
Forestall the "Debt Crisis": Mint a 5 Trillion Dollar Coin - sunsu
http://www.slate.com/id/2300428/
======
kragen
[http://www.bloomberg.com/markets/rates-bonds/government-
bond...](http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/)
says that the current yield on 1-year US treasuries is 0.20%. If I understand
correctly, that means that if you plow US$100 000 into 1-year US treasuries in
the open market, you get treasuries redeemable (at the Treasury) a year from
now for US$100 200. (Thanks for the correction to the number, aquark and
perlgeek.)

In other words, the bond market says that the big banks are betting heavily
against any kind of hyperinflationary move like this.

~~~
aquark
I think you are missing a 0 ... it would be $100 200.

Still at that rate you'd figure the transaction costs of moving the money
around would swamp most of the return

~~~
kragen
The return is surely already negative if you take into account inflation.

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andrewljohnson
Krugman is even talking about this on the NY Times blog.

[http://krugman.blogs.nytimes.com/2011/07/29/lawyers-coins-
an...](http://krugman.blogs.nytimes.com/2011/07/29/lawyers-coins-and-money/)

~~~
mvzink
I love how all of that stuff is legal, and yet inaction could lead to a
totally illegal violation of the 14th amendment. Irony at it's most expensive.

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grannyg00se
I feel like this entire house of cards that is the international financial
system is going to completely collapse in my lifetime. I'm not extremely
familiar with the details, but the more I learn, the more fragile and
arbitrary the whole thing seems.

~~~
chopsueyar
I recently read a fiction book, "The Panic of '89" by Paul Erdman, which
discusses a hypothetical terrorist plot to create an international run on US-
priced financial instruments and institutions. Interesting hypotheticals
abound.

It also mentions the Gramm-Rudman act, which I had not heard of prior to
reading the book. It was an 'Emergency Deficit Reduction Act' from 1985.

[http://en.wikipedia.org/wiki/Gramm%E2%80%93Rudman%E2%80%93Ho...](http://en.wikipedia.org/wiki/Gramm%E2%80%93Rudman%E2%80%93Hollings_Balanced_Budget_Act)

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sunsu
Interestingly enough, there are conspiracy theories that say JFK did something
similar to try to subvert the FED's total authority to "print money" by doing
something similar to what is suggested in the article. The order gave the
Treasury the power to issue silver certificates against any silver bullion,
silver, or standard silver dollars in the Treasury.

See executive order 11110:
<http://en.wikipedia.org/wiki/Executive_Order_11110>

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_delirium
Jack Balkin has been engaging in a sort of parlor game of making up other
alternatives as well. The main issue is that issuing debt is just one way of
acquiring/manufacturing cash; you can do it lots of other ways. A
straightforward way is minting coins. But you can even do it ways that the
private-sector can also do, like by selling options on government assets, or
inventing and selling derivative securities.

For example, he has an only-half-tongue-in-cheek article about how to use some
of the magic from the recent financial crisis to gain a bunch of cash on hand.
Banks can in effect mint money by writing and selling derivative securities.
Well, if the Treasury issues credit-default-swaps on its own debt, it collects
a premium up front (the value of the CDS), and if it never defaults, it never
has to make a payout. Even better, it could write a gigantic CDS for the
entire debt, and deposit it with the Federal Reserve, which would credit the
account for the value of the instrument, like they do with any member bank
that deposits a financial instrument. Of course, that financial instrument was
just recently manufactured from thin air before it was deposited, but that's
true of any CDS.

[http://balkin.blogspot.com/2011/07/end-debt-crisis-now-
with-...](http://balkin.blogspot.com/2011/07/end-debt-crisis-now-with-credit-
default.html)

~~~
mdda
The treasury selling CDS on its own debt makes no sense, because the credit-
worthiness of your insurer is completely correlated to the underlying credit.
So people would pay zero for the credit protection.

Quite why people away from the financial markets assume that those that are
are going to fall for something so obvious is a mystery to me. And if you
think that the housing crisis is a counterexample, I should point out that
people over-leveraging themselves to invest in property at ever-increasing
prices was common wisdom back in 2005.

~~~
_delirium
Hmm true, but I believe the Fed would be the buyer in this case, not the open
market. The government would be selling its own instruments to a quasi-
governmental entity, like BoA writing a CDS and selling it to a BoA
subsidiary.

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burgerbrain
If they actually do this I think any faith I have left in the US's monetary
system will be gone. This is just _too_ absurd.

~~~
tibbon
Same here. Can I have my paycheck in Swiss Francs?

