Monday, January 14, 2013

Ben B. Nixed The Coin – What Does That Mean?




In the past 24-hours I’ve been reading the postmortems on the Coin; I just watched the Sunday morning shows. In my opinion, the Press is missing the story.

The key sentence from the White House that killed the Coin for good:


“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit”


I think the line “Treasury nor the Fed”, is baloney. It was the Fed, in a message delivered by Bernanke, that caused Obama to back off on any consideration of the Coin. There might have been wiggle room in existing law to print a Coin, but there is nothing that says that the Fed had to take it. And Bernanke said, “No”. When Obama ditched the Coin, he did it because it was no longer an option. Bernanke took the option off the table. The WH statement makes it sound as it it was their decision, that’s just smoke and mirrors.


What bothers me about this is the timing. Why would Treasury/WH go public with its position on the Coin weeks before the deadline was reached? There are at least 14 days left before the SHTF, so, “Why now?”

Did Bernanke put pressure on the WH with a threat to go public that he was unwilling to accept a Coin as valid payment? If so, the WH would have wanted to get ahead of the Fed, so Treasury came out with the nix.


I think Bernanke got some calls from other Central Banks. They told him it would be a dangerous precedent for America to do this. If there are coins to be printed, it would be better if some other country (possibly Japan) do it first. After all, the dollar is still the #1 reserve currency. The foreign CBs have some say in this.

I also think that Bernanke got calls from Republican leaders. Heavy hitters, like Richard Shelby (R, Al), can get Bernanke on the phone. I’m sure that these folks told Ben that if the Fed facilitated the Coin, they would raise hell. They would rake Bernanke over the coals.

But guys like Bernanke don’t just roll over when someone whistles. And old timers like Shelby don’t make one sided-deals. So what could have been winked, nodded and agreed to by all of the actors on this stage?


Take the Debt Limit debate completely off the table.


Republicans have everything to lose if they force the country to functionally default on the debt. If they did that, they would get murdered. Kiss-off the Republican party for another eight years. The Reds would probably lose the House bi-elections, and their majority; and they know this.

If Congress passed a 6-12 month extension of the Debt Limit, it would not diminish the Republican bargaining position at all. In fact, it would strengthen their position, and improve their public perception (from the current level of +0.01).


The Debt Limit is not the only line in the sand for Republicans. They have the Sequestered Amounts they can fight over, but even that is a sideshow. The real issue that will trip up the Administration is the need for a Continuing Resolution. The CR is required by law, if there is no budget approved by the House. It is now 1,350+days since the US has had a budget. There is no way in hell we are going to have one in the next 90 days.


If the Republicans want to shut down the government, they have a much better issue to do it over than the Debt Limit. (The CR will do the “job” ) So watch for what appears to be a “concession” from some Republicans this week. Don’t cheer too loudly if this happens (the markets will – at first). It doesn’t change the fact that a showdown is coming, and it’s coming pretty quick. The chance for a big brawl, that ends up shutting the government down, is still very much in the cards.





  1. BK — why do you make the false claim that “Republicans” are (or want to) shutting down the government? It really makes you sound like a TV network dumbass

    They are the minority party, and if Obama had such great ideas of how to run things — without spending the country bankrupt and turning future generations into debt slaves … the point is he should be able to push through his ideas if they weren’t mere stop gap measures. The guy “won” the election mostly because his opponent didn’t really show up — same way Bush 43 “won”.

    The US government is failing, and there is plenty of blame and fault to go around. Always defaulting to asinine partisanship is a big reason why the TV networks have no viewers

    Spend like there is no tomorrow is not a plan — its a capitulation. Obama is supposed to be the leader of the free world, so lets here his ideas to make a better SOLVENT tomorrow?

    He doesn’t have any. And that is why his regime is floundering at the mercy of a minority party which also has no leadership.

    And while we are on the subject? Any first (or second) world economy would never have discussed such a stupid idea as a trillion lira/dollar coin. Throughout history, countries that have even discussed such gimmickry have faced collapse — its the sovereign equivalent of a bum daydreaming instead of actually getting a job

  2. I’m surprised you believe the not raising the debt ceiling would lead to default on the debt.

    Are tax receipts not great enough to cover all current debt obligations including SS? Furthermore, my understanding of section 4 of the 14th amendment is that it requires us to prioritize debt spending over non debt spending.

