We have some crazy idea that just crazy, but many contain a glimmer of reality underneath. This shimmer is what is confusing talk about solving the nation's budget deadlock in $ 1000000000000 coin.
If you think of the idea all along, the proposed coin is just a convenient way to make the Federal Reserve Bank free spending politicians in his pocket. I do not think that such a coin ever, in fact, I'm sure it will not be 99 percent. (In Washington today, I do not think anyone can be 100 percent sure of anything.) But trust is only partially due to the fact that the super-coin idea is so confused that it was originally meant as a joke. Mostly, I'm sure the coin will not be issued because the Fed has pockets of politicians, and expenditure of the coin, the central bank can actually offer a way out.
To understand why, we need to start at the beginning.
The federal government spends about $ 1000000000000 more each year than collecting taxes and other sources. You borrow to make up the difference. The accumulated debt recently reached the U.S. Congress authorized ceiling of $ 16300000000000, so now the Ministry of Finance to pay the nation's bills emergency actions. Sometime in the next two months, the margin by the Ministry of Finance of fiscal finagling will be exhausted. At this point, whether Congress should allow more borrowing, and the government will not be able to all its debts. Some items will take place, others do not, the Treasury does not distribute the contingency plans, if any. But the only reasonable solution is for Congress to reach an agreement to raise the debt limit before we reach that point.
Congress is perfectly willing to do so, but the Republicans, who control the House and have some influence in the Senate to impose spending cuts that President Obama and his fellow Democrats find unacceptable. It seems to set off a debt-ceiling drama series, reflecting one was mid-2011, when the nation has lost its prestige rating from Standard & Poor's.
This is where the proposed $ 1000000000000 coin enters the story. While back, Congress authorized the Treasury to mint platinum coins and those coins assign any value you choose. The assumption was that these coins would make prices more attractive to collectors, and thus meet the market demand and each let the government pick up a few bucks in the process. But the law does not place any limits on the exercise of the authority of the Ministry of Finance.
So the idea of the Treasury mint a coin, and assign it a value of $ 1000000000000. Or maybe two of these mint coins. The Ministry of Finance after the coin (s) of the Fed, which, as the government's banker, duly credited to the account of the Ministry of Finance of the appropriate number of trillion. The result: Instant spend money without having to borrow anything. The debt limit becomes irrelevant.
The idea is ridiculous but its extremity. Since the days of King Croesus of Lydia, who struck the first gold standard in the sixth century, every sovereign has ensured that the nominal value of each coin's monetary value is greater than the metal it's necessary. This policy is crucial, because if the coin is worth more than the face value when melted down, finally, many of the social molten metal, and the currency in circulation. This policy is also profitable for the sovereign, because the government acquires goods and services for the coin face value, even though it costs less than manufacturing. This type of arbitrage is called "seigniorage".
Platinum traded around $ 1,600 an ounce last week. Assuming that one ounce coin pure platinum, and assuming another $ 1,600 for the design and production costs (I suggest you use the portrait of President Obama on the front and an empty cash drawer to the reverse), the Ministry of Finance would be the gain of each Coin $ 1 trillion less than $ 3,200. Not a bad day at work.
This system would allow the Treasury Department to create a large sum of money for a small amount of platinum. While this is not exactly create money from "thin air", the idea is the same. If it works, why stop at just one or two coins? The entire federal budget of less than $ 4000000000000, including four of the coins, the Internal Revenue Service could be years off. A large roll of such a change, we were able to fund social security for decades.
This sort of thing has actually happened, but usually the paper, such as platinum. The Confederate States of America had to print money to fight the Civil War. When I was a boy, a century after the end of the war, a gift shop selling worthless Allied banknotes as souvenirs. Kids my age are often hung on the walls of the bedroom.
Weimar Republic of Germany did the same thing in 1920, with similar results. As in Brazil in the 1970s and '80s, when he died of a currency known as Cruzeiro, created a new currency called the Cruzado and immediately destroyed that one too. The central bank is proud author of today's Zimbabwe Z $ 100000000000000 bill. I saw one for sale on eBay last week for $ 6.49 - American money, of course.
Supporters of the $ 1000000000000 coin assume that the Fed is indeed accepts the metallic trick than money. Maybe, but if it does, Fed Chairman Ben Bernanke and his colleagues might as well resign and go home. The Federal Reserve Act created an independent organization, the central bank of a century ago, and gave the Fed - not the Ministry of Finance - the power to create money, precisely in order to avoid what happened to the Confederacy and its currency. You do not have to lose the war to destroy the economy, you just need to mismanage it. No one, after all, broke into Zimbabwe.
The Fed, however, may only assert its independence and rejected by the Ministry of Finance offered coins. Uncle Sam then found himself in the cash, and we had to go to a serious discussion about the debt continues to rack and how high to set the national credit.
This brings us to the final implementation: Another debt ceiling raised to heaven, or removed completely, as the President would like not much is going to change. Increasing the limit does not in itself give the money to the Treasury. The Ministry of Finance should continue to bonds, and someone has to take that debt. Now, foreigners and other investors are still reeling from the financial crisis is willing to keep their money in the Treasury obligations that are almost guaranteed to lose value due to inflation. But everything has its limits. When the day comes that no one outside the government wants to buy Treasury debt, what will happen?
You guessed it. The Finance Ministry's debt will be up to the Federal Reserve will face a choice: make the money owed to you, or let the government's financial house of cards collapsed, taking into account the global economy with it. The Fed buys the debt. I'm 100 percent sure of this.
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