Trillion Dollar coin - Paging ZenOps!

[ExtraSlow]

So the USA thinks it can mint a trilion dollar coin and that will sidestep the thorny debt ceiling issue?
Sound crazy? Maybe not.

Financial Post - How a Trillion Dollar Coin could save Aermica's Economy (http://business.financialpost.com/2013/01/04/have-you-heard-about-the-trillion-dollar-coin-and-how-it-could-save-americas-economy/)

ZenOps, what say you?

[Modelexis]

So the theory is that paying off your debts with essentially counterfeit money is not going to have any major negative effects in either the short term or long term?

I'm no economist but it seems like taking a large hit of crack to avoid entering a withdrawal phase and avoiding any pain or major life changes associated with said withdrawal.

Maybe someone who has taken economics could help me understand how you don't get inflationary effects with such an action.

Also, I tried to calculate what an actual market priced 1 trillion dollar coin would weigh but my math isn't the best:

1 trillion dollar platinum coin at market prices would weigh approx 44,139,963 lbs or 20,021 metric tonnes

I guess the idea is to just print '1 trillion' on a small coin and give it a false value. If I took a 5$ bill and reprinted it as a 1000$ bill I think I might be spending time in jail, and for good reason.

[FraserB]

Originally posted by Modelexis
So the theory is that paying off your debts with essentially counterfeit money is not going to have any major negative effects in either the short term or long term?


They're not using it to pay off debt.

[Modelexis]

Originally posted by FraserB
They're not using it to pay off debt.

What are they using it to pay off?

My understanding is that they have reached their debt limit and they need to 'liquidate' some of that debt to buy time until the next time they approach the limit.
To me this would mean 'eliminating' 1 trillion of the current debt.

Is the plan to eventually pay back the 1 trillion in debt that is eliminated by the coin?

Also the article makes reference to the debt limit as 'silly'
Is it really silly that there is a limit to how much debt the US government can hold?

[Modelexis]

http://mises.org/daily/5515/Saved-by-a-TrillionDollar-Coin#ArticleTab

This statement illustrates the part that I can't figure out why people aren't concerned with the idea:

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.

So if I understand it rightly, you would have a private bank that has lent out 2 trillion dollars based on an asset holding of ~1500$

I have a lot to learn about economics but this doesn't sound right to me. Sounds like fairytale economics.

[jdmXSI]

Originally posted by Modelexis
http://mises.org/daily/5515/Saved-by-a-TrillionDollar-Coin#ArticleTab

This statement illustrates the part that I can't figure out why people aren't concerned with the idea:


So if I understand it rightly, you would have a private bank that has lent out 2 trillion dollars based on an asset holding of ~1500$

I have a lot to learn about economics but this doesn't sound right to me. Sounds like fairytale economics.

That link makes my head hurt...

Serious question, Wouldn't creating trillions of dollars out of thin air lead to massive inflation or would have barely any effect at all since they've strayed away from the gold standard?

Edit, pulled this of Wikipedia:

Hyperinflation occurs when there is a continuing (and often accelerating) rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services.

The price increases that result from the rapid money creation creates a vicious circle, requiring ever growing amounts of new money creation to fund government activities. Hence both monetary inflation and price inflation proceed at a rapid pace. Such rapidly increasing prices cause widespread unwillingness of the local population to hold the local currency as it rapidly loses its buying power. Instead they quickly spend any money they receive, which increases the velocity of money flow; this in turn causes further acceleration in prices.[6]

This results in an imbalance between the supply and demand for the money (including currency and bank deposits), causing rapid inflation. Very high inflation rates can result in a loss of confidence in the currency, similar to a bank run. Usually, the excessive money supply growth results from the government being either unable or unwilling to fully finance the government budget through taxation or borrowing, and instead it finances the government budget deficit through the printing of money.[7]

Governments have sometimes resorted to excessively loose monetary policy, as it allows a government to devalue its debts and reduce (or avoid) a tax increase. Inflation is effectively a regressive tax on the users of money,[8] but less overt than levied taxes and is therefore harder to understand by ordinary citizens. Inflation can obscure quantitative assessments of the true cost of living, as published price indices only look at data in retrospect, so may increase only months later. Monetary inflation can become hyperinflation if monetary authorities fail to fund increasing government expenses from taxes, government debt, cost cutting, or by other means, because either
during the time between recording or levying taxable transactions and collecting the taxes due, the value of the taxes collected falls in real value to a small fraction of the original taxes receivable; or
government debt issues fail to find buyers except at very deep discounts; or
a combination of the above.
Theories of hyperinflation generally look for a relationship between seigniorage and the inflation tax. In both Cagan's model and the neo-classical models, a tipping point occurs when the increase in money supply or the drop in the monetary base makes it impossible for a government to improve its financial position. Thus when fiat money is printed, government obligations that are not denominated in money increase in cost by more than the value of the money created.

I'm all for paying back what you owe the one idea of selling 2 trillion dollars of property to the FED (a privatly owned bank) is just absurd IMO.


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.

Just imagine if both happened? The US government mints the 2 $1 trillion dollar coins, hyperinflation incurred because of this and collapsed the economy. To pay the FED back, they sold $2 trillion of land/ property back to the FED at 1/2 the current value.:nut:

Just for those that think I'm serious about this^, I'm not.

[ZenOps]

I know exactly how this idea works. The US mint is not a part of the Federal Reserve. The US mint is a self contained and controlled entity of the United states.

There is great advantage to creating a few trillion dollar coins, in that they would have to pay no interest to anyone. It would be considered (as are most money metals platinum, gold, palladium silver, nickel, copper sitting in vaults) an asset.

