Home > Main > beowulf responds to Dave Weigel of Slate

beowulf responds to Dave Weigel of Slate

July 31, 2011

beowulf asked me to post this response to David Weigel of Slate Magazine.

Here is David Weigels half-assed, zero research, and zero curiosity post that doesn’t even bother to question why the greatest country is human history is forced to resort to extraordinary measures.

Here is beowulfs response:

There’s nothing fanciful about it.  The strange thing is that the USG is constrained by debt ceiling but a part of the USG (The Fed describes itself as “an independent government agency”) is unconstrained by a debt ceiling.  Even more anomalously, Fed-held Treasuries are counted against the USG debt ceiling.

This isn’t about selling drilling rights on the moon but a practice almost as old as the Republic. The US Mint has used coin seigniorage continuously since the Coinage Act of 1792 (in a legal sense, a single $1 trillion platinum coin is the same as trillion $1 coins but with far less expense and effort). It violates no laws nor federal regulations nor prior obligations for the USG to transfer debts from the constrained whole to an unconstrained part (that is violates all logic is the fault of Congress).

The idea actually originated in a note I sent the Department of the Treasury on a collateral issue (as it happened, I had “buried the lede”).  I posted about this on Firedoglake (and Correntewire) only after discussing the issue at Warren Mosler’s blog (Incidentally, I’m hardly a lefty. I voted for Romney in the 2008 GOP primaries, will probably do so again next year).

Writer Joe Firestone suggested to me that the platinum coin seigniorage issue was something worth posting a blog about and bugged me until I did (after which, Joe took the leading oar on developing the idea).  I’d point out that Warren Mosler also picked up on the economic ramifications very early.  But I trust that every reader here with an interest in economics has already read his book The Seven Deadly Innocent Frauds  (you can download for free from his site if you haven’t), so that should come as no surprise.

http://moslereconomics.com/2011/01/20/joe-firestone-post-on-sidestepping-the-debt-ceiling-issue-with-coin-seigniorage/Of course, there is historical precedence for using coinage to pay the national debt, the Legal Tender Act of 1862 authorized the issuance of fiat currency, US Notes or “Greenbacks” (the predecessor of today’s Federal Reserve Notes) required that Tsy pay debt service only with US Mint-issued coins. Of course Nixon freeing us from the gold standard changed everything, but if our politicians understood that, we wouldn’t have a debt ceiling now would we?

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  1. wh10
    July 31, 2011 at 5:18 pm

    I think it’s complete effing BS that everyone needs to attach “lefty” to the primary source, to protect their “credibility.” Balkin was actually the one who started this. It is what it freaking is. It’s called accounting, and desperate times call for desperate measures.

    I’m probably more of a “lefty.” Apparently beowulf is not. Who gives a fiat?

    Congrats again to beowulf, Joe, TC, and all the other MMTers.

    • TC
      July 31, 2011 at 9:51 pm

      totally. Only a total jerk would think that threatening to default was a good thing, and keeping us from defaulting a bad thing.

  2. jb
    August 1, 2011 at 12:24 am

    Didn’t the idea of using coin seigniorage as a way to get around the debt limit originate with the author, Ellen Hodgson Brown?

    She discusses it in this December 9, 2008 interview with Thom Hartman.
    http://bit.ly/qGilY4

    And it might also be mentioned in her book “Web of Debt.” (haven’t read, can’t confirm).
    http://www.webofdebt.com/

    • wh10
      August 1, 2011 at 6:56 am

      Interesting viewpoints there. She forgot interest income and the benefit of the rentier class.

    • beowulf
      August 1, 2011 at 4:35 pm

      I believe you if you said she did, I wasn’t aware of it, the proximate cause of my going through the Coinage Act was this WSJ article about how the Mint became a critical element of the most awesome frequent flyer racket ever.

