending just as they would any other asset. The point here is about constitutional law, not so much monentary policy. The US constitution grants to congress the exclusive power to assume debt on behalf of the government, the president and executive branch can't do that. But congress tends to be paralyzed by partisan institutions (the filibuster et. al.) and can't act with agility to issue debt in response to deflationary stimulus. BUT, it turns out that the mint is allowed (by a law passed by congress) to print money in any amount it wants as long as it's done via a platinum coin. So you can just print a coin and use it to pay off any debt you want. Instant spending. It's a cute loophole, really, and a joke about the way american government works. It's not a serious idea about economics.
newguy1234 7y ago
They get paid back with money that is worth less. In other words, their investment was a poor decision on their part.

guipsp 7y ago

Imagine I owe you one trillion dollars. I pay you a trillion dollar coin. Our debt is settled. The way this works out is that every single dollar is worth slightly less after minting this coin.

lando2319 7y ago
Ok, by expanding the money supply. Fascinating. Thanks.
- celticninja 7y ago
  This is why debt holders are usually not in a rush to have the debt paid off. If in doing so it devalues the debt so much that it isn't worth it. If you owe the bank $100,000 you have a problem, if you owe the bank $10,000,000 the bank has a problem.
  - foobarbecue 7y ago
    Ten million? Nah. Ten billion, sure.
    - gambiting 7y ago
      Depends on the size of the bank. I know someone who needed to borrow "just" a few million to purchase a warehouse and I think 3 local banks had to pool up the money to lend him and to spread out the risk. Sure for a giant corporate bank that's literally nothing but there are still small banks all over the country which have relatively little capital.
      - foobarbecue 7y ago
        Touché.
rags2riches 7y ago
Prices have to change for dollars to be worth less. If prices change depends on how the coin is used.
crdoconnor 7y ago
Inflation doesn't kick in when money is minted it kicks in after it is spent. This is why QE didn't trigger inflation in a normal way - minted money was exchanged for bonds (financial assets) not spent on goods and services.
- paulpauper 7y ago
  this is true. not sure why this got down-voted
  - guipsp 7y ago
    Probably because it's a very "actually..." style reply when I went for a simplistic explanation on purpose.
  - wallace_f 7y ago
    While the economics dogma may agree that this is true, I imagine many people have a hard time swallowing the idea of this never-ending of printing free money and giving it to the banks and government.
    - OscarCunningham 7y ago
      They do (in some sense) give it to the government, but not to the banks. The banks get it in exchange for bonds and shares which they sell to the Federal Reserve. So the banks aren't getting money for nothing, they're exchanging money-in-the-future for money-now, which is why inflation is created.
      - wallace_f 7y ago
        If you think about it, when the banks go bust and need a bailout, the Fed debited their balance sheet for 4 trillion dollars but the other side of the balance sheet is buying "toxic assets" or government debt from Wall St banks. So this is essentially free money. Any legitimate organization would need to provide a legitimate good or service. So if they are going to keep printing free money and play monopoly they should at least go buy people something like free healthcare. They always try to defend this with the "we are smarter than you" BS...stuff which I studied formally my degree.
AtlasBarfed 7y ago
Depending on the perception of the value of the valueless currency, velocity of information, and "supply" of money. Not that I'm a gold standard zealot, bitcoin self-deluder, or the like, but fiat currency is ridiculous, yet it's the basis of the global economy.
- geofft 7y ago
  How is this different from dilution of shares in a company? That is, people are willing to invest (cash or labor) in a company in exchange for dilutable stocks, because they expect that if dilution happens, it's a transient discontinuity on the way to making the stocks more valuable overall. By taking another round of funding, the investors' stocks hopefully become worth more than they were before dilution. Don't people with large holdings of fiat currency have the same approach and risk tolerance? The purpose of raising the US debt ceiling would be to grow the US economy.
  - awinder 7y ago
    It’s exactly the same as dilution on shares except for in this theoretical, you’re talking about 1T in dilution while the asset wealth of the US is something over 270T. So this would effectively be one of the kindest dilutions ever — and even then it didn’t actually come to pass. The main reason to raise the debt ceiling is that we are carrying a percentage of debt (which has market stabilizing effects), and our assets are growing, so we should be spending more. And practically this is money already spent so this is arguing about paying the bill after eating the meal. The fact that this is somehow contentious at the highest levels of government speaks to either bad-faith acting or complete financial illiteracy.
- antonvs 7y ago
  > fiat currency is ridiculous If you think this, it's almost certainly because you don't understand it. The basic concept is incredibly simple: it's an abstraction of value which allows us to avoid having to barter directly with actual goods. Gold and Bitcoin allow you to implement exactly the same thing, but with specific built in supply constraints that aren't connected to the underlying economy. This is a problem for both commodities being used as currency. Ideally, the money supply should be able to expand to reflect the wealth in the underlying economy - otherwise, you get severe inflation or deflation, both of which have negative effects. Of course you didn't say what aspect(s) of fiat currency you consider ridiculous. If you're just saying that governments are too free with their manipulation of the abstraction, there's some merit to that. But that's not a problem with the concept of fiat currency.
lez 7y ago
It's only half of the truth. The other half is, the government has to tax you out of your slightly stronger dollar to pay back the loan to the bankers. Minting the coin only cuts the bankers future profits, which - as it's a zero sum game - benefits the worker class in the long term.