~~~
burgerbrain
Nice that you bring that up. Why _can't_ it work like that? Sure the burrito
lunch truck guy would look at me kind of funny if I tried to pay _him_ that
way, but that is what we have exchange rates for. Why isn't it a thing that I
work out with my employer what currency I want to be paid in?

I don't buy all the mumbo jumbo about different economies rising and falling
in different geographic regions and whatnot either. If that were the real
reason then we should have seperate currencies for the west, middle, and east
areas of the US. Hell, each city should have their own currency in that case,
why should Detroit's shittyness drag down the economies of cities thousands of
miles away?

Geography is a terribly abstract concept in this world where communication is
for all intents and purposes instant and I can get packages to anyone
regardless of location in less than 24 hours. Companies paying people with US
currency just because that particular building happens to be located in the US
is just absurd if you think about it.

~~~
Eliezer
If your employer receives revenue in US dollars, and you pay your expenses in
US dollars, committing to pay in Swiss francs adds volatility from both their
perspective and yours.

This is the essential bar to adoption of any new currency.

~~~
burgerbrain
My employer happens to receive revenue in _numerous_ currencies. I do think
that it should be up to the employer which currencies they want to offer
payment in, but I really think that it should be something that is legal (is
it not? I don't know) and to a certain degree expected.

~~~
lsc
I'm pretty sure that it's legal for me to pay you in pesos, franks, shekels or
whatever else you and i find mutually agreeable. Note, though, that this does
not get me out of paying payroll taxes in dollars or you out of paying your
income taxes in dollars; I've still gotta figure your payroll taxes based on
the value of whatever I'm giving you in dollars, and then pay that to the
government in dollars.

This does make doing so rather a lot more complex; I mean, do you pay taxes
based on the value of the foreign coin in dollars when you are paid? at the
end of the year? etc, etc. It'd get complicated pretty fast, so it's usually
easiest for a business to operate in a main currency, and if the employee
wants franks or what have you, the employee can go buy them after they get
paid in whatever the standard currency is.

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nostromo
It doesn't sound too much different than QE1 & QE2 -- where the Federal
Reserve created a trillion dollars out of thin air and used it to buy US debt
and mortgage securities.

I'm not a lawyer, but don't the courts usually sort out conflicting laws? It
seems that's the case -- congress demanded the executive branch spend money --
and congress has now decided the executive branch can't spend money. Why
doesn't Obama take it to the courts?

~~~
_delirium
It's quite possible the courts would punt on this one due to separation-of-
powers concerns. If Congress passes a law requiring the president to execute
some laws, but also refuses to fund him sufficiently to do so, resolving the
problem arguably is the responsibility of the executive branch.

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tibbon
Wouldn't this cause massive inflation almost instantly? We could have the next
Zimbabwean Dollar (<http://en.wikipedia.org/wiki/Zimbabwean_dollar>). Isn't
this extra just 'printing money' the type of thing that you learn in Econ 101
is about the worst possible thing for an economy? Sounds like the medicine
will be worse than the disease?

~~~
sunsu
It can only cause inflation when the money actually hits the economy. The
effect would be no different than raising the debt ceiling. Some special book
keeping (which is what this whole mess is) will do nothing by itself.

~~~
wintersFright
the coin doesn't hit the economy but it enables further borrowing which does.

surprised at all the 'no this is actually quote ok' arguments. you can't print
value out of thin air. you only print volume which taxes the holders of
existing USD.

~~~
sunsu
I didn't say it wouldn't be inflationary.

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callmeed
What if Fidel Castro steals it?

~~~
aj700
Give what back?

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georgieporgie
So, is America now a complete laughing stock abroad? I really wonder what non-
USian folks think about all this political posturing and willingness to play
chicken with the financial reputation of the US.

~~~
anonymoushn
I don't think anyone is doing that. There is precisely no risk of sovereign
default, even if we don't raise the debt ceiling for a couple years.

~~~
mdda
The consequences of a downgrade are TERRIBLE : So much of modern finance
relies on Treasuries being AAA to act as some kind of bed-rock.

Just like your idea of 'precisely no risk' of default, what would happen if
the programming constant ZERO was only guaranteed to be close to 0? And not
really a constant?

~~~
anonymoushn
I said that there was no risk of sovereign default. Our tax revenue exceeds
the cost of our debt service by a factor of more than 10. Do you anticipate
that our blended interest rate will increase by a factor of 10 in the near
future?

We would certainly run a great risk of downgrade (but not of default) if we
raise the debt ceiling without making any significant effort to lower our
deficit going forward. This seems to be the plan of our politicians, however.