    Therefore, if there are enough real dollars flowing through the treasury to cover our debt obligations and we are constitutionally required to cover debt expenditures before those expenditures that are used to pay for “nice things”, then why the fear of debt default?

    It seems to me that the only individuals who need fear not raising the debt ceiling are the Keynesians… which would go a long way in explaining Krugman’s support for platinum mega coinage.

    • It would be possible to divert tax revenue and avoid default. I see that as a technical distinction.

      If we do blow the debt limit, and force a shutdown, it will be considered a “Default”. Not a Payment default, a Covenant default. So the rating agencies would come down hard (they would have to). Markets would react as well.

      • Bruce,

        Great insight. However, regarding default, I agree with other posters that default is a red herring. There is plenty of tax revenue to pay interest on the debt. I also don’t see how this would be a Covenant default – actually just the opposite.

        From Wikipedia:

        “A loan covenant is a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrower from undertaking certain actions, or which possibly restricts certain activities to circumstances when other conditions are met.
        Typically, violation of a covenant may result in a default on the loan being declared, penalties being applied, or the loan being called.”

        Setting debt payments as the highest priority in accordance with the 14th amendment actually clears out any implied covenants. Regarding markets tanking, sure I could see the stock market tanking but the treasury bond market rising.

        • DRW — who cares what order you pay your bills?

          What non-interest payments do you plan to default on? You either pay all your bills, or you do not. While there is enormous room to slash spending all over the budget, the fact remains that any cuts will mean economic pain for a major group — whether its private sector or public.

          If you are going to pull this “prioritize” legal mumbo, tell us the other bills you intend to default on. Be very specific.

          If the answer was straight forward, Congress would have taken the easy road already. You are going to default on promises and/or on debt. Be honest enough to admit it, and stop bullshitting everyone with your legal hair splitting.

          The US government cannot pay all its bills. That is a fact. You are merely arguing which bills you are going to pay (debt interest?) while deceptively not mentioning the bills you plan to default on.

          • Ken Lays Ghost –

            Obviously, your creditors care. I was commenting specifically on Bruce’s suggestion that payment of treasury debt obligations ahead of other spending could be a Covenant default.

            “Be honest enough to admit it, and stop bullshitting everyone with your legal hair splitting.”

            If you had cared to actually read my post, you would have seen I was commenting on something specific and NOT the rest of the things you are talking about. I agree there would be serious pain delaying payments on other spending and am not advocating hitting a hard debt ceiling now. I think Bruce has hit things pretty accurately regarding how this is likely to play out.

            If you want to know how I would approach cutting if we had a hard limit, take the Year 2000 budget as a base for everything except SS and Medicare. Then justify any increases over that. Get rid of Homeland Security, Dept. of Education, all foreign aid, all Federal grants, cut the military by 30%, etc. Then implement big medical care cuts by adopting what works in the rest of the industrialized world. Effectively cut SS by underindexing it for inflation (which is pretty much what they are doing anyway).

      • Congress frequently defangs law via defunding. That is not considered default, covenant or otherwise.

        How is defunding non debt obligations via not raising the debt ceiling any different?

        Of the congressional duties assigned to members of congress is that of forging a solution from the divergence between federal want and federal receipts. Congress has been derelict in this duty to this point. Perhaps the house has the balls to force this duty on the whole of congress via the debt ceiling.

        I doubt it, though; there is far too much misplaced love for and fear of Keynes in our leadership.

        • Next time you are out at a bar and they hand you your bill, try telling them you are going to “defund your non debt obligation”.

          Make sure you have good dental coverage first. Even guys who never applied to college will know right away you are a deadbeat. Congress isn’t fooling anyone either.

          A default is a default, no matter what chewbacca wookie defense the Johnny Cochran profession pulls out of their @sses.

          Try arguing that you are only committing a technical default or maybe a convenant breach. Maybe Bruce can take odds for how many months you will need to eat through a straw.

          Too many lawyers hairsplitting words and arguing about what your definition of “is” is. You are only fooling yourselves

          • Using your analogy, Bubba Joe:

            The bar tab would be a debt obligation. It should be paid. The same is true within the context of our national debt.

            A non debt obligation (the term “obligation” can be confusing (see below)) is by definition discretionary. Such an obligation or planned expense would be akin to the next planned beer purchase.

            You can deny yourself the next beer you had planned on ordering because you realize you don’t have the funds to cover it or you can order it anyway.

            Assuming the next beer is unaffordable, I would suggest you deny treating yourself to that non debt obligation … dental costs being what they are.

            I suggest our congress do the same thing for our nation. Damn the Keynesian fear mongering.

            **The reason I used non debt “obligation” is that much discretionary spending is couched within the obligation of congressional law, however within the context of congress’ law making and purse powers such obligations are discretionary because congress can resend or simply defund such obligations. I use term obligation because I respect the fact that such discretionary spending is generally law.

            I understand the confusion; we as citizens live under law, not within it.

            • @polifrog — what planet are you from?

              Congress already ordered the next beer (that they cannot afford). And the next one, and the one after that. Even assuming some plausible tax increases, they cannot pay for all the beer they already ordered (and has been served).

              They are going to default, period. Default on Social Security, default on public employee pay/benefits, default on services that were promised (and in many cases taxes are already being collected thereon)… the US government will be defaulting on several things, not just one

              The deadbeat in Chief and the wicked witch of San Fran just ordered another round of beer for the entire bar (aka ObamaCare). There is no chance that is going to be paid, not even if the middle class gets soaked on taxes.

              There is no confusion here Mr Lawyer/politician/frog Your profession has promised way more than it could possibly hope to deliver. Even the dumb shits in Congress have realized they can’t pay the bill.

              If it were as simple as “defunding a non debt obligation”, or whatever legal word-smithing you like to use … they would have done it already.

              Even if the promises were legally “just promises”, back here on Planet Earth those were promises made to registered voters. They may not be enforceable in a court of law (neither was OJ Simpson or Goldman Sachs or Tim Geithner). But in the court of public opinion / voting booth? They are very enforceable.

              When Congress starts breaking promises, the rule of law will come apart. You cannot tell one group that they are important, while telling another group that they must pay higher taxes and not get benefits… that is how revolutions start.

              Trust me buddy — when I was running Enron, we made lots of promises. We promised the world. All our employees had rock solid employment contracts and/or state worker rights (eg severance). They ended up getting “free” boxes to use to clean out their desks.

              If the money isn’t there (and it is not) — all the legal bullshit in the world is meaningless.

              Even if we assume a fair amount of tax revenue increase, and we assume some military cutbacks, and we assume Social Security COLA adjustments are under-indexed (which is already happening) … the government still cannot make ends meet. That isn’t conjecture, it is the conclusion of both the CBO and GAO. The government’s own accountants, using politically mandated (but questionable) accounting-isms, still can’t make the numbers work.

              Massive spending cuts are needed for the US government to remain economically viable — and that will mean antagonizing many many large groups of registered voters. That is why there is an impasse. If they could pay the bills without making massive cuts, there would be no fiscal cliff. Obama wants massive tax increases to delay the crisis until after he leaves office, while others want to at least start addressing the problems now — but both sides agree there are no easy answers.

              Defund non-debt obligations…. you really are in your own fantasy world

    • Your bank’s refusal to increase the credit limit on your credit card does not CAUSE a consumer to default — too much debt causes default.

      The US cannot pay (ie it is not able to pay) the interest on its existing debt and also pay on going expenses. Claiming that the US could theoretically pay its debt interest by defaulting on its current expenses is absurd.

      Lets pretend Congress cut the military down to pure homeland defense — end Afghanistan/Iraq, close all overseas military bases, leave US interests abroad unprotected, leave the Persian Gulf unprotected (we are less dependent, not independent, on Arab oil). The soldiers / sailors would be added to the unemployment rolls, along with many of the defense contractors. It is not a very realistic plan, and it would not solve the spending crisis.

      Lets pretend Congress ends 100% of what they call “discretionary” spending. That means shutting down the President and Congress (YEAH!!!!), but it also means shutting down the Coast Guard and Forestry Service (rescuing boaters / fighting forest fires). It means shutting down the TSA (YEAH!!!!) but it also means shutting down air traffic control and having our vacation planes crash into each other. Again, not realistic, and it wouldn’t solve the spending crisis.

