Sequester Part II, The Tea Party Strikes Back

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby CorruptUser » Tue Jan 08, 2013 4:03 pm UTC

US bonds are so low only because all else is crap. The recent economic collapse was worse in Europe than in the US despite ostensibly having started due to the US. Meaning that if the US collapses further, Europe is hurt even more. The BRICS countries are also crap bonds; if the US collapses, do you really think China, India, Brazil, SA, and Russia won't screw over foreign investors? Your main hope is for US bonds, which are already negative due to inflation.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby mosc » Tue Jan 08, 2013 4:48 pm UTC

A 1T platinum coin wouldn't do that much. You guys don't understand inflation very well. The government already prints money every year by the ton. The current US system has a value in the $65 trillion range. Creating a $1T asset out of thin air would have a noticeable effect in the short term as a small spike in inflation, probably controllable in a single year with federal reserve control. It would also not make even a 10% reduction in our deficit.

How do you get out of debt as a country? It's very simple. Really, you all are way off
1) Balance your budget (no new debt)
2) grow the economy slowly and stably (grow GDB ~5% per year, stable inflation usually ~3% per year)
3) wait

After 50 years, your debt/GDP will shrink to a managable level. It's not rocket science, it's how the US went from 144% debt/gdp after WWII to 30% when Regan took office. Same debt, bigger economy.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Zamfir » Tue Jan 08, 2013 5:32 pm UTC

Um, mosc, in the 1970s the US blew up the international monetary system in order to monetize its deficits.That spiralled completely out of control, remember? A lower debt-to-gdp was pretty much the only nice thing to come from the effort.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Iceman » Tue Jan 08, 2013 6:09 pm UTC

mosc wrote:A 1T platinum coin wouldn't do that much. You guys don't understand inflation very well. The government already prints money every year by the ton. The current US system has a value in the $65 trillion range. Creating a $1T asset out of thin air would have a noticeable effect in the short term as a small spike in inflation, probably controllable in a single year with federal reserve control. It would also not make even a 10% reduction in our deficit.

How do you get out of debt as a country? It's very simple. Really, you all are way off
1) Balance your budget (no new debt)
2) grow the economy slowly and stably (grow GDB ~5% per year, stable inflation usually ~3% per year)
3) wait

After 50 years, your debt/GDP will shrink to a managable level. It's not rocket science, it's how the US went from 144% debt/gdp after WWII to 30% when Regan took office. Same debt, bigger economy.


There's some misunderstanding on the $1 Trillion Dollar coin thing.

The reason it's a $1 Trillion dollar COIN is because it wouldn't be used as money, the intention would be to not add to the money supply at all. The $1 Trillion is not used to PAY down the debt, it would just be desposited with the fed as an asset, meaning you'd be allowed to have more debt.

It's like telling the Bank you added a wing to your house, so they value the house more and you're allowed to take out a larger mortgage. You're not paying off the mortgage, you're getting a bigger one.

So There would be no inflation as a result because no money is added to the economy at all.

The Current US money supply is 9 to 10 Trillion, but that wouldn't be altered.

Also the DEFICIT is $1.08 Trillion, the Debt is $16.4 Trillion

And again it's not going to pay down the Debt at all, it would make a 0% reduction in debt or deficit.

Also your plan to get out of Debt is quite simplistic and incorrect. Yes, you want to grow the economy but of your 3 point plan, steps 1 and 2 are wrong.

1) Countries who outgrow their debt add more debt to do this.
2) High Growth, High Inflation is Better for outgrowing debt than 'Steady growth, Steady inflation' (Inflation from the 40s to 70s were as high as 10 to 19%)
3) Waiting is acceptable.

No, it isn't rocket science, but don't start a post telling people they don't understand inflation, then give your own incorrect interpretation of it, accompanied by incorrect deficit, Money Supply and economic growth numbers.

Just not a word of any of that was informed

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Wnderer » Tue Jan 08, 2013 6:20 pm UTC

Zamfir wrote:Um, mosc, in the 1970s the US blew up the international monetary system in order to monetize its deficits.That spiralled completely out of control, remember? A lower debt-to-gdp was pretty much the only nice thing to come from the effort.


