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The idea is to mint a worthless coin that has face value of $1 trillion. That way, the coin has one trillion dollars of seigniorage, i.e. profit for government,
by Geee 5y ago
The idea is to mint a worthless coin that has face value of $1 trillion. That way, the coin has one trillion dollars of seigniorage, i.e. profit for government, and the coin could be deposited to Federal Reserve treasury instead of issuing debt.
In other words, they would be issuing new money by debasing the dollar, without generating debt in their balance sheet. It's like issuing one trillion worth of cash, which is backed with just one worthless platinum coin. It's not really different from just issuing debt that isn't paid back, but this way they don't have to raise the debt limit.
Shenanigans like this will completely erode the trust in the value of dollar.
- aww_dang 5y agoYes, this is the obvious part of the charade. I do disagree with one key part of your analysis. >...backed with just one worthless platinum coin. Platinum is a precious metal and far from worthless. Let us pretend there are people involved in this charade who would allow that initial wealth to be extracted via Cantillon effects, but still desired the coin to act as a backstop at a later date. Given the current rate of spending and outstanding obligations, what would be a reasonable weight for a trillion dollar coin?
- gruez 5y ago>Given the current rate of spending and outstanding obligations, what would be a reasonable weight for a trillion dollar coin? Not sure why you need to factor in "current rate of spending and outstanding ", but 1 trillion divided by current platinum prices gets you 31,610 metric tons. Apparently that exceeds all platinum ever mined: >Mining experts also estimate that just over 10,000 tonnes of platinum have ever been mined by man.
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- aww_dang 5y agoClearly it wouldn't be practical to mint platinum coins at the current price. Instead, they would profit from the difference as they debase the dollar. Therefore the total obligations become important in the calculation. The weight of the coins would become the new USD valuation in this scenario. A 'backstop' as I mentioned above.
- Geee 5y agoI'm not really sure that you are suggesting, but if they were 'reasonable', then the coin should actually be valued at the platinum's current price. That's how money is supposed to work.
- bryanlarsen 5y agoAs you said, the coin will be deposited in the treasury. It's not being circulated, so it doesn't debase the dollar.
- JackFr 5y agoIssuing debt: - The treasury prints bonds with promises to pay $ on them - Banks, insurance companies and people buy the pieces of paper and give the gov't $ - Gov't has money to spend - Banks periodically sell the bonds to the Fed who can create $ out of thin air - Note by law the treasury can't sell directly to the Fed $1 Trillion Coin: - Treasury mints coin - Treasury sells it to the Fed who can create $ Both can be inflationary, but the optics on the coin are terrible. And with currency appearances matter.
- Geee 5y agoWhen the platinum coin is deposited, it will increase government's account balance by one trillion dollars, which can then spent in the economy like any other dollar. The newly issued money will increase the total circulating supply of US dollar, diluting its unit value.
- panarky 5y agoThat's not at all how this works. Treasury mints the coin. Treasury trades the coin to the Federal Reserve for existing bonds the Fed already owns. Treasury retires the bonds which keeps the US under the statutory debt limit. The coin isn't "spent in the economy". It's just an exchange of assets among government departments. Zero new money circulates in the economy.
- Geee 5y agoHow are they going to keep spending then? That's why they need to raise the debt limit in the first place. If they retire their old debt, they would have to issue new debt. In both cases the end result is the same; new money in circulation, and the Fed has platinum coins instead of government bonds.