      You asked: “Are tax receipts not great enough to cover all current debt obligations including SS?”
      the simple answer is: “No, not without defaulting on something else”

      According to the folks in Washington DC (who usually over-estimate revenues and under-estimate costs), interest on the debt and so-called “entitlement payments” (aka Social Security and Medicare) will represent more than 100% of all expected federal revenue by 2030, under all scenarios (even the optimistic economic growth scenario).

      Even if we use fraudulent accounting and pretend that current expenditures “don’t count” or some similar nonsense — the government still dies within two decades (ie well inside the maturity of the long bond / 30yr). There is no way to fix this problem “overnight”, so waiting until the ^&() hits the fan will be too late; a realistic plan to curtail out of control spending needs to be implemented immediately, even assuming it is phased in. Starting a decade from now is too late.

      Raising the debt limit (or not) does not effect the insolvency. The fact that a once proud nation is debating banana republic ideas like a trillion dollar coin is further evidence that the US government has no way to pay its bills.

      So no… diverting revenue away from the rest of government (while appealing) postpones default but does not avoid it. Financial markets can and will look ahead.

      Either we curtail out of control spending now, or the markets need to start pricing in a probable default.

  3. Coins are minted not printed.

    • Tks for that. When have I had one of these, without one of “those”?

      Anyway, Paul Krugman, on TV Sunday, said that the Coin could have been made from ‘paper’, as there was no substance to a single coin being worth $1T.

      Maybe I was thinking of that while typing………

      • Krugman must have misspoke then, since the main loophole on this concept is that the coin HAS to be platinum.

      • “The coin would have to be made of paper…no substance worth $1T” Krugman


      • Krugman will never pay any of this “debt” — he intends to stick future generations with the cost of his ideas.

        The coin might as well be printed/minted out of circumcised foreskins of unicorns — Krugman is never going to pay for any of his spending ideas, and he knows it.

    • Of course this coin ideal would be credible if had a trillion dollars worth of platinum in it. Makes for an awfully big coin.

      • Makes for a physical impossibility. There are less than 300 million ounces of platinum in the world. That’s the total sum of all platinum mine output, from the beginning of human history until now. In case you noticed, that doesn’t come to $1 trillion until platinum sells for over $3000 per ounce.

        A trillion dollars worth of platinum, at today’s prices, is more platinum than exists, period.

  4. Hate to say it but Bernanke is the only one in the room acting like an adult. It’s like the kids (Obama and congress) are getting ready to do something incredibly dumb and naive (because they’re kids) and finally Dad has to step in and set them all straight. We are being governed by a bunch of 12-year-olds.

  5. “Republicans have everything to lose if they force the country to functionally default on the debt.”

    The Feds taking in $7B a day. We can pay our bills without borrowing.

    If our debt service doesn’t get paid, it is because Obama chose not to pay it.

  6. Ultimately, all US government debt — whether it is on balance sheet like US Treasuries, off balance sheet like Social Security, or implied like FNMA/TVA — it is all backed by “the full faith and credit of the United States”

    Think about what that means… the @ssholes who said read my lips, I did not have sex with my intern, WMD are slam dunk, hope and change, I did not kill Chandra Levy, FNMA is solvent and even if it wasn’t the taxpayer wouldn’t have to pay, I did not accept a bribe from the FBI even though they found the marked bills in my freezer, I couldn’t understand the tax law even though my committee wrote it, etc, etc, etc.

    These are people who write laws, and always make sure to add that the law doesn’t apply to them. Then they tell us about equality. They talk about freedom, then they tell you all the things they order you to do to enact *their* policies (not *our* policies, as Abraham Lincoln phrased it). They say they represent the American people, but just you try to walk into “our” capital building without getting arrested.

    That is the full faith and credit of the United States.

  7. I don’t understand why they don’t just legalize and revalue gold to $20,000 an ounce,platinum to $50,000 an ounce and silver to $500 an ounce and use that to pay off debts.Then we all can all get out of this funny money bullshit.

    • Because that would be an admission that the government has zero understanding of economics, zero sense of fiscal responsibility, and has been inhabited by a bunch of drunken fratboys with an unlimited credit card for the last 30 years that have no idea how to pay the bill they’ve run up, and have no choice but to skip town on it.

      We’ll get there eventually. But it won’t be by any politician’s choice. They’ll be dragged by the market, kicking and screaming the whole way.

  8. The Fed doesn’t want the coin because it would LEGALLY BUY BACK all the real assets that the Fed has stolen from the United States by buying real assets with worthless paper non-Federal Reserve Notes that are backed by NOTHING. Our leaders have no balls, because it is not the option of the Fed to not accept LEGAL TENDER for a debt. The treasury can mint the LEGAL TENDER coin and give it to the Fed as payment in full. If the Fed refuses the coin, the U.S. simply declares the debt paid or forgiven. The joke is then on the Fed and the tables will have been turned. Sovereign countries could be debt free from the banking thieves and their phoney paper they call money.

    • johnnie cochran says:

      @jon — the law doesn’t matter anymore

      The law says you must go through customs to enter the USA, yet millions of illegal immigrants (most without a formal education, never mind your law school gibberish) manage to outwit, outsmart and out play the INS and customs.

      The law says you cannot buy, sell or possess illegal drugs — yet plenty of high school dropouts manage to do so every day. Smugglers import drugs (and guns) into the country by the tractor trailer load — millions and millions of tons per year. The DEA and whomever are helpless.

      The law says you cannot commingle customer funds and bank funds — yet MF Global did exactly that. Jon Corzine (is that you @jon?) did a lot of hand waving and “I donno”. The law says you must make a full and honest disclosure when selling securities — yet Goldman Sachs sold the Abacus deal anyway. I am sure some ambulance chaser will claim that was an isolated incident, but common sense tells most blue collar workers that an isolated incident would not require trillions of dollars of taxpayer bailouts.

      The Constitution says the police cannot conduct searches without probable cause. There are also laws against sexually assaulting another person. Yet the TSA does both with impunity. The NY City police department has a policy of “stop and frisk” (no probable cause needed). There **were** laws against selling automatic assault weapons, but none other than the US department of Justice sold machine guns to Mexican drug cartels under operation Fast and Furious.

      There are laws against money laundering, drug trafficking and murder — yet many major cities have whole sections controlled by gangs where the police are afraid to enter without a full SWAT team. If you read news papers from Washington DC area, you will learn that crime gangs (often from SE quarter) are sending new members out on “training runs” to NW quarter (where the embassies are) to do a drive by shooting/murder (there are enough shots fired to almost guarantee a kill). If the new recruit is an undercover cop, or if the recruit later “snitches”, the gang keeps evidence of the drive by, and there is no statute of limitations on murder. Last week, there was a knife attack on the DC Metro — outside Judiciary Square station right behind the Supreme Court building. And try googling Kal Penn in 2010 — mugged near the US capital building while working for the Obama.

      I would list a few of the crimes committed by members of Congress, but even a “recent” list would be quite long.

      The law doesn’t matter — not even to lawyers. Doesn’t matter for white collar crimes, doesn’t matter for so-called law enforcement, and doesn’t matter for street crimes. Doesn’t even matter in Washington DC never mind the rest of the country.

      And if the law did matter, why not pass a law saying that raw sewage is LEGAL TENDER? Why not make papers containing Congressional testimony LEGAL TENDER (OK, that is sort of the same thing). Make grains of sand be LEGAL TENDER.

      The greek government did this for years (they called their LEGAL CRAP “drachma”). It was the law, but no one accepted it.

      Speaking of which, EU law says that member countries cannot have deficits over 3% of GDP and member countries cannot have total debt greater than 60% of GDP… Guess the national governments have the same respect for “the LAW” as people here in the USA!!

  9. Joseph Constable says:

    Bruce, I hope you get down this far in the comments. You missed the key word, which is “can” in the statement, “…don’t believe that the law can or should be used…”.

    The U.S. Mint has two coin programs. One is currency and collector coins for which the Treasury earns seigniorage and the other is bullion. Bullion coins are valued at the weight in the specific metal, (the most popular being the one ounce gold and silver coins). The trillion dollar coin is not for currency or collectors, obviously. It is a bullion coin. So seigniorage would not come into play here.

    Much ridicule and scorn was heaped on conservatives who were saying how big the platinum coin or many platinum coins would be. But they were right. READ FOR YOURSELF.



    Of course, Jonnie Conchrane above is correct and they would do it anyway if they could get away with it.