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Over the past couple of weeks the debate around platinum coin seigniorage (PCS) has been raging and that is good. In fact, it is great. Like carrot subsidies, PCS is something we should have been talking about years ago. As a rabbit American, I support both but like LetsGetItDone (LGID) who has been writing incredibly knowledgable and quite brillent posts on PCS at both The Daily Kos and the New Economic Perspectives sites, I am hoping it will be possible to leverage the current discussion into a much larger one about crating policy space.

The Power of Paper

It’s like that tired adage, give a rabbit a carrot and he eats for a day, teach a rabbit to order carrots on-line and he eats for a lifetime – or something like that. Sure, we could solve the current debt ceiling problem by minting a $1T coin but we could also chose to do more.  We could resolve the entire US debt and return our economy to full employment by minting a $60T coin.

Oh, put a sock in it each and every one of you who is sputtering something about insanity. First of all, there are some outstanding detailed explanations as to why this really will work but it all comes down to one simple thing – a fiat currency really IS a figment of our collective imagination. It IS just little pieces of paper or metal upon which we have collectively agreed to confer value and in which value is retained, in the case of the United States, by the policies of the Department of the Treasury, the Internal Revenue Service and the Federal Reserve. Beyond that, money is just paper. (Though, I have to say that in comparison to other paper, when one just happens to nibble on money, humans have a way of turning an extra special shade of white.)

Given that we know that fiat currency works, one of the things that is the most interesting about this entire debate is that no one in Congress

…or the White House

…or the Treasury

…or the Fed

has figured this whole thing out before. Part of this is because, as I have said, almost all of the people currently staffing those positions learned monetary policy at a time when the thinking was all still founded on the gold standard despite the fact that the monetary system no longer has these limits. Nixon took the country out of Bretton Woods in order to allow for growth but only a very few people managed to realize that national policy makers also needed to alter the way they thought about actual money. They needed to smash their old thinking so that the truth of the reality could become clear.

Yeah, like that happens.

I was just reading today about some complete idiot (and by “idiot” I mean conservative Republican) who is claiming that teachers teaching the distributive principle in algebra are pushing a liberal agenda. Back up the truck full of stupid. I get that once humans have their minds set on something it is hard for them to see anything else or in any other way but that won’t work for the US economy unless, of course, your objective is aligned with the GOP and your intention is to destroy the economy on “principle.” Let’s assume that since you are reading this, you are not satisfied with crashing and burning the economy and that you are willing to learn something new. Ok, now take what you think you know about debt and inflation outside and smash it against the rocks of “that’s SO ’70’s.” I can wait. (Don’t forget your jacket. It’s a bit nippy outside.)

If you still think the old “rules” of debt and inflation apply, it’s about to get a little nippy in here. Bunny teeth are sharp. I’m just sayin’.

Policy Space

For those of you who are beginning to understand the incredible power of a strong fiat currency we can now move on to what I really wanted to talk about, policy space. In speaking about policy space I am talking not about the legality of PCS and I am not talking about PCS in relationship to the debt ceiling. I am talking about why we, as progressives, should be supporting PCS for all we are worth. Progressives should be loudly supporting PCS with one voice because it would allow us, as a nation, to get past all the truly meaningless battles being fought in Washington, over shadows that live only in the backs of paranoid minds, and on to policy that could genuinely and positively effect the real world.

Let’s imagine, for instance, that we are talking about minting $60T worth of PCS coins. It could be any number but $60T is one being actively talked about so I’ll go with that for the sake of this example. (And remember, I’m not going to get into why there is no realistic way this would cause inflation or any of the other topics that have been covered by myself and LGIT as noted above.) Now, the funds made available by PCS are not pushed out immediately into the economy, as so many imagine (that really would cause inflation), rather, they are sitting in a Treasury account at the Fed. In other words, for all you MMT folk, they are a $60T entry on a spreadsheet. The first thing that happens, of course, is that all debt that falls due is paid as it is due, in full, instead of being rolled over. No more interest is paid and no new debt is created. Take that, austerians, as Paul Krugman calls those dedicated to austerity. Our debt is being retired. Done. Fin. At the same time, Congress is still in session and is suddenly in a position to authorize spending without having to deal with the canard of not having enough money. (Which, as MMTers know is NEVER the case for the US government but that is not for this blog post.) The issue would be that if we were able to mint the big coin the optics and political will around everything else changes.

As Paul Krugman cites in his 2012 book, End This Depression Now!,

And early this year, with the debate having shifted perceptibly toward a renewed focus on jobs, Republicans were on the defensive. As a result, the Obama administration was able to get a significant fraction of what it wanted…without making any major concessions.

So the first thing Congress now has is a free hand, policy space, to deal with unemployment. In point of fact, the take-over of the national zeitgeist by drummed-up concerns over debt and deficit (see a brief discussion on why FAUX News and company are so dedicated to this mantra near the end of this post) has been allowed to relegate unemployment to the backseat. Putting unemployment in the backseat in order to talk about imaginary problems denies the absolute fact that unemployment is still driving the car. So, if you are wondering why the US economy is still swerving all over the damn road, that’s the reason right there. Platinum coin seigniorage would put unemployment right back in the front seat and, in a matter of a very short time, could put everyone who wants a full-time job back to work. (The resting rate for unemployment is said to be around 3.5% so don’t ever think we are looking for Gadot/zero.)

That should be reason enough for progressives to be the biggest cheerleaders of PCS – but wait, there’s more.

Strict and seriously enforced environmental regulation could be enacted and, instead of using indirect reward like tax breaks which tie up liquidity for tiny and giant corporations alike, the government could provide upgrade grants. Jobs are created and, I love this part, everyone benefits except the bankers. Also, this would move corporations from opposing such regulation to supporting it. Imagine, all you environmentalists out there, being on the same side of an argument as American Electric Power. We still would have problems with them (“Clean Coal” anyone?), I know that, but we could move with them further down a road which would benefit all of us collectively. For small corporations, it would make it possible for them to come in to compliance with regulations which they are commonly exempt from because, if included, they would not have been able to comply.

It would allow this nation to address long-standing infrastructure crisis’ including the electrical grid, water treatment and transportation. Even major improvements to existing systems, like rail, would benefit the economy and each one of us enormously.

We could not only invest in disaster preparedness, we would have the ability to set aside funds to deal with the coming, rapidly increasing, rate of disasters including things like the fires in the West, draught in the Midwest and that’s before I even get to superstorms and hurricanes. Of course, I am already assuming that should funds be perceived as being available, the needs of the states and victims hit by Sandy would be addressed.

And on and on and on – in a manner metered by Congress and the Fed up to the point where industrial utilization is near peak levels and unemployment is down near 3.5%.

Perceived Funds

The reality is that the coin is not a necessity. All that it does is give physicality to an accounting transaction. Large PCS would make it plain to all that the US government will not and cannot run out of money. There are constraints on our economy (inflation and the exchange rate) but “having enough money” is not one of them. The ability to spend whatever we need to bring the economy into balance has been available to the government since 1971, since the day the US dollar became a fiat currency, we just haven’t realized it and haven’t used it.

What progressives need to know is that the things we want, the things we have been calling out for from the wilderness, become possible with Large PCS. Also, if by some minute chance we were able to get this President to order large PCS then we could all wipe trickle-down economics off the bottoms of our kicks on the nearest patch of grass. If for that and no other reason, we should all be getting behind this right now.

So, Why Do We Think Debt is a Big Deal?

Debt, given the current state of our economy, means nothing, so why do we, the progressives, the reality-based group, the group that actually thinks math is a real thing, believe it when we hear it? Well, folks, you have been duped and, no surprise here, you have been duped by FAUX News and company. I know, you don’t listen to FOX but you do listen to people who listen to them and all those people drank the Kool-aid. Rabbits are big on water. We oppose Kool-aid on principle. (This would probably not be the case if the orange flavor was carrot instead of orange.) Rabbits, like all prey animals, are adamantly focused on the real world so we were not taken in.

Still, one has to ask, why this meme is so important to conservatives?

Simple. Greed. Surprised? Of course not. In the dictionary under “conservative” the definition says “greedy bastards.” We all know that. So, how does their greed tie in here, you ask? Well, to start with, Pete Peterson knows. If we cut social security for reasons of austerity, where do those people go? They go right to Wall Street. If we cut Medicare, where do those people turn? They turn to the insurance industry. If anyone other than the government is funding projects where is that money coming from? Why, it is coming from the banking industry, of course. So, here is the equation:

Wall Street + Insurance Companies + Banks = Non-stop Debt Crisis Meme

That’s it. That simple. This other equation,

Platinum Coin Seigniorage = Policy Space

has been here through this entire crisis and has had nary a whisper until #MintTheCoin took off just a couple of short weeks ago and we, as progressives, absolutely must get on board. If you ever, in your entire life, wanted to be a part of making a real change that could change everything for the better, this is it. Platinum coin seigniorage isn’t the golden ticket but it’s pretty damn close. Thump!

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Memes are a strange thing. One never can really predict what will catch on and what will die with a mingy wimper. Still, economist Stephanie Kelton has to be pretty thrilled that #MintTheCoin has gained traction. She, and the entire rest of the Modern Monetary Theory (MMT) community of economists, have certainly been waiting long enough. #MintTheCoin is Dr. Kelton’s (@deficitowl) current contribution to Twitter and it’s an important one but I’ll bet you don’t know why.

Hint: the answer isn’t “debt ceiling.”

The meme has caught fire and is being promoted by the likes of both Paul Krugman and Salon (…’nuff said) as a solution to the debt ceiling via the hastily lashed together vehicles of the 14th Amendment to the US Constitution and Title 31 of the United States Code Subtitle IV, Chapter 51, Subchapter II, Section 5112. I am not going to repeat the basics of the meme because they are splashed all over the web. If you have been dead for the last couple of weeks and somehow missed them you can catch up here, here, and here. There is also, of course, the idiotic GOP response codified, for the moment, in the bill being introduced by Congressman Greg Walden (R-OR) to prevent the President and Secretary of the Treasury from taking the option of the now infamous platinum coin. My favorite part of this legislation is that it tacitly acknowledges that the Secretary of the Treasury really does have the right to mint the coin making any argument to the contrary just that much more difficult. Derp. The part of this legislation that makes me want to put my face through glass is when the Congressman drops his pail down into the my-small-business-can’t-print-money-well to which I respond,

Listen up, Dimwit, the US Federal Government is NOT a business or family and it CAN and SHOULD print money.

Now, I’ll grant you that the world is a big place and some of you thought you had better things to do than to read my post on Modern Monetary Theory vs the Fiscal Cliff (this link is to the Daily Kos cross-post because the discussion thread was excellent there) but if you do not understand the statement above, stop now and read the older post. I’m not kidding. Stop. Now. Thump!

For everyone who did not stop I am going to go forward with the assumption that you fully understand the following things:

  • The budget of the Federal government is in no way, shape or form like that of your family or of any business and likening the Federal budget to the budget of a small business is the same as likening kittens to helicopters. (Ok, both look pretty funny when they are flying through the air but other than that….)
  • The Federal government is not balancing a budget, it is balancing an economy and the delimiters of that balance are unemployment, exchange rates and inflation. Period. End of story.
  • Deficits mean NOTHING. Debt means very, VERY little.
  • The US economy has nothing what-so-ever in common with any country which uses the Euro so comparisons to Spain or Greece or Italy are, again, kittens to helicopters.

Again, if there are any of the above which are unclear to you, go back to the older post. I mean it. *glare*

What has to be thrilling the MMT community to the tips of their pointy little heads is the fact that the platinum coin is breaking into consciousness at all because they have been talking about it for a long time for a whole different reason.

