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Seigniorage Hack Could Resolve Debt Limit Crisis 696

UltraOne writes "With the US Senate voting to table the Boehner debt limit bill, the US is only a few days away from running out of cash to pay for all its obligations. Slate is reporting on a fascinating legal hack that could come in handy, described by blogger 'beowulf' back in January 2011. Seigniorage is the extra value added when a government mints a coin with a face value greater than the value of the precious metal contained in the coin. The statute governing the minting of coins contains a section (31 USC 5112(k) ) that authorizes the Secretary of the Treasury to mint and issue platinum coins in any denomination or quantity. To keep the government from running out of money, Timothy Geithner could order a $5 trillion platinum coin struck and deposited at the Federal Reserve. The money could then be used to fund Federal Government operations (blog post contains legal details)."
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Seigniorage Hack Could Resolve Debt Limit Crisis

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  • Re:Inflation (Score:2, Interesting)

    by Anonymous Coward on Saturday July 30, 2011 @11:56AM (#36933064)

    Um...I'd rather hear what economists have to say, not IT dudes who think they know everything.

  • Re:Postpone only (Score:5, Interesting)

    by UltraOne ( 79272 ) on Saturday July 30, 2011 @12:20PM (#36933248) Homepage
    I am the OP. The reason this approach counts as an 'escape hatch' is that it appears that the executive branch already has the authority to carry it out (in 31 USC 5112(k) ). To stop it, Congress would need to pass a law. To do that in the face of a presidential veto would require 2/3 supermajorities in both the House and Senate. As long as Obama can get 34 of the 51 Democrats in the Senate (or 53 Democrats plus independents who caucus with the Democrats) to back this approach, there is nothing that the House can do to stop it.
  • Re:Inflation (Score:2, Interesting)

    by F34nor ( 321515 ) on Saturday July 30, 2011 @12:39PM (#36933400)

    What do you think quantitative easing was?

  • Re:Inflation (Score:4, Interesting)

    by Surt ( 22457 ) on Saturday July 30, 2011 @12:48PM (#36933470) Homepage Journal

    It's the best solution to our problems, unfortunately. Defaulting rather than devaluing spreads the pain rather unfairly. Devaluing hits all debt holders equally percentage wise.

    Also, it resolves the housing crisis, which would be great for helping the economy overall.

  • Re:Inflation (Score:2, Interesting)

    by Anonymous Coward on Saturday July 30, 2011 @12:49PM (#36933490)

    its also how japan got itself out of its war debts back in the day, which is why their prices tend to be 75-80 times the numerical american prices. They managed to keep up their economy such that the cost of living still numerically matched the pay scale well enough that it actually worked out for them.

    it's a sketchy roll of the dice but with very good management it can be made to work. Of course, this is exactly why America SHOULDN'T do this as i wouldn't trust american financial advisers as far as i can throw them with one hand these days.

  • by F34nor ( 321515 ) on Saturday July 30, 2011 @12:51PM (#36933506)

    Because they want the government to fail so we can use the bible as the constitution. [] [] [] []

  • by Anonymous Coward on Saturday July 30, 2011 @12:59PM (#36933568)

    When I first heard the idea, I thought that using Platinum would be SOO cheap for a trillion-dollar coin.

    I thought about some of the really rare metals like Osmium or Rhenium. The problem is that they are both super-hard, so it would be hard to strike them as coins.

    Then I had it: Americium, specifically Am-241. It has some great attributes for something you'd want to put into a vault and make it a tricky thing to steal.

    • It's artificial.
    • Not only is it made in America, it's named for America.
    • It's an expression of your love (Your Love is Like Nuclear Waste by the Tuff Darts)
    • It's expensive: about $1500 per gram, yet available enough to get coin-size quantities.
    • It inexorably changes into something else, so it's time-limited. Its decay also results in the crystalline deformation of the metal.
    • It's no so radioactive that you can't get close enough to it to strike the coin, and the metal has a relatively low bulk modulus.
    • It's radioactive enough to keep people from wanting to pick it up and looking at it.
    • It keeps itself warm: a 5gm coin would emit heat at the rate of about 0.5 watts.
    • When the crisis is resolved, the coin would be easy to smash with a hammer so you could say, "look, no more coin."
  • Re:Inflation (Score:5, Interesting)

    by aliquis ( 678370 ) <> on Saturday July 30, 2011 @01:15PM (#36933694) Homepage

    Nothing to worry about. []
    (US debt to GDP since 1929, source Deutsche Bank, picture taken from Q2 2011 report of Brummer & Partner Zenit hedge fund.)