atq2119 7y ago

It entirely depends on what is done with the coin. Initially when the coin is minted, yes, they are still owed money. Nothing has changed for them. Eventually, the treasury bonds that they hold will expire and the government will pay them back. At this point, they would usually just buy new treasury bonds. However, if the government stops issuing new treasury bonds after minting the coin, then they will no longer have that option. They could buy other (foreign government or corporate) bonds, but the money they use to do so just changes hands. It ultimately stays in the system at some bank account, which ultimately translates to high-powered money held by a commercial bank in a Fed account, where it only earns interest as long as the Fed pays interest on reserves. Does that really change anything? Arguably no, other than possibly interest rates, but interest rates are near zero anyway. The trillion dollar platinum coin idea is an absurd exercise that people only suggested because US politics is absurd to begin with: congress orders the US government to spend money (via the budget bill), but then forbids the US government from actually implementing that spending in practice (via the debt ceiling and refusing to raise taxes). Congress wants to eat the cake and have it too. That is the reckless behavior here: putting the US government into a completely Kafkaesque situation. The way I see it, the platinum coin is mostly a rhetoric tool to highlight just how messed up the system is.

tzs 7y ago
> US politics is absurd to begin with: congress orders the US government to spend money (via the budget bill), but then forbids the US government from actually implementing that spending in practice (via the debt ceiling and refusing to raise taxes) I believe it is actually even worse than that, because many government purchases of goods and services are pay on delivery. The budget authorizes some department or agency to make a purchase, they do so, and then later after the purchase is delivered and the bill presented--the department or agency can't pay the bill because of the debt ceiling. The debt has already been incurred, so the debt ceiling does nothing to reduce the deficit or the national debt--all it does is stop us for making payments on debt already incurred.

ajross 7y ago

The concept isn't really about how one would use or spend such a coin. In practice, if this were ever to happen, they would be issued to banks who would throw it in a vault somewhere and then use it as a reserve for lending just as they would any other asset. The point here is about constitutional law, not so much monentary policy. The US constitution grants to congress the exclusive power to assume debt on behalf of the government, the president and executive branch can't do that. But congress tends to be paralyzed by partisan institutions (the filibuster et. al.) and can't act with agility to issue debt in response to deflationary stimulus. BUT, it turns out that the mint is allowed (by a law passed by congress) to print money in any amount it wants as long as it's done via a platinum coin. So you can just print a coin and use it to pay off any debt you want. Instant spending. It's a cute loophole, really, and a joke about the way american government works. It's not a serious idea about economics.

newguy1234 7y ago

They get paid back with money that is worth less. In other words, their investment was a poor decision on their part.