I began a lengthy critical reply to Philip Wallach’s reply to my earlier analysis of his paper in Part I of this series. There I covered some preliminary mis-characterizations of what I said and, more importantly, why the commonly recognized fiscal policy rule that, at least over a number of years, government revenues ought to match government spending is fiscally unsustainable and fiscally irresponsible in light of deductions from the Sectoral Financial Balances (SFB) model. In this Part II, I’ll cover some conjectures about political legitimacy Wallach offers about the consequences of minting a $100 T, some legal legitimacy issues, and some additional political legitimacy issues. Read more about Some Platinum Coin Objections from the Mainstream: Part II
There are three classes of opponents of High Value Platinum Coin Seigniorage (HVPCS, $30 T and above). The first and largest group opposes all PCS of whatever type. The second, opposes HVPCS, but favors using the Trillion Dollar Coin (TDC) for the limited purpose of avoiding the debt ceiling. The third, opposes HVPCS, and doesn't really favor using the TDC either, except, perhaps, as a last resort.
It favors an incremental approach to PCS beginning perhaps in the millions or billions in face value, and over a long period of time eventually building up to a TDC. The remaining posts in this series consider the many objections brought forward by people in one or more of these categories, and my replies to them. As you will see, the opponents of HVPCS have already thrown everything but the proverbial kitchen sink at it. In this post, I'll consider some legal objections. Read more about Framing Platinum Coin Seigniorage: Part Two, Legal Objections
Can the Federal Reserve Really Refuse To Accept and To Credit A Platinum Coin Deposited By the US Mint?
The issue of whether the Fed can really refuse to accept and credit a deposit of a platinum coin with its face value, is being raised frequently on blog posts about Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin (TDC). In the past, I've argued that the Fed cannot; and the final decision on taking the TDC off the table was actually made by the President, and not by Chairman Bernanke.
Ellen Brown, the well-known author of The Web of Debt, and also of this recent post on fiat money, direct financing of federal spending, and using platinum coin seigniorage made this comment in a discussion thread at Monetary Realism: Read more about Can the Federal Reserve Really Refuse To Accept and To Credit A Platinum Coin Deposited By the US Mint?
A wonderful discussion thread has been going on at Monetary Realism (MR) after a very good new post by beowulf (Carlos Mucha), who first brought forward the proposal for the Executive Branch to use the authority provided in the 1996 Platinum Coin Seigniorage (PCS) legislation to fill the public purse, on whether the Fed had a legal basis for turning down PCS in the form of the Trillion Dollar Coin (TDC). Read more about Beowulf and Diehl Embrace Trillion Dollar Coin Incrementalism!
But there’s nothing benign about the platinum coin. It is a breakdown in the American system of governance, a symbol that we have become a banana republic. And perhaps we have. But the platinum coin is not the first cousin of cleanly raising the debt ceiling. It is the first cousin of defaulting on our debts. As with true default, it proves to the financial markets that we can no longer be trusted to manage our economic affairs predictably and rationally. It’s evidence that American politics has transitioned from dysfunctional to broken and that all manner of once-ludicrous outcomes have muscled their way into the realm of possibility. As with default, it will mean our borrowing costs rise and financial markets gradually lose trust in our system, though perhaps not with the disruptive panic that default would bring.
Name calling, labeling, and fear mongering aside, does Ezra understand the first thing about PCS? Does he know that if a $60 T coin were minted, and the Treasury General Account (TGA) filled with $60 T in electronic credits, the US would be able to just say goodbye to the international markets? If we were paying off the national debt as it fell due, we would not only not be defaulting, but would be paying all our creditors on time and in full, and without benefit of further debt instrument issuance. Nor would we care whether the markets trusted us or not; since we would not be borrowing money from them for the foreseeable future. So, how could our borrowing costs rise? Read more about Ezra Klein Chooses Fear Mongering the Big Coin, I Choose Ending Austerity!