|Is this what Yglesias |
and the Obama-heads
have in mind?
The trillion dollar coin idea floating around out there is the dumbest idea ever—but it’s also dangerous for two reasons: It is a naked power grab by the executive, and it shatters the illusion of solidity and sense in the monetary system.
Matt Yglesias over at Slate is fervently in favor of the trillion dollar coin idea, and he gives as good a précis as any of the situation.
Treasury Secretary Tim Geithner can order the United States Mint to create large-denomination platinum coins—a $1 trillion coin, say, or a bunch of $10 billion coins—and use them to finance the government.No shit people have doubts. And as to it being a “simple, elegant solution”—more like “ham-fisted and borderline nuts” is how I would preemptively characterize the scheme. But I’m getting ahead of myself.
It all goes back to sub-section (k) of 31 USC § 5112 “Denominations, Specification, and Design of Coins.” The opening subsections consists of boring specifications about the coins the United States issues. Subsection (k) says “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”
So there it is in black and white. Geithner can have the Mint create a $1 trillion coin. Then he can walk it over to the Federal Reserve and deposit it in the Treasury’s account. Then the government can keep sending out the checks—to soldiers and military contractors, to Social Security recipients and doctors who treat Medicare patients, to poor families getting SNAP and to FBI agents—it’s required by law to send—and the checks will clear. It’s a simple, elegant solution.
Naturally, people have doubts.
In his piece, Yglesias outlines and answers three objections to the trillion dollar coin idea—or at least tries to answer them: The first is legality and the issue of lawmaker intent. The second is whether this is a power grab on the part of the executive. And the third objection is that it creates a bad precedent.
To answer the first objection about lawmaker intent, Yglesias claims—in the tone of someone reassuring you that that bump you’ve just discovered on one of your balls is no big deal—that “lawyers assure me this [objection] is irrelevant”—that lawmaker intent doesn’t matter.
But that’s bullshit: Lawmaker intent has always mattered insofar as the courts deciding what is and is not legal are concerned, both in the prohibitive and the permissive senses. To give an obvious example: It’s illegal to falsely cry “Fire!” in a crowded theater, or by other speech cause a panic in a public space—but that law certainly was never intended to curtail free speech in, say, a public demonstration, and no court would ever stretch such a law so as to make such speech illegal. An example of the permissive: It is legal to jog in public places—but that law was just as certainly never intended to allow joggers to, say, run down the middle of any of the Interstate Highways. Again, no court would grant a jogger the right to run down the middle of an Interstate, just because it’s legal to run in public spaces generally.
Courts and the justice system pay attention to why a law was passed—the lawmaker intent—precisely and specifically so as to determine whether an action is legal or not.
The coin minting of the Executive was never intended as an end run around the debt ceiling. It was clearly, obviously intended to allow coin collectors to buy and trade commemorative U.S. coins.
So giving a Talmudic read to the relevant statues, and then trying to roll a trillion dollar coin through that loophole, is just bullshit. Any court would throw out such a reading.
As to whether this trillion dollar coin idea creates a bad precedent, well of course it sets a bad precedent . . . but when has “establishing a bad precendent” ever hindered anyone from going ahead with something stupid? The “bad precedent” argument is specious.
But the second objection Yglesias slips in there so casually, about how this policy is Executive overreach? There is some meat on the bone that we can really chew on.
To the question, “Is the trillion dollar coin idea a power grab on the part of the Executive?”, the answer is: Hell yeah!
First off, there is no reason the trillion dollar coin couldn’t be four, five, ten or twenty trillion instead. Thus the Executive could raise funds by this method to simply pay off the entire national debt, and fund via discretionary spending anything and everything it might want.
Second, by creating the trillion dollar coin, the Executive is able to spend regardless of what Congress passes insofar as the budget is concerned—rendering Congress superfluous to the spending process.
Third, a trillion dollar coin would effectively rescind the Federal Reserve’s independent control of the currency. After all, in the current regime, the Fed alone controls the money supply. But with the trillion dollar coin, the Executive could simply print away any and all fiscal problems by expanding the money supply ad infinitum.
And here is where we get to the issue that I find most troublesome: Solidity of the fiat currency regime.
For good or bad, whether we like it or not, the U.S. dollar is a fiat currency—it floats on nothing but trust. It is not pegged to gold, or to any other currency. Its worth is determined by what its users—that is, everyone—believe it is worth.
If the Executive were allowed to directly monetize the Federal government debt by way of one or more trillion dollar coins, then fairly quickly, the illusion of the dollar’s solidity would shatter. Fairly quickly, the people’s trust in the dollar would evaporate. This is exactly what happened in Zimbabwe: The government printed in order to pay its bills, and printed so much that pretty soon, nobody wanted Zimbabwe’s currency. Hence one-hundred trillion dollar bills, which is amusing for people not living under such a regime, but horrifying to those who do.
Even if only a single trillion dollar coin were deployed, the temptation to do it again would be enormous—uncontrollable. You ever heard of a recently deflowered virgin deciding to swear off sex forever and ever after? Obviously not—so with each issuance of each trillion dollar coin, there would be a continued weakening in the faith and trust in the dollar, until the dollar reached Zimbabwe-like levels of ridiculousness.
Is this what the people want? A United Banana Republic of America? Because that is what mindless Obama supporters such as Yglesias seem to want, with this idiotic trillion dollar coin idea: Even more power centered on the president, and a further debasement of the currency.
So far, Obama has abrogated rules governing assasination of American citizens by the American government, free speech, and rules regarding unlawful detention and punishment, not to mention eavesdropping, unlawful search and seizure, cronyism, and a host of other crimes and misdemeanors which, in fairness, started under George W. Bush—but have grossly expanded under Obama. (Really, how does the run-of-the-mill Obama-head sleep at night, without resorting to very heavy doses of smack?) Meanwhile, the Federal Reserve, through its now continuous monetization of the Federal government’s debt via the various iterations of Quantitative Easing, is debasing the currency further every day.
So if you are in favor of continuing to turn the United States of America into the Republic Argentina with nukes, then by all means, tell everyone how ”simple and elegant” the trillion dollar coin idea really is.
If you are interested in an analysis of possible hyperinflation of the dollar, as well as other black swan events, please check out my Strategic Planning Group.