      At least several hundred mile-junkies discovered that a free shipping offer on presidential and Native American $1 coins, sold at face value by the U.S. Mint, amounted to printing free frequent-flier miles. Mileage lovers ordered more than $1 million in coins until the Mint started identifying them and cutting them off.
      Coin buyers charged the purchases, sold in boxes of 250 coins, to a credit card that offers frequent-flier mile awards, then took the shipments straight to the bank. They then used the coins they deposited to pay their credit-card bills. Their only cost: the car trip to make the deposit.

      http://online.wsj.com/article/SB126014168569179245.html

      • Clonal Antibody
        August 1, 2011 at 5:03 pm

        In fact it appears that what Ellen Brown says that the idea came from somebody at the US Mint:

        [Brown]: In fact I read somebody’s opinion, I think it was somebody from the Mint said that you could solve the whole problem by printing, or stamping, ten one-trillion-dollar coins, I mean today, that’s what it would be, and then just pay off the debt with these ten trillion dollars worth of coins. Because there’s no, it doesn’t say in the Constitution what the face value of these coins would be.

        • Clonal Antibody
          August 1, 2011 at 5:11 pm

          Also from Brown’s Web of Debt pg 373

          In the 1980s, a chairman of the Coinage Subcommittee of the U.S. House of Representatives pointed out that the national debt could be paid with a single coin. The Constitution gives Congress the power to coin money and regulate its value, and no limitation is put on the value of the coins it creates.8 The entire national debt could be extinguished with a single coin minted by the U.S. Mint, stamped with the appropriate face value. Today this official might have suggested nine coins, each with a face value of one trillion dollars.

          She has some other ingenious solutions as well

        • Clonal Antibody
          August 1, 2011 at 5:13 pm

          Therefore, I believe that the 1996 law was deliberately phrased the way it was.

      • jb
        August 1, 2011 at 8:19 pm

        In light of that, I see your coming up with the idea of trillion dollar coin seigniorage as sort of like the immaculate conception that Warren Mosler had when he rediscovered chartalism/MMT in 1993, he wrote: “I had never read or even heard of Lerner, Knapp, Inness, Chartalism…” http://bit.ly/po4rzl

        Good idea anyway you slice it. Thanks.

  3. August 1, 2011 at 2:47 am

    Tangent: Who gives a fiat?

    I love that, I think we should all adopt that phrase.

  4. August 2, 2011 at 11:55 am

    I love Beowulf, but Romney???

    From http://www.washingtonpost.com/blogs/2chambers/post/romney-supports-cut-cap-balance-pledge/2011/06/29/AGbXD4qH_blog.html:

    ‘Former Massachusetts governor Mitt Romney (R) said Wednesday that he supports a pledge put forth by some congressional Republicans and conservative groups calling for significant spending cuts and caps as well as a balanced-budget amendment to the Constitution in exchange for a vote this summer to raise the country’s debt ceiling.

    “I am for cut, cap and balance,” Romney told reporters after a Capitol Hill meeting with Sen. Mike Lee (R-Utah), according to the Salt Lake Tribune’s Tommy Burr.’

    • TC
      August 2, 2011 at 3:35 pm

      I thought the same thing. Romney? But of all the Repubs, he is the only reasonable one.

      • beowulf
        August 3, 2011 at 4:20 pm

        The party out of power opposes deficit spending, simply as a way to handcuff the agenda (whether its higher spending or lower taxes) of the party in power. Its been this way, well, practically forever. Typically, the party in power plows on ahead anyway but Obama threw the game by forfeiting his agenda to adopt the Republican (temporary) counter-agenda.

        If Romney were elected in 2008 (or if he’s elected next year), the Republicans wouldn’t spend 10 seconds worrying about the deficit if the unemployment rate is too high. They’d cut taxes and expand govt programs without a second thought, and double down if necessary if the economy wasn’t improving fast enough. As you’ll remember, George W. Bush did both, cutting personal and corporate taxes while hiking education, food stamps and Medicare spending without bothering to “pay for” any of it.

        Granted, Bush shouldn’t have let Wall Street run riot, but I’d suggest that’s not a uniquely Republican flaw.

  5. JIm Baird
    August 3, 2011 at 12:16 pm

    WIth Romney, you always have to take into account that he has to say dumb things to win in the primaries. If he wins the nomination, we might start to hear some sense out of him.

    Oh, for the days of Dick Nixon…

  6. Tom Hickey
    August 3, 2011 at 12:31 pm

    “Of course Nixon freeing us from the gold standard changed everything, but if our politicians understood that, we wouldn’t have a debt ceiling now would we?”

    The right does understand this and the purpose of the debt ceiling, no Tsy overdraft at Fed, etc. are designed to thwart the implications of fiat. Sen Rubio said that the BBA would “handcuff politicians.”

  1. December 8, 2012 at 9:57 am
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