Zeroing Out the US Debt

News Flash: the platinum coin could be used to zero out the entire US debt held by the Fed. Done. Gone. I’m going to nibble on some hay while you think about that. … … … … … … Done? I didn’t think so but no one has ever credited me with patience.

There are, of course, two things to know about this approach and the most important is that it is totally unnecessary because given the current (stronger than you realize) position of the US economy and the fact that we have a fiat currency, debt actually means very, VERY little. It is, essentially, a matter of an internal balance sheet adjustment and if someone wants to make a pretty little coin or two or fifty to make it more real, well isn’t that just precious. What this would do instead is allow the funds which are being spent in service of our current debt to be pumped back into the private sector, in a controlled fashion, until we have reached full employment, at which point the spigot would be reduced to a normal flow.

What’s that? I can hear the anguished screams all the way from here. No, inflation is not a factor. Inflation is caused when demand exceeds supply and our economy is no where close to that margin. There is huge room for growth and capacity utilization rates remain exceedingly low. There, there. *pat, pat* I know. It’s a shock because those GOP bullies have been pushing the Debt-bad/Inflation-nigh meme for so long and you actually had started to believe it. If you need more solace on this issue, go to Bill Mitchell’s Billy Blog, for an excellent explanation.

Snipe Hunting

The real truth is that debt isn’t bad. At least, not at our current levels and in our current financial position. Still, we have listened to the GOP and the Tea-baggers rail on it for so long that it is as if we, as a nation, have been on a snipe hunt and we actually believe there are real snipes out there. Let me do you this favor and smack you upside the head, *SMACK!* Wake up!!!

There are not now and there never were actual snipes and because it does not serve our nation and economy for the private sector (all US individuals and businesses) to be in the red and because we will absolutely have a trade deficit for the foreseeable future (which is the international sector), the laws of accounting (if confused, refer to both my previous post on MMT and my previous *glare*) say that the public sector (the Federal budget) MUST be running a deficit . If we just can’t make ourselves comfortable with that than let’s pretend otherwise by zeroing out the debt with a magical coin. Here’s the bottom line. The debt means NOTHING and the coin means NOTHING and using them to cancel each other out so that we feel better is silly but not necessarily a bad thing. Plus, of course, it frees up all the money necessary to get everyone who wants to work back to work… oh, and to invest in the changes necessary to address climate change, invest in education, rebuild our national infrastructure, solve the long-term healthcare crisis…among a few other little things.

The IMF’s Giant Facepalm

…and then there’s the International Monetary Fund (IMF.) These genius’ have been at the head of the austerity bandwagon for years as they have dutifully strong-armed (and worse) economy after economy into the ground with their iron-clad commitment to austerity. …except they were wrong. Totally and completely, absolutely and irrevocably (in some cases) wrong. Now, it’s one thing for me to say this. What is one rabbit against the all-powerful genius of the IMF? So I had to laugh (and cry a little) when they finally acknowledged that they have been wrong all along. As it turns out, when an economy is struggling and it implements austerity, things get worse. Conversely, when countries, like Germany, Austria and the US (thank you, President Obama), use stimulus, they experience improvement. Why? Because (and here I apologize for repeating myself) a country is not balancing a budget, it is balancing an economy. WHO CARES what a ledger says! What matters is that people are working, the temperature of inflation is cold and the exchange rate is reasonable. Those are the only three things that matter. Everything else is just a snipe no matter what the Tea Party or the GOP or the IMF has to say.

In Closing

The Giant Platinum Coin IS an interesting concept. It IS worth thinking about but it is wasted on an imaginary “problem” like the debt ceiling. Oh, it’s not that it can’t or shouldn’t be used there. It’s just that if we really want to get the GOP to shut the thump up and we really want to change the future of our country and the lives of our citizens, we won’t just stop there. But that is, of course, just one rabbit’s opinion.

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