.
Friday, January 4, 2013

A Challenge to Business Insider and Huff Post

 

Two liberal Emags have been pushing for the “Platinum Coin” as a solution to the upcoming debt ceiling crisis.

 

bi1

 

huffpost 

 

bi2

 

Adding to the push by the liberal media, the White House is sponsoring a petition to “force” the Treasury to issue a coin for a trillion or two. I want to barf at this talk.

 

wh

 

 

In my opinion, there is no substance to the coin solution. In theory, it does resolve the debt limit issue that is just months away from a crisis. But that would be a terrible outcome for the country. Any chance at achieving fiscal discipline and a sustainable debt path would be lost.

 

Yesterday, the Fed indicated that it was closer to ending and reversing QE than had been previously been  thought. If you believe the Fed (I don’t), then you should expect QE to end before the end of the year, and the long process of unwinding the Fed’s balance sheet will begin. But if a coin is used to replace the bonds the Fed has in inventory, the Fed will be powerless to reverse QE. The coin makes prior QE permanent. I see that step as the ultimate “fold” on responsible monetary policy. It’s a cheap way to avoid the country’s “Speed Bump” on explosive debt creation.

 

Bottom line: The coin is a phony solution to a real problem.

 

BUT

 

I want to say in print that I will support the coin concept with all of the resources I can bring to bear. I will write about it, I will sign petitions, I will march on DC, and I will put up money to support the cause.

 

BUT

 

My support is conditional on a minor revision of the “plan” spelled out by Huff Post and Business Insider. My plan:

 

- Three coins are issued. Two for $500B; the other for a cool $1T. I would use these coins to extinguish $2T of debt.

 

- The $2T of debt reduction would be sufficient to bridge the country to 2015. As a result, the country would benefit from two years without a self-induced financial crisis. The $2T buys the country breathing space through the bi-elections. My coin solution would take politics out of the process for a much needed 24 months.

 

Like it so far? Now, the key difference between BI/Huffy and me:

 

-  A $500B coin would be given to the Federal Employee Retirement System (FERS).

 

-  A $500B coin would be given to the Military Retirement Fund (MRF).

 

-  The $1T coin would be given to the Social Security Trust Fund (SSTF).

 

 

The government Trust Funds (TF) for FERS, MRF and SSTF are holding a whopping $4.6 Trillion today of government IOUs. My plan would reduce that by less than 50%.

 

The debt held by the TFs is more of an accounting entry than a real debt. The bonds held by the TFs do not, in any way, secure the promises that the government retirement funds have made to current and future beneficiaries. The benefit payouts are set by Congress; they can be changed at any time. The existence, and the size of the TFs, has nothing to do with benefits. Period.

 

I believe that my proposal is a substantial improvement to the one being pushed by the liberal media. It achieves everything that those folks have been pushing for. It does that without tying the Fed’s hands, or creating the risk of future inflation. What’s not to like with that result?

 

There is not one chance in a million that the likes of BI and Huff Post would go for this. These outfits do want to see the pesky debt limit problem disappear, but they LOVE Social Security.

 

My challenge to Arrianna Huffington, Henry Blodgett and Joe Weisenthal is to step up to the plate, and make a real stand on the coin. Do the “right” thing. Do the “smart” thing. Mint your coins; buy the time you think we need,  just put those coins of yours in the tills of America’s Trust Funds.

 

My bet here? I never hear from Arianna, Henry or Joe. Their base of readers would crap in their pants over my suggestion. The readers would rip those Mags apart with criticism. Those “influential” supporters of the coin plan that BI keeps referring to would run away in droves. Those who want coins are also pregnant with their support of SS. BI and Huff Post can’t do the right/smart things. If they can’t do the right things, they should just fold their cards on the coin idea.

 

Note:

I wrote about using a coin to extinguish federal debt owed to Social Security on 10/31:  How To Eliminate $4.5 Trillion of Debt.

