The debt ceiling solution; the $ 1 trillion coin

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PostFri Jul 08, 2011 9:51 pm » by Phaeton


The United States is still playing Russian roulette with the discussion about raising the debt ceiling. America is balancing a thin line between A and D ratings, inspiring comparisons with Greece. Yet, a country that has sovereignty over its currency (the U.S.) is totally different from a country that has not (Greece). The U.S.A. can not go bankrupt. Greece could.

Nevertheless, the U.S.A. can choose to fail, not raising the debt ceiling for example. That would have far-reaching consequences for the world economy. Hence, this mismanagement has to stop.

An elegant solution (in line with principles MMT) provides the solution. The $ 1 trillion coin.

Credits for this solution go to the reader "Beowolf" at the site of Warren Mosler1. The solution works as follows:

The Treasury, the U.S. Treasury Department, is not entitled to "print" money. That responsibility lies, as we all know, with the Fed - according to the Federal Reserve Act. However, the Coinage Act provides that the Minister of Finance has the right to issue coins.

From the Coinage Act, 31 USC 5112(k):
http://www.law.cornell.edu/uscode/31/usc_sec_31_00005112----000-.html

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.


Thus, the Treasury should issue a platina coin in any chosen denomination. Let's say $ 1 trillion. A 1 or 2 oz. platinum coin would probably suffice.

The new currency is legal tender:
(h) The coins issued under this title shall be legal tender as provided in section5103 of this title http://www.law.cornell.edu/uscode/html/uscode31/usc_sec_31_00005103----000-.html

Which means the Fed must accept this coin. A creditor cannot refuse regulated legal tender to settle debts to them. 31 USC 5103:*

United States coins and currency (including Federal reserve notes and circulating Federal reserve / national banknotes) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

In which case two situations can occur:

1. The currency is used to settle debts. In this case, buying Treasury bonds back from the Fed, bringing down the U.S. debt by $ 1 trillion. In other words, a possible new issue of bonds worth $ 1 trillion.

2. The Fed credits the TGA, the Treasury's account at the Fed. The Treasury can then spend $ 1 trillion. If it does, the reserve balances in the system rise. The Fed can then do two things. Or let these reserves exist in the form of excess reserves (which is possible as long as the Fed pay interest on excess reserves equal to the target rate), or the Fed conducts compensating open market operations to remove the excess reserves from the system.


The irony is that in both cases, new bonds are placed! In option 1, the Treasury simply issues new bonds. In option 2, the Fed can perform open market operations to compensate. This means that the Fed has to take $ 1 trillion in reserves from the system by selling bonds. So in either case the public receives the new bonds.


12 USC 246:
… and wherever any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.

12 USC 391:9
The moneys held in the general fund of the Treasury, except the 5 per centum fund for the redemption of outstanding national-bank notes may, upon the direction of the Secretary of the Treasury, be deposited in Federal reserve banks, which banks, when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks, and disbursements may be made by checks drawn against such deposits.

The Fed must thus act as a fiscal agent for the Treasury and the will of the Board of Governors is inferior when it conflicts with the interests of the Treasury (such as issuing coins, which are considered legal tender).

De Fed accepts the coins at face value:
Federal Reserve notes are liabilities on the Federal Reserve's balance sheet. These liabilities are collateralized by the assets of the Federal Reserve Banks.

Coins held by the Reserve Banks is an asset on the Federal Reserve's balance sheet and the Federal Reserve buys coin from the Mint at face value. When a depository institution orders and deposits coins from its Reserve Bank, the institution's account balance is adjusted accordingly.




1. http://moslereconomics.com/2011/01/20/j ... igniorage/

2. http://www.law.cornell.edu/uscode/31/us ... 1_00005112—-000-.html

3. http://www.law.cornell.edu/uscode/31/us ... 1_00005103—-000-.html

4. http://www.dailykos.com/story/2011/06/2 ... log_791510

5. http://www.correntewire.com/holding_deb ... nder_ceili

6. http://my.firedoglake.com/letsgetitdone ... right-now/

7. http://pragcap.com/lets-end-this-debt-c ... oz-1t-coin

8. http://openjurist.org/title-12/us-code/ ... by-chapter

9. http://us-code.vlex.com/vid/reserve-dep ... s-19225869

10. http://www.federalreserve.gov/paymentsy ... _about.htm

[http://www.money-for-nothing.nl/monetair-systeem-2/de-nieuwe-munt-van-1-biljoen]
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PostSat Jul 09, 2011 10:39 am » by Phaeton


Boooring... No vids, no pics.. :sleep:

:bang;
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PostSun Jul 10, 2011 6:40 pm » by Clarkness


Wow, that is an interesting idea. Of all the underhanded things people of power in the US have done in the past, why not just do this?

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PostSun Jul 10, 2011 6:48 pm » by Phaeton


clarkness wrote:Wow, that is an interesting idea. Of all the underhanded things people of power in the US have done in the past, why not just do this?


Because this will go directly against the agenda of the people in power, behind the scenes.
I think someone who tried to activate this loophole, will have a very hard time surviving long enough to actually make it happen..

Unless this idea is carried by a large enough body of Americans; resulting in adoption of this idea by several, numerous senators for instance.
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PostSun Jul 10, 2011 8:15 pm » by Mozi!!a


nice one MP. gonna check it :flop:

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PostMon Jul 11, 2011 6:40 pm » by Phaeton


In her book “Web of Debt”, Ellen Brown effectively debunks Wall-Street-bank-inspired claims that government issued interest-free “money created out of thin air” (as opposed to Federal Reserve issued debt-based “money created out of thin air”) would lead to “hyperinflation.”

In any case, given that the rate of increase in the interest we are paying (each year) on our Federal-Reserve-created “national debt” has now reached a “45-degree upwards slant-point” on the exponential curve of the annual interest payments on our compound-interest-sucking “national debt”, it has now become clear that our nation’s Federal Reserve System debt-based monetary system WILL bankrupt the United States within the next twenty years (even if we implemented all of the socially draconian/business-friendly recommendations of President Obama’s “Deficit Commission”)!
"Those who danced were thought to be quite insane by those who could not hear the music"
"All our science measured against reality, is primitive and childlike - yet, in contemporary consensus, its the most precious thing we have"


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PostWed Jul 13, 2011 1:08 am » by Clarkness


Thank you for the post. I especially enjoy posts which site references that back up your posting. That has been one of the more interesting topics that I have seen since I have joined.

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PostWed Jul 13, 2011 1:47 am » by Smokeydog


i thought the problem with things like this was that it wud cause hyper inflation?? like bread would cost 1 million dollars?
http://www.youtube.com/user/smokeydogsmokey

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PostWed Jul 13, 2011 1:45 pm » by Phaeton


smokeydog wrote:i thought the problem with things like this was that it wud cause hyper inflation?? like bread would cost 1 million dollars?


Again:

In her book “Web of Debt”, Ellen Brown effectively debunks Wall-Street-bank-inspired claims that government issued interest-free “money created out of thin air” (as opposed to Federal Reserve issued debt-based “money created out of thin air”) would lead to “hyperinflation.”

In any case, given that the rate of increase in the interest we are paying (each year) on our Federal-Reserve-created “national debt” has now reached a “45-degree upwards slant-point” on the exponential curve of the annual interest payments on our compound-interest-sucking “national debt”, it has now become clear that our nation’s Federal Reserve System debt-based monetary system WILL bankrupt the United States within the next twenty years (even if we implemented all of the socially draconian/business-friendly recommendations of President Obama’s “Deficit Commission”)!
"Those who danced were thought to be quite insane by those who could not hear the music"
"All our science measured against reality, is primitive and childlike - yet, in contemporary consensus, its the most precious thing we have"


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PostWed Jul 13, 2011 1:49 pm » by Phaeton


A relevant vdo that puts things in context:

Robert Welch, Founder of The John Birch Society, predicted today's problems with uncanny accuracy back in 1958.


[youtube]AZU0c8DAIU4&feature=channel_video_title[/youtube]
"Those who danced were thought to be quite insane by those who could not hear the music"
"All our science measured against reality, is primitive and childlike - yet, in contemporary consensus, its the most precious thing we have"


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