That's not a fair description of the event. There was much more to it than that. The Wikipedia article describes it.

http://en.wikipedia.org/wiki/Internatio ... ary_system
Towards the end of the Bretton Woods era, the central role of the dollar became a problem as international demand eventually forced the US to run a persistent trade deficit, which undermined confidence in the dollar. This, together with the emergence of a parallel market for gold where the price soared above the official US mandated price, led to speculators running down the US gold reserves. Even when convertibility was restricted to nations only, some, notably France,[13] continued building up hoards of gold at the expense of the US. Eventually these pressures caused President Nixon to end all convertibility into gold on 15 August 1971. This event marked the effective end of the Bretton Woods systems; attempts were made to find other mechanisms to preserve the fixed exchange rates over the next few years, but they were not successful, resulting in a system of floating exchange rates.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Iceman » Tue Jan 08, 2013 6:37 pm UTC

Wnderer wrote:
Zamfir wrote:Um, mosc, in the 1970s the US blew up the international monetary system in order to monetize its deficits.That spiralled completely out of control, remember? A lower debt-to-gdp was pretty much the only nice thing to come from the effort.


That's not a fair description of the event. There was much more to it than that. The Wikipedia article describes it.

http://en.wikipedia.org/wiki/Internatio ... ary_system
Towards the end of the Bretton Woods era, the central role of the dollar became a problem as international demand eventually forced the US to run a persistent trade deficit, which undermined confidence in the dollar. This, together with the emergence of a parallel market for gold where the price soared above the official US mandated price, led to speculators running down the US gold reserves. Even when convertibility was restricted to nations only, some, notably France,[13] continued building up hoards of gold at the expense of the US. Eventually these pressures caused President Nixon to end all convertibility into gold on 15 August 1971. This event marked the effective end of the Bretton Woods systems; attempts were made to find other mechanisms to preserve the fixed exchange rates over the next few years, but they were not successful, resulting in a system of floating exchange rates.



What does that add to the conversation in this context?

Was it important to say 'The good part that came of it was the lower debt-to-gdp....oh and also France still had exchange rights and this was at Bretton woods on August 15th that it ended'

What did that cut and paste add to anything?

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Wnderer » Tue Jan 08, 2013 6:52 pm UTC

Iceman wrote:
Wnderer wrote:
Zamfir wrote:Um, mosc, in the 1970s the US blew up the international monetary system in order to monetize its deficits.That spiralled completely out of control, remember? A lower debt-to-gdp was pretty much the only nice thing to come from the effort.


That's not a fair description of the event. There was much more to it than that. The Wikipedia article describes it.

http://en.wikipedia.org/wiki/Internatio ... ary_system
Towards the end of the Bretton Woods era, the central role of the dollar became a problem as international demand eventually forced the US to run a persistent trade deficit, which undermined confidence in the dollar. This, together with the emergence of a parallel market for gold where the price soared above the official US mandated price, led to speculators running down the US gold reserves. Even when convertibility was restricted to nations only, some, notably France,[13] continued building up hoards of gold at the expense of the US. Eventually these pressures caused President Nixon to end all convertibility into gold on 15 August 1971. This event marked the effective end of the Bretton Woods systems; attempts were made to find other mechanisms to preserve the fixed exchange rates over the next few years, but they were not successful, resulting in a system of floating exchange rates.



What does that add to the conversation in this context?

Was it important to say 'The good part that came of it was the lower debt-to-gdp....oh and also France still had exchange rights and this was at Bretton woods on August 15th that it ended'

What did that cut and paste add to anything?


The US did not blow up the international monetary system to monetize its deficits. The reasons for Nixon's action were listed in the quote.

1. International demand forced the US to run trade deficits, which undermined confidence in the dollar.
2. The parallel market for gold ran down the US gold reserves.
3. Some nations actively hoarded gold undermining the US dollar and the gold standard.

So Nixon ended the gold standard.