If the US printed up a few trillion dollar bank notes, they would be considered "treasury notes" and subject to the interest rates of the day (currently less than 0.25%, but still must be paid)

In a period of actual negative growth, paying from 0.001 to 0.25% means you are constantly bleeding money by printing paper notes. Since the US has both control over paper note printing and coins, it just makes sense for them to move more into coinage.

IE: Noone ever charges you 1% interest to have a gold or nickel coin sitting in a vault - In fact, as a government or bank you can legally sell that one coin to 100 different people on paper (if you dare to do so) as long as they agree to never take delivery on it. Or alternately, you can make it illegal for people to transport coinage out of the country (like imposing a maximum $1 to $100 export of coinage or face a five year jail sentence)



http://www.moneyfactory.gov/uscurrency/annualproductionfigures.html

Last year in 2012, the US printed 3,027,200,000 $100 bills ($300 Billion) all of which are federal reserve notes and since they are essentially debt, work just like a credit card - meaning they carry an interest rate.

By comparison, the US minted about 1,000,000,000 nickels last year.

http://en.wikipedia.org/wiki/United_States_nickel_mintage_quantities

So technically, if you go by reality: Last year, a nickel is about 3x rarer than a $100 bill.

[ZenOps]

BTW: By the above rationale, it would make more sense to create a one ounce 31.1 gram nickel coin with a value of $1,000 and create 1 billion of them (just like they create 1 billion 5 gram cupronickel nickels) to get to $1 trillion.

That would *technically* be possible given the restrictions of reality, although probably just as outlandish to as many as a trillion dollar platinum denomination.

Canada did create 375,483,000 8-gram nickel Toonies in 1996 (inception year) which is not quite $1 Billion.

Europe created many 8-gram mostly nickel coins in the first three years (1999 to 2002) I believe they also were very close to one trillion Euros in face value.

http://www.fleur-de-coin.com/eurocoins/euro-coin-mintage.asp

If the US were to suggest that the entire coinage base of Canada and the European zoen, would be equivalent to one platinum coin from the US - it would be *interesting* for sure.

[Supa Dexta]

Imagine finding one in some dumb luck?

I havent heard an update on this guy who bought 130 million in coke stock, by accident:

http://www.reuters.com/article/2012/04/05/us-coca-cola-antiquestock-lawsuit-idUSBRE8340Z620120405


He died shortly after, but his family is still fighting for it.

[ZenOps]

http://www.cbc.ca/news/world/story/2013/01/08/f-trillion-dollar-coin-paul-krugman.html

Canadian take.

It does actually make sense when you think about it. Everything nowadays has an assumed value as determined by market forces anyhow. If the coin never saw circulation and was always held by the US, they could technically never have too much or too little money, and technically would never have to pay back anything. If you have a banking system that does not punish bankruptcies (Donald Trump) then why worry about it?

Its in many ways - no more damaging than printing up extra dollars electronically $500 Billion dollars at a time. Except at least there is a physical placeholder like a ridiculously valued casino token that noone gets to gamble with.

In such a way, you are not rewarding failure (allowing bankruptcies is rewarding failure) - but you are also not rewarding success. Its definitely more on the socialist side however if you use the trillion dollars to pay for things like free food and healthcare however.

Good for the US, bad for anyone who owns US dollars or is not the US. And of course, free food for 47 million US citizens means more expensive food for everyone else, but again - this is no different than what they have already done by electronically creating money $500 Billion at a time which is not really the point here.

Seriously, reality has nothing to do with the US electronic or paper dollar anymore, if people can agree that the US dollar is not to be relevant in value as a physical (metal) dollar either than why not do it? If the US can make their dollar only relevant in terms of social security (food and healthcare) then they really don't need to have a relevant value to anything else.

People seem to be doing absolutely fine believing that man landed on the moon and that three one hundred dollar bills in the US are backed up with more than one nickel and four pennies in metal (reality) If the US can change it so that the US dollar is measured in peanuts and bandages instead of metal, then a socialist utopia is what I imagine they would be going for. Not that it would be right or wrong, but it does seem to be what the majority of people want - as 47 million foodstamp users have already unknowningly voted for the US dollar backed with peanuts instead of gold.

If the majority of people want their dollars to be backed with meat that is democracy. Its a little bit *sad* that at this point in time (non-wartime) that people would actually be voting for it - but its just a sign of the times.

ME: I like nickels if just for the idea that as a collector they are significantly rarer than $100 US bills.

[HiTempguy1]

Zenops just blew my mind. :cry:

[SHO]

I wonder if I can buy the USA with a IOU I'll back it with my 1988 winter Olympic bronze coin which I figure is worth more than their coin! ;-). Same philosophy in my mind....

[ZenOps]

Originally posted by SHO
I wonder if I can buy the USA with a IOU I'll back it with my 1988 winter Olympic bronze coin which I figure is worth more than their coin! ;-). Same philosophy in my mind....

The power comes from making someone else believe it is worth something.

1933 gold double eagle, 1943 copper penny, Davincis notebook, three lines painted on canvas - any of which are easily in the hundred million US range, probably Billion dollar range in the next decade.

Usually assigning a high value to an obviously lower value item (according to everyone else) is usually just an indication of fraud, money laundering and/or some other sort of scam. But if the government does it of course - its legal.

More Trillions means that the Billionaires have less purchasing power, the poor people who own money will probably always owe money - so it makes little difference to them as long as they get their peanuts and bandages. Which is good enough as the majority usually says "you can't eat gold."

http://en.wikipedia.org/wiki/Bread_and_circuses