    * Profits share of GDP []
    * Wages share of GDP []

  • Re:Bad Idea (Score:4, Interesting)

    by Xest ( 935314 ) on Saturday July 30, 2011 @01:19PM (#36933722)

    "The government's duty is to perform services that are by their very nature not profitable. Public schools, police, fire, national defense, etc... it there isn't a profitable model that can provide these services at the level we expect, the it is up to the government to suplement or perform those services."

    I notice you leave health out of this list, and I'm intrigued as to what your reason (if any) was for this?

    The reason I'm intrigued is that in Europe it's something that we tend to lump in with schools, police, fire, but in America it's not, many Americans believe it is something that can be made profitable through health insurance and so forth, and as such I have to wonder if, having left it out, you did so because you agree with this.

    If that is the case, then are you able to explain why you view it as different to say, fire insurance, or crime insurance to justify as to whether you should be able to get assistance from the police, or fire department, dependent on whether you've paid such insurance?

    If it's not the case and you missing it out was merely an oversight, or an attempt to simply avoid the debate then I apologise! I'm just genuinely intrigued to know how some Americans square away that facet of the healthcare debate.

  • Re:Inflation (Score:3, Interesting)

    by djlowe ( 41723 ) * on Saturday July 30, 2011 @02:38PM (#36934226)

    The Fed buys the rest

    The Fed buys the rest, by making up money to do so, as it always has. Money that didn't exist until they created it... or, if they're "honest crooks", money from their balance sheets that was previously created, created from nothing.

    The funny thing about the US Federal Reserve? They're not accountable to the US Federal Government, political posturing about "auditing the Fed" aside. They're going to do what they think is in their best interest, always, to preserve their position as the current sole creators of fiat money in the United States, while spinning it as being the best thing for "the economy", which, by implication, is what is best for us all, right?

    It's a lie. It's ALWAYS been a lie, but up until now, it was a lie that worked, for the most part, while giving the Fed unparalleled power: Money *is* power, as we all know.

    The real question is this: How much longer are the citizens of the US going to permit this chicanery about money, debt, etc.? The whole structure and the resulting problems come from the fundamental idea of "balance", in an accounting sense, which simply cannot be achieved as currently implemented. One cannot pay a balance, plus interest, when the only source of money is the lender that not only created the money, but who is also charging interest to do so, when that same lender has no commensurate cost in so doing. In short, the current system is, by definition, unbalanced, because the Federal Reserve can create money from nothing and then demand interest on it.

    The Federal Reserve loans money to the US Federal Government, and charges it interest to do so. However, since the Federal Reserve created that money from nothing, even if the principal is paid off, there's NO way to pay the interest, ever, without borrowing more from the Federal Reserve.

    This becomes "debt" - the Federal Government now owes the Federal Reserve money that it can never repay: After all, the Federal Reserve doesn't create its money from nothing for free *grin*

    The real solution? It's NOT a " Balanced Budget Amendment", it's a "Live Within Your Means Amendment", as follows:

    The US Federal Government switches to a "prepaid" method of budgeting, based upon the previous year's income. The amount that the US Federal Government has to spend is then determined in advance, and, better, they already HAVE the money, since we have paid them in the form of taxes on our income for the previous year.

    They are NOT allowed to borrow money, save in extreme circumstances, such as war. And, with regards to the latter? Should the US go to war, formally declared by Congress? I'd build in a provision that states that their salaries are forfeit for the duration of the war, and in addition, they are immediately commanded to report to serve in the US military, and are required to do so for the duration, in whatever capacity deemed suitable to the US military, at commensurate pay. If they can't fight? Fair enough, they can provide support: There's LOTS of places they can be used, I'm sure. Interim appointments to replace them would be made from emergency elections within each state, for the duration, or perhaps the person that came in second in their election bid would automatically be granted their post for the duration... br>
    THAT should stop the fuckers from sending our troops willy-nilly to die all over the planet, at no cost to them.

  • Re:Inflation (Score:5, Interesting)

    by PopeRatzo ( 965947 ) * on Saturday July 30, 2011 @03:21PM (#36934482) Journal

    You have 100 (add multiplier here) shares (I mean money, pounds, dollar or bitcoins, lol) you print more of them (or mine), this simply devalues the pool.

    Not when you have the power to say that money means whatever you say it means.

    There seems to be this misconception, especially among technocratic IT dudes who get their economic education from Civ IV, that money, currency, is tied to some absolute value, the way a meter is equal to 1,650,763.73 wavelengths of the orange-red emission line in the electromagnetic spectrum of the krypton-86 atom in a vacuum.

    Money does not work that way. It never has. China says their yuan is worth X amount of dollars and the US says the dollar is worth X amount of euros. But none of those units of measurement is set to any standard. Even the "gold standard" wasn't really a standard because gold was still being pulled out of the ground, and its perceived value changed with cultural trends. The Indians really like gold, for example, so gold becomes more valuable. That's it. So you never tie your currency to a metal, you tie it to how much people want that metal, which is not a fixed number. Since there is no absolute standard for money, it can mean whatever we decide it means. All of this other nonsense is just smoke and mirrors to keep people from realizing that fact.

    More and more, the economic elites measure wealth in very ugly human terms. A CEO is worth 800 workers and 100,000 Chinese peasants. Sort of the way a really successful athlete has to measure his worth by comparing his salary to the salary of the guy who's not catching as many touchdown passes. He doesn't even know how many zeroes are in the amount of money in his contract, but he knows his contract has to be just a little richer than the guy who had the biggest contract last year. The money itself has no meaning. Without poor people being sufficiently poor, rich people can't feel sufficiently rich. The entire purpose of money now seems to be to give rich people a way to measure how much more valuable they are than a tool & die maker or coal miner or single mother of three. Or a 62 year old unemployed auto worker.

    Everybody stays poor simply to prop up the egos of the rich. When you start getting bonuses in the tens of millions and salaries in the hundreds of millions, the only way that's left to increase a rich man's perceived value is to have the perceived value of everyone around him to go down. That's what "supply-side" or "trickle-down" economics is all about. It was also called "Reaganomics" in honor of the man who presided over its inauguration as the economic system of the future. If the species should survive that long, people will look back at the turn of the millennium with disgust, as a period when the means were available to alleviate so much poverty and inequity and suffering, but the rich and powerful kept that suffering in place just to make themselves feel rich and powerful, so they could go to bed at night knowing they were that much more valuable than everyone else.

  • Re:Inflation (Score:4, Interesting)

    by SETIGuy ( 33768 ) * on Saturday July 30, 2011 @06:04PM (#36935484) Homepage

    If you look at a graph of the money supply in the US over the past few decades, you will observe that the vast majority of it was created by private sources such as banks.

    We have a debt based currency. The way money is created is that you borrow money from a bank against the value of an asset. In a very contorted way, the money you borrow is created by the federal reserve out of nothing. So to first order the money supply is equal to the value of all of the assets that have been borrowed against. The only way to really "create" money is to increase the value of those assets (or create more of them).

    So what happens if the federal reserve makes money out of nothing (as proposed)? Well, the rule still holds. Suppose the money supply is (pulling numbers out of nowhere) $20T and the fed makes $5T more. Now the value of all those assets is $25T. But the assets haven't changed in value, so the dollar is really worth 20% less. That means (over some unspecified time) everything else has to get 20% more expensive.

    That also explains why the money supply collapsed so badly in the mortgage crisis. Both the cost and value of the assets collapsed. The mortgages that backed them and the dollars they represented disappeared. The money supply (M3 is the one to look at, and that's why the government doesn't produce it any more) hasn't recovered yet. That's why the stimulus and quantitative easing aren't causing inflation yet. They're much smaller than the money supply collapse. That's also why they aren't very effective. Way too small to do much good.

    Now it's left for the reader to ponder why default, which in theory destroys assets that can be borrowed against, has the opposite effect on inflation that a collapse in housing market does.

  • Re:Inflation (Score:4, Interesting)

    by PopeRatzo ( 965947 ) * on Saturday July 30, 2011 @06:38PM (#36935676) Journal

    Right, sorry. You do have the alternative of raising taxes and then setting fire to the money you've collected. Assuming you're not concerned about the ensuing riot.

    No, son, you missed my point. You indicated that to create currency, a country "had to" balance it with something of value. I challenged the "had to" part.

    When you're talking about a $15 trillion economy, you could easily print a trillion and give every man, woman and child who makes less than $100,000 thirty grand. The economy would turn around tomorrow and the immediate growth would erase the budget deficit. That makes a lot more sense than "quantitative easing" which prints the same amount of money just to give it to a few banks, who then lend it out at rate 10 times that at which they borrowed it. The interest comes out of the pockets of the middle and working class and bankers get rich. The economy is not helped.

    And there's no reason it should add one bit to "inflation". At the moment, the only commodity that's in short supply is money in the hands of people, so there's no reason prices should go up if everybody got the $30k helicopter drop.

    If you say the words "moral hazard" you are disqualified from this conversation.

You will lose an important tape file.