If you have a citation where Nixon's main motive is attributed to monetizing the deficit, I would like to read it.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby mosc » Tue Jan 08, 2013 6:56 pm UTC

Iceman, valid complaints. Most were related to typos (deficit instead of debt) and other cold medicine induced errors. I shouldn't be holier-than-though without more thorough proofreading at least, true.

The 1970s era inflation was not the main contributor to WWII debt reduction as a percentage of GDP, that's not really fair. Even assuming a more modest growth of CPI over 1969-1982 of 3% per year (was 7.6% average over those 14 years), The US WWII debt is still 2/3rds "Grown out of" when Regan's 1983 deficit spending kicked in.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Silknor » Tue Jan 08, 2013 7:25 pm UTC

Wnderer wrote:My guess is that the trillion dollar coin trick would burst the bond bubble. Right now government borrowing is cheap because interest rates on bonds are so low. Some people believe irrationally low. A 'trick' might finally scare people out of bonds and the cost of government borrowing would go up. The government would lose out in the long run.


I'm not sure how much of an impact it would have on investor psychology, but it would undoubtedly be less than actually defaulting. A default, even one in which we keep paying bondholders by canceling payments to say, Social Security recipients or defense contractors until the debt ceiling is lifted, would be a very clear sign that U.S. debt is far less safe than previously thought.

As for inflation, I'm not sure that would really be a problem. If Obama pledges to issue bonds to replace the coin's value once the debt ceiling is lifted, and then melt the coin, market expectations of future inflation should be negligible because the money supply is only changing for the days or weeks needed to raise the debt ceiling (and I'd expect a deal following the minting to fix the loophole that lets platinum coins of arbitrary value to be minted in the first place). See here (emphasis added):

Spoiler:
"But that will be inflationary!" This is a more serious objection, and it gets at what the platinum coin strategy really is -- financing the federal government's operations by printing money instead of borrowing it. The trillion- dollar coin will never circulate, but it will be used to back cash payments coming from the Treasury that would have otherwise been financed by bond purchases.

If the government financed itself this way in general, that would absolutely be inflationary. But the president can hold inflation expectations steady by making absolutely clear that the policy will not lead to a net change in the money supply over the long term. Obama should pledge that once Congress authorizes additional borrowing, he will direct the Treasury to issue bonds to cover the government's coin-backed spending and then to melt the coin.


The concern about inflation actually gets at why the platinum coin strategy will work to defuse the debt-ceiling crisis. Minting a platinum coin will demonstrate that Congress accidentally gave the president direct control over monetary policy, allowing him to inflate if he wishes. The need to neutralize that threat will motivate Republicans to raise the debt ceiling.

Like the debt ceiling itself, the platinum coin exercise is an asymmetrical, negative-sum game. Nobody wants to hit the debt ceiling, but it bothers conservatives less because they view increasing government dysfunction as useful for achieving their policy goals. Nobody wants the president to pay the government's bills by printing money, but it bothers conservatives more because they are more afraid of inflation.

If the president is clear about his lack of any long-term intention to interfere with the money supply, I don't expect the platinum coin to cause a spike in prices. But if it does, that will only add more motivation for Congress to end the crisis by passing a law that both removes the president's authority to print money and abolishes the debt ceiling.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Wnderer » Tue Jan 08, 2013 7:45 pm UTC

FYI

A good book on inflationary theory with discussions of the German inflation and the American inflation is free online
http://esocap.com/uploads/files/Dying%20of%20Money.pdf

It was recommended by Warren Buffett

http://www.telegraph.co.uk/finance/comm ... Money.html

EDIT: The link doesn't work anymore. Try this one.
http://www.filestube.com/uGdMdgqbXRaUx4 ... Money.html

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby sardia » Tue Jan 08, 2013 10:02 pm UTC

The fact that we are even discussing printing a platinum coin to run around Congress is a really bad sign. =( Is Obama even considering this option? What about a repeat of the last year's debt ceiling deal? We can ask the poor for more right? They have been riding high on those welfare checks, surely they could chip in another trillion.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Derek » Tue Jan 08, 2013 11:42 pm UTC

Iceman wrote:There's some misunderstanding on the $1 Trillion Dollar coin thing.

