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Tuesday, January 08, 2013

Brother, can you spare a trillion-dollar coin?

Here's the argument in favor of the platinum coin solution.
"But that will be inflationary!" This is a more serious objection, and it gets at what the platinum coin strategy really is -- financing the federal government's operations by printing money instead of borrowing it. The trillion- dollar coin will never circulate, but it will be used to back cash payments coming from the Treasury that would have otherwise been financed by bond purchases.

If the government financed itself this way in general, that would absolutely be inflationary. But the president can hold inflation expectations steady by making absolutely clear that the policy will not lead to a net change in the money supply over the long term. Obama should pledge that once Congress authorizes additional borrowing, he will direct the Treasury to issue bonds to cover the government's coin-backed spending and then to melt the coin.
My objection to the idea is subtler. If it works, Republicans will be tempted to overuse the idea when they get in power.

My perspective derives from two traumatizing events: 1. After attaining office with his calls for fiscal responsibility, Ronald Reagan created pseudo-prosperity by running up astounding debts. 2. George W. Bush, ditto -- only worse. Based on that history, I suspect that the same conservatives who criticize the coin trick now may applaud the same contrivance once a Republican sits in the Oval Office. Trying this trick more than once could prove perilous.

All of that said, I'd rather see Obama imitate George Raft than try to pry the money away from Grandma.
The coin's a good idea. But "melt it down"? I mean, that's a figure of speech, right? Things keep getting crazier, so I can't help imagining Obama unveiling a really big coin.

But inflation isn't a really worry. Inflation is a right-wing red herring, during the 70s there was inflation but, in the UK at least, it never outpaced economic growth, so what's bad about it? Then Thatcher got in, and we got even more inflation but without the economic growth. Eventually inflation was "brought under control", but at the cost of a lower long-term growth rate, a higher structural unemployment rate and massively increased inequality of wealth. You know Thatcher's big advertising campaign when she got elected was a poster with a picture of a dole queue and the caption "Labour's not working", at which time there were less unemployed than during the years of "full employment" under Tony Blair. But that's a digression.

The point is, inflation in itself doesn't really matter, unless you have a large horde of bank notes under your bed.

No, wait, the point is that it won't cause inflation, that's just scare mongering about something that's not scary. The current system doesn't control the money supply, money just gets borrowed in limitless quantities, and doesn't cause inflation for two reasons: most of it gets squirrelled away by the rich and existing creditors and corporations and so on, and thus never enters circulation, and because of the huge number of US dollars in existence as the global reserve currency. The only difference between that and printing money with no debt backing is the interest payments.

The American government is a wealth redistribution machine, and it redistributes wealth upwards as well as downwards. Federal lands and mineral reserves are given out for a pittance, tax moneys are paid for corruptly administered contracts, "debts" are repaid with interest. Ultimately, inter alia, the money supply should be issued and the amount thereof controlled democratically.

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