 

images-2

Comments

  1. Bravo, Bruce. We could also ask the Saudis if they take the $1T coin in exchange for 10 billion barrels of crude oil, and wait for some unprintable epithets in Arabic. ;)

  2. It would be knee slapping funny to watch all those people who are advocates of the trillion dollar coin go ballistic at the thought of the coin being used to trade for ss debt instead of public debt.

  3. I’m not an economist, but how does creating 2 trillion dollars from a few ounces of material solve anything? The coin idea is yet another attempt to kick the can down the road, again. The federal government spends much more than it brings in. While some receive benefits, most Americans lose. Borrowed money will need to paid back, or the currency will need to be debased. It’s like the sad story of a failing pyramid scheme, where the late investors try to keep things going even after the first investor have split or have been arrested. I’ve been seeing this problem grow unimaginably for twenty years now. We have to deal with it, and the longer it’s not dealt with the bigger the problem will become.

    • You hit the nail on the head. There is no substance to the coin. It is a different way of kicking the can.

      I’m waiting for BI and Huffy to say, “No, no!” You can’t touch SS!

  4. Maybe they’d agree to make the $2T out of paper instead, in order to cut down costs?
    Whatever next…

    • Bruce-

      Watch the Central Banks. Their purchases of gold suggest they are getting ready to use the “gold coin” solution.

      And why not? It has worked every time it’s been tried. Weimar did it in the 1920′s; FDR did it in the 1930′s; Nixon did it in the 1970′s.

      You can’t use platinum, b/c the value of platinum would rise so high as to make car catalytic converters impossibly expensive.

      But gold isn’t used for anything…so if the Chinese own lots of gold & $2T of Treasuries, or $2T of gold & a pile of UST’s that buy them a pack of cigarettes & a 2013 SI swimsuit issue, shouldn’t really matter should it? Except in the latter case, they world is de-leveraged & ready to begin a new borrowing cycle.

      Hyperinflation is in the cake. There is no exit strategy for the Fed. The exit strategy IS a currency system reset, of which the platinum coin is just one (admittedly impractical) version

      • “But gold isn’t used for anything….” Gold has become fundamental and irreplacable in many electronics applications. All the pins and sockets in the connectors in your computer are gold plated. While plating techniques have evolved to be capable of depositing a very, very thin film of gold, there are a very, very large number of connectors (and switch contacts, and so on).

  5. Henry Blodget is banned for life from the securities industry; he should not be giving advice about underwriting US treasury debt or any other securities

    He was banned as part of a settlement with AG Elliot Spitzer and the SEC — because Blodget was caught lying in his dot-com stock recommendations. Blodget was unable to keep his personal conflict of interest out of what he was recommending the public do with their money.

    Blodget is another Bernie Madofff, another Jon Corzine, another Dick Fuld, another Tim Geithner, another Paul Krugman, another …. People who break the law, violate people’s trust — and get away with it because of political connections

    • Since these people have “econned” the public again and again and again … I have to wonder why the media keeps holding them up as “financial experts”. Evidently the media (Yahoo in Blodget’s case) are part of the fraud.

      Note to Marissa Miller, new CEO of Yahoo:
      if you are serious about turning Yahoo around, you are going to have to stop promoting convicted stock hustlers as your financial markets commentator. Ideally, you should look for someone who hasn’t already misled the public, but at least get someone who hasn’t been convicted.

  6. Glenn Costello says:

    I view those publications writings in terms of being shameless click whores rather than ideologues.

  7. If this piece–http://abcnews.go.com/blogs/politics/2013/01/trillion-dollar-coins-the-ultimate-debt-ceiling-end-around/–is correct, it’ll never happen. Before the Treasury can mint the coin it must be defined. According to the piece:

    “The process to determine the “specs” of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.”

  8. But What Do I Know? says:

    Ordinarily I would agree with you on this, Bruce, but I think you’re kind of missing the point. Sure, the trillion dollar platinum coin in the SSTF would be about as meaningful as the IOMe’s that are there now. But cutting SS payouts is a whole different thing. Why do we have to pretend that SS checks must come out of payroll tax money? We don’t insist that other government spending is somehow allocated according to specific revenue–that if we don’t collect enough gasoline taxes, for example, we won’t spend the money on F-35′s or food stamps or hurricane relief.

    I don;t know what the position of Huffington et al. is, but the question of what to spend on SS need not be related to how much comes in from payroll taxes, or the nominal value of the “trust fund.” As you rightly point out, the benefit payments are set by Congress; they can be changed at any time. Consequently, the fight over payouts ought to proceed pari passu with the fights over all federal government spending, and not be predicated over the present and future holdings of a fund of IOMe’s.

    • What Do I Know:
      Social Security tax checks do not come from payroll taxes.
      From a paper published by the Social Security Administration entitled “SSA’s Estimates of Administrative Costs Under a Centralized Program of Individual Accounts:”
      Page 5 “Social Security payroll tax revenue is credited to the Social Security trust funds on the basis of liability, rather on the basis of taxes actually collected. Even in instances in which an employer fails to report earnings, workers who can provide evidence of those earnings have them credited to their record.”
      http://www.socialsecurity.gov/policy/docs/research/rr2000-01rev.pdf.
      Don Levit

      • But What Do I Know? says:

        Thanks for the information–as you point out, there is no intrinsic reason that the size of SS payments be related to the amount of payroll taxes.

  9. Just think … if the government would issue a thousand of those coins we would all be RICH! We would have no debt at all!

    This is better than Sheila Bair’s proposal to have the Fed offer everyone a $10 million loan!

    I’ve picked out the color for my Ferrari … already!

  10. Has any serious thought been given as to how many ounces of platinum would be required for a coin worth $1 trillion?? At the current platinum price of $1559 per ounce, that is 641.4 million ounces of platinum, or 20,000 tonnes. Annual world production is about 200 tonnes, so that $1 trillion coin would require the equivalent of 100 years’ mine supply! Unless the price goes up 100 times to $155900 per ounce to buy a whole year’s platinum supply.

    • Obama bin Biden says:

      Details, shmetails! If we were inclined towards doing the math behind the platinum coin, we might even be inclined to actually audit the Federal Reserve. It just isn’t going to happen.

    • Once again, this is all smoke and mirrors. The real reason to accomplish this coin, is to make it into the Guinness Book of Records.

      And for the record, there HAS to be something other than the water in DC, for our “leaders” to constantly come up with such BullS. I want a hit of that bowl!
      What scares me more, is the citizens STILL don’t call for their heads.

  11. We should give one trillion dollar coin to China and one to Japan which would just about cancel out debt to them. That would go over quite well, I think.

  12. The only thing more childish than the idea of a trillion dollar coin (propaganda move) is the people writing in support of it.

    I wonder how much they were paid to push the position.

  13. Wasnt there a time when the face value of a coin was related to the free market price of the precious metal content? If it is not like that today it is because we are now used to fiat money and have forgotten about this natural connection established by the market price mechanism.

    I guess the idea is about minting a coin weighing just a few ounces and simply announce it is worth a trillion dollar. Because as said above there is not so much platinum around today to equal a trillion dollar at today’s prices for platinum.
    So would not the price for the same coin amount of pure platinum have to rise to a trillion dollar?
    If you want to make believe a few ounces of any precious metal can equal a trillion dollar all other metals would soon have to be reassessed. Why platinum at all? Wouldnt copper zinc whatever be sufficient?
    The whole idea would mean hyperinflation over night this time not caused by people panicking but by government announcement.

  14. Why waste the platinum? lets just make a coin out of card board & paint it silver. It could serve the same .

  15. Should’ve saved this garbage for April 1st.

  16. Just print an infinity coin. That way we can all stop paying taxes. Let the government fund itself with platinum coins.

    Oh wait, this is a bad idea? Then so is a $1 Trillion coin.