Characteristically, Nobel Laureate Krugman takes the idiotic “Platinum coin option” proposition seriously and uses it to bash the Republicans mere compliance (as opposed to enthusiasm) for spending the economy into oblivion.
The left treats Republicans as Bolsheviks treated Mensheviks. The Republicans are (for now) the radical saboteurs solely responsible for the failure of the otherwise glorious plans of our commissars.
Socialism requires endless enemies on which to blame the failures of central planning. Think of Orwell’s image of the future: a jackboot stomping on a face, forever.
The platinum coin discussion has moved with startling speed, from an idea nobody took seriously (and which, as I’ve mentioned, senior officials were unaware of just last month), to assertions that it’s ridiculous and illegal, to grudging acknowledgment that it’s almost surely legal coupled with strained attempts to dismiss it as an option nonetheless.
Ezra Klein has now opened up a new front, which I would consider a sort of progressive version of the shock doctrine: we shouldn’t invoke the coin option, he says, precisely because it would work too well, and therefore let us sidestep the real issues. . . .
This isn’t a stupid argument. We really do need to come to grips with Republican extremism. The question is whether refusing to use this escape hatch is the place and time to do that.
My own view is that I was willing to go over the brink on the fiscal cliff, but not here, for three reasons. (Read more)
Here’s Robert Murphy’s take:
Jack Balkin — a professor of constitutional law at Yale — outlined strategies that the White House could use to evade the pesky borrowing ceiling imposed by a fickle Congress:
Are there other ways for the president to raise money besides borrowing?
Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time.
Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.
The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government’s checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.
The “jumbo coin” and “exploding option” strategies work because modern central banks don’t have to print bills or float debt to create new money; they just add money to their customers’ checking accounts.
These suggestions should horrify anyone who understands the importance of sound money. Not only are the proposals themselves preposterous, but the mere fact that they are being discussed is a symptom of the cultural decadence wrought by the government and the Fed’s responses to the 2008 financial crisis.
Money for Nothing
When critics of the Fed assert that Bernanke creates money “out of thin air,” they mean the following: The Federal Reserve has the power to buy whatever assets it wants at whatever price it wants. In principle, Treasury Secretary Geithner could sell a paperclip to the Fed for $2 trillion. The Fed would simply write a check made out to the Treasury, drawn on the Fed itself.
When the Treasury deposited this check with its own bank — which just so happens to be the Fed — then its own “checking account” balance would go up by $2 trillion. This money wouldn’t come from anywhere in the sense that some other account would need to be debited $2 trillion. On the contrary, the system’s total reserves (and what is called the “monetary base”) would have swelled by $2 trillion. The Treasury would be free to start paying bills by writing checks on the $2 trillion in its account.
The only kink in the plan would be the state of the Fed’s balance sheet. Initially it could value the paperclip at $2 trillion — what the Fed paid for it — and list the paperclip among its other assets such as Treasury bonds and mortgage-backed securities.
“These suggestions should horrify anyone who understands the importance of sound money.”
Of course, people in the financial markets would cry foul. They would know that if the Fed’s books were “marked to market,” the paperclip would be worthless and the Fed would suddenly be insolvent according to regular accounting rules. (Its liabilities, in part consisting of bank reserves — which are dollar-denominated claims on the Fed — would have risen by $2 trillion, while its assets didn’t budge.) But this would merely be an embarrassment rather than a legal obstacle because the Fed has put into place Orwellian rule changes that allow it to shield its shareholder equity from capital losses.
The difference between my absurd paperclip scheme and the two proposals discussed by Balkin is one of degree and not of kind. As of this writing, platinum is trading for a little less than $1,800 per ounce. Thus, $2 trillion in platinum would weigh about 35,000 tons (Read more)