The "Deficit" is the penultimate of political red herrings. Calling out excess, wasteful spending for what it is would be the better solution. That's what needs to be addressed, the spending.
The debt ceiling is such an artificial and dangerous construct, making a mockery of it through creative finance is the best path forward to getting rid of it IMO.
The meme economy alone would profit over 100 percent with a trillion dollar coin issued. Not to mention the music industry. I may even revive Saturday Night Live
The deficit will always go up and up and up. Spending will not be abated, no matter how many promises these political clowns make. Sure you can fumble around with bonds and coins and what not, but either inflation will get you or debasing the currency in some manner will. Otherwise, we could instantly erase all debt and allow all assets to increase in value.
See the fall of the Roman Empire for examples. It's not the numbers, it's the people who try to make them into something they are not...or the massagers and distorters of numbers trying to change facts into non-realies to make themselves look good or avoid admitting they know not what they are talking about. Those would be mostly the academic theory loving economists.
"The Treasury could issue a One-Dollar Bond for $100"
- Illuminati, God, Mother Mary: "Hold up!"
I get the concept, and it may even make some sense to combine a debt portfolio with a small fraction of bonds issued this way. Although, the time value of money is tilted towards investors, so maybe the issuer should minimize early payments and slowly grow interest as the years go on. Perhaps they can even issue at interest below current market rates (which could really make it appealing) as investors are getting continuous cash flows.
Anyway, I haven't had my coffee yet, so this could be a bad take on my part. But great article, loved reading it!
You forgot to mention the most important part, of course, regarding the Trillion Dollar Coin: it would allow one of the super rich to intercept its delivery to finally become a real-life Mr. Burns (or Dr. Evil) because they own the only Trillion Dollar (Coin) Bill ;-)
Coming to think of it, reading this, it is as if the Simpsons creators, in their creative early-season juicy heydays, had Nostradamus-like visions, isn't it? Or they simply read about the Trillion Dollar Platinum coin to come up with that "idea".
For all who don't know what I am rambling on about - find an educational, government-approved, movie as to how this coining can actually go wrong here - you will need to destroy the movie (or poke out your eyes) after seeing the secret code phrase, of course:
How can the US Tsy issuing a coin denominated in its own unit of account be considered “radical?” The US Mint has been around since 1792, far pre-dating the Fed or any of the early renditions of a central bank. Thomas Jefferson spoke frequently about a national currency as a declaration of our sovereignty. We can create money without the approval of a monarch or a bond “market.” The federal government spends dollars into existence as a matter of standard operating procedure by crediting banks’ reserve accounts; the Tsy issues debt to drain the newly created reserves. The Constitution gives Congress the exclusive authority to coin money.
To use an analogy borrowed from corporate finance, minting a $1 trillion platinum coin and depositing it at the Fed in exchange for a Tsy security would be like doing a cash-less stock-for-debt exchange between a bond holder and the issuing company. The company is the monopoly supplier of its own stock, it can take in bonds while issuing stock if it so wishes (my firm has done this a number of times over the years with distressed issuers).
Thank you for another interesting article. Your review of possible 'escapes' and 'evasions' of the debt ceiling was well presented.
I think, fundamentally, that the debt ceiling is a reminder that the government works for the citizenry and that the citizenry does not work for the government. Nor is the government independent of the citizenry. The necessity to concoct extra-ordinary work arounds is because ordinary governance since Johnson and more pointedly since Trump/Pelosi/Schumer, has broken down into one side exhausting the credit capacity of the United States in order to distribute largess to its' adherents while the other has been increasingly been coopted or otherwise tendered ineffectual.
Come the debt ceiling fight, I look forward to what may be an interesting play in power politics.
I read a commentator on twitter talk about how the government needs roughly 22% of GDP to function. The presumption that government has a claim on almost a quarter of the gross national product seems to me to be absurd. The government has a claim on what the citizenry through its elected representative say the government has a claim on.
While I don't have the statistics, I wonder if the period after the Civil War to the WWI were the highest growth rates year over year for the United States? This would be before the income tax.
Thought provoking content as always! I was wondering what your thoughts were on Yellen saying the debt limit would be hit this upcoming week in regards to your article 35 “spotlight on the treasury”. Hasn’t this happened much sooner than expected?
The "Deficit" is the penultimate of political red herrings. Calling out excess, wasteful spending for what it is would be the better solution. That's what needs to be addressed, the spending.
Indeed. Simplest way is to balance the budget. Not sure we will see it on our lifetime though.
Brilliant analysis as ever Beae.
The debt ceiling is such an artificial and dangerous construct, making a mockery of it through creative finance is the best path forward to getting rid of it IMO.
The meme economy alone would profit over 100 percent with a trillion dollar coin issued. Not to mention the music industry. I may even revive Saturday Night Live
The deficit will always go up and up and up. Spending will not be abated, no matter how many promises these political clowns make. Sure you can fumble around with bonds and coins and what not, but either inflation will get you or debasing the currency in some manner will. Otherwise, we could instantly erase all debt and allow all assets to increase in value.
See the fall of the Roman Empire for examples. It's not the numbers, it's the people who try to make them into something they are not...or the massagers and distorters of numbers trying to change facts into non-realies to make themselves look good or avoid admitting they know not what they are talking about. Those would be mostly the academic theory loving economists.
"The Treasury could issue a One-Dollar Bond for $100"
- Illuminati, God, Mother Mary: "Hold up!"
I get the concept, and it may even make some sense to combine a debt portfolio with a small fraction of bonds issued this way. Although, the time value of money is tilted towards investors, so maybe the issuer should minimize early payments and slowly grow interest as the years go on. Perhaps they can even issue at interest below current market rates (which could really make it appealing) as investors are getting continuous cash flows.
Anyway, I haven't had my coffee yet, so this could be a bad take on my part. But great article, loved reading it!
Happy New Year, TLBS!
As always, it's a pleasure to learn from you TLBS, keep it going!!
You forgot to mention the most important part, of course, regarding the Trillion Dollar Coin: it would allow one of the super rich to intercept its delivery to finally become a real-life Mr. Burns (or Dr. Evil) because they own the only Trillion Dollar (Coin) Bill ;-)
Coming to think of it, reading this, it is as if the Simpsons creators, in their creative early-season juicy heydays, had Nostradamus-like visions, isn't it? Or they simply read about the Trillion Dollar Platinum coin to come up with that "idea".
For all who don't know what I am rambling on about - find an educational, government-approved, movie as to how this coining can actually go wrong here - you will need to destroy the movie (or poke out your eyes) after seeing the secret code phrase, of course:
https://www.youtube.com/watch?v=_KgHy3Pi5Yw
How can the US Tsy issuing a coin denominated in its own unit of account be considered “radical?” The US Mint has been around since 1792, far pre-dating the Fed or any of the early renditions of a central bank. Thomas Jefferson spoke frequently about a national currency as a declaration of our sovereignty. We can create money without the approval of a monarch or a bond “market.” The federal government spends dollars into existence as a matter of standard operating procedure by crediting banks’ reserve accounts; the Tsy issues debt to drain the newly created reserves. The Constitution gives Congress the exclusive authority to coin money.
To use an analogy borrowed from corporate finance, minting a $1 trillion platinum coin and depositing it at the Fed in exchange for a Tsy security would be like doing a cash-less stock-for-debt exchange between a bond holder and the issuing company. The company is the monopoly supplier of its own stock, it can take in bonds while issuing stock if it so wishes (my firm has done this a number of times over the years with distressed issuers).
Thank you for another interesting article. Your review of possible 'escapes' and 'evasions' of the debt ceiling was well presented.
I think, fundamentally, that the debt ceiling is a reminder that the government works for the citizenry and that the citizenry does not work for the government. Nor is the government independent of the citizenry. The necessity to concoct extra-ordinary work arounds is because ordinary governance since Johnson and more pointedly since Trump/Pelosi/Schumer, has broken down into one side exhausting the credit capacity of the United States in order to distribute largess to its' adherents while the other has been increasingly been coopted or otherwise tendered ineffectual.
Come the debt ceiling fight, I look forward to what may be an interesting play in power politics.
I read a commentator on twitter talk about how the government needs roughly 22% of GDP to function. The presumption that government has a claim on almost a quarter of the gross national product seems to me to be absurd. The government has a claim on what the citizenry through its elected representative say the government has a claim on.
While I don't have the statistics, I wonder if the period after the Civil War to the WWI were the highest growth rates year over year for the United States? This would be before the income tax.
Thought provoking content as always! I was wondering what your thoughts were on Yellen saying the debt limit would be hit this upcoming week in regards to your article 35 “spotlight on the treasury”. Hasn’t this happened much sooner than expected?