The reason it's a $1 Trillion dollar COIN is because it wouldn't be used as money, the intention would be to not add to the money supply at all. The $1 Trillion is not used to PAY down the debt, it would just be desposited with the fed as an asset, meaning you'd be allowed to have more debt.

It's like telling the Bank you added a wing to your house, so they value the house more and you're allowed to take out a larger mortgage. You're not paying off the mortgage, you're getting a bigger one.

So There would be no inflation as a result because no money is added to the economy at all.

The platinum coin would not be useful as actual currency, so I agree that it wouldn't increase the money supply. But that also means it has no value. How do you think investors would react to a bank that start accepting junk as collateral for debt? That's how investors would react to the platinum coin, because that's what it is, a junk asset that the Fed is legally obligated to accept.

Now if Obama pinky swears that he is going to replace the coin with bonds and melt it down as soon as the debt ceiling is raised, investors might have more confidence. But he has to convince them to trust him first.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby sardia » Tue Jan 08, 2013 11:50 pm UTC

Derek wrote:
Iceman wrote:There's some misunderstanding on the $1 Trillion Dollar coin thing.

The reason it's a $1 Trillion dollar COIN is because it wouldn't be used as money, the intention would be to not add to the money supply at all. The $1 Trillion is not used to PAY down the debt, it would just be desposited with the fed as an asset, meaning you'd be allowed to have more debt.

It's like telling the Bank you added a wing to your house, so they value the house more and you're allowed to take out a larger mortgage. You're not paying off the mortgage, you're getting a bigger one.

So There would be no inflation as a result because no money is added to the economy at all.

The platinum coin would not be useful as actual currency, so I agree that it wouldn't increase the money supply. But that also means it has no value. How do you think investors would react to a bank that start accepting junk as collateral for debt? That's how investors would react to the platinum coin, because that's what it is, a junk asset that the Fed is legally obligated to accept.

Now if Obama pinky swears that he is going to replace the coin with bonds and melt it down as soon as the debt ceiling is raised, investors might have more confidence. But he has to convince them to trust him first.

By that definition, those treasury bonds we have are junk too. Those are pieces of electronic paper, not even a real platinum object, which has value. Don't get me wrong, I'm against this coin thing, but not because it won't work. You have to realize that money only has value because of our faith in it. So long as you have faith in the US treasury, you'll accept w/e they damn want. There's the flip side to this, and that our treasury bills won't always be accepted at such low interests rates, a measure of their faith in the US.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Tirian » Wed Jan 09, 2013 1:12 am UTC

sardia wrote:The fact that we are even discussing printing a platinum coin to run around Congress is a really bad sign. =( Is Obama even considering this option?


The fact that Congress has to authorize a separate vote to pay for the debts that they incur with their own budgets and that congressional leaders in the opposition don't whip enough of their memberships to keep it from being a symbolic protest vote is a really bad sign.

And nobody in the trillion dollar coin scenario seems to notice that the administration has no interest, which doesn't surprise me at all. First, given the maturity level of this House of Representatives, Obama could well be impeached over it. (I'm certain he wouldn't care, but it's a distraction he doesn't need.) More to the point, it would be one of those once-in-a-generation opportunities for Americans to see how much their local lives are disrupted when the government does not have the mandate to do its job efficiently. Given Obama's history, I'm sure he wouldn't mind signing a bad bill that lifted the debt ceiling, but he might not mind vetoing a horrible one if that's all he's offered.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Silknor » Wed Jan 09, 2013 2:03 am UTC

More to the point, it would be one of those once-in-a-generation opportunities for Americans to see how much their local lives are disrupted when the government does not have the mandate to do its job efficiently.


That would be a government shutdown. Defaulting is more like a once-in-a-generation chance to see political brinksmanship crash the nation's economy and permanently increase borrowing costs for individuals, corporations, and the government.

I think Obama would rather be impeached (either with a platinum coin or with the less gimmicky sounding but less clearly constitutional, 14th amendment solution of declaring the debt ceiling unconstitutