How does this whole platinum coin exchange change their situation?
Aren't they still owned money?
Initially when the coin is minted, yes, they are still owed money. Nothing has changed for them.
Eventually, the treasury bonds that they hold will expire and the government will pay them back. At this point, they would usually just buy new treasury bonds. However, if the government stops issuing new treasury bonds after minting the coin, then they will no longer have that option. They could buy other (foreign government or corporate) bonds, but the money they use to do so just changes hands. It ultimately stays in the system at some bank account, which ultimately translates to high-powered money held by a commercial bank in a Fed account, where it only earns interest as long as the Fed pays interest on reserves.
Does that really change anything? Arguably no, other than possibly interest rates, but interest rates are near zero anyway.
The trillion dollar platinum coin idea is an absurd exercise that people only suggested because US politics is absurd to begin with: congress orders the US government to spend money (via the budget bill), but then forbids the US government from actually implementing that spending in practice (via the debt ceiling and refusing to raise taxes). Congress wants to eat the cake and have it too. That is the reckless behavior here: putting the US government into a completely Kafkaesque situation. The way I see it, the platinum coin is mostly a rhetoric tool to highlight just how messed up the system is.
I believe it is actually even worse than that, because many government purchases of goods and services are pay on delivery. The budget authorizes some department or agency to make a purchase, they do so, and then later after the purchase is delivered and the bill presented--the department or agency can't pay the bill because of the debt ceiling.
The debt has already been incurred, so the debt ceiling does nothing to reduce the deficit or the national debt--all it does is stop us for making payments on debt already incurred.
The way this works out is that every single dollar is worth slightly less after minting this coin.
If you owe the bank $100,000 you have a problem, if you owe the bank $10,000,000 the bank has a problem.
This is why QE didn't trigger inflation in a normal way - minted money was exchanged for bonds (financial assets) not spent on goods and services.
So this is essentially free money. Any legitimate organization would need to provide a legitimate good or service.
So if they are going to keep printing free money and play monopoly they should at least go buy people something like free healthcare. They always try to defend this with the "we are smarter than you" BS...stuff which I studied formally my degree.
Meanwhile the money printed for QE was spent buying shares and bonds, and relatively few of those shares and bonds were from the troubled banks. This was all on the Fed balance sheet.
Not that I'm a gold standard zealot, bitcoin self-deluder, or the like, but fiat currency is ridiculous, yet it's the basis of the global economy.
That is, people are willing to invest (cash or labor) in a company in exchange for dilutable stocks, because they expect that if dilution happens, it's a transient discontinuity on the way to making the stocks more valuable overall. By taking another round of funding, the investors' stocks hopefully become worth more than they were before dilution.
Don't people with large holdings of fiat currency have the same approach and risk tolerance? The purpose of raising the US debt ceiling would be to grow the US economy.
The main reason to raise the debt ceiling is that we are carrying a percentage of debt (which has market stabilizing effects), and our assets are growing, so we should be spending more. And practically this is money already spent so this is arguing about paying the bill after eating the meal. The fact that this is somehow contentious at the highest levels of government speaks to either bad-faith acting or complete financial illiteracy.
If you think this, it's almost certainly because you don't understand it.
The basic concept is incredibly simple: it's an abstraction of value which allows us to avoid having to barter directly with actual goods.
Gold and Bitcoin allow you to implement exactly the same thing, but with specific built in supply constraints that aren't connected to the underlying economy. This is a problem for both commodities being used as currency. Ideally, the money supply should be able to expand to reflect the wealth in the underlying economy - otherwise, you get severe inflation or deflation, both of which have negative effects.
Of course you didn't say what aspect(s) of fiat currency you consider ridiculous. If you're just saying that governments are too free with their manipulation of the abstraction, there's some merit to that. But that's not a problem with the concept of fiat currency.
If anything we know that we can't rely on good governance, not just from the appalling current administration but the forty years of pro-rich economics that have exacerbated our descent into indolent oligarchy.
Therefore our currency is based in an assumption of confidence and ability of the adults in charge. Which we in w to be utterly bankrupt.
Your definition of abstract value applies to the concept of currency.
Fiat currency is an abstraction of the abstract... That relies on people's visceral sensation of the utility of money in the current moment to serve as the only tangible aspect, and substitute for any real value.
Which we know is an illusion, based on a declaration. A "Fiat".
My issues with currency are very very deep. Money exists in the modern world where billion year evosystem destruction is converted to short lived production and temporary utility .. with the imbalance of wealth it is even more vapid and shallow.. And money is the laundering mechanism along with "limited liability" to enable this mass sociopathy.
That it doesn't even represent anything in reality is the icing on the turd cake.
At least the remnants of previous empires have their idols of gold. Ours will just be bits on a flash drive.
Computer archæologists disagree.
Say what? Severe inflation is very often caused by how banks and central banks manipulate the money supply, which is much more difficult if the economy uses money with restricted supply.
You say that fiat money is connected to the underlying economy, but the supply is really controlled by central banks and regular banks. If we're being nice then they indeed do their best to follow the market, but they can never be perfect and sometimes outright bad at it. It's the same reason why planning economies doesn't work, the market is far too complex to predict.
And of course this will have negative effects.
> If you're just saying that governments are too free with their manipulation of the abstraction, there's some merit to that. But that's not a problem with the concept of fiat currency.
Having the ability to freely control the money supply indeed makes the problem of government (rather bank and central bank) manipulation worse, and to a large extent it's what makes it possible. Yes you can create an abstract IOU-Bitcoin too, but there's no lender of last resort to bail you out when you fail, so you'll have to be much more careful if you decide to do it.
Minting the coin only cuts the bankers future profits, which - as it's a zero sum game - benefits the worker class in the long term.
The point here is about constitutional law, not so much monentary policy. The US constitution grants to congress the exclusive power to assume debt on behalf of the government, the president and executive branch can't do that. But congress tends to be paralyzed by partisan institutions (the filibuster et. al.) and can't act with agility to issue debt in response to deflationary stimulus.
BUT, it turns out that the mint is allowed (by a law passed by congress) to print money in any amount it wants as long as it's done via a platinum coin. So you can just print a coin and use it to pay off any debt you want. Instant spending.
It's a cute loophole, really, and a joke about the way american government works. It's not a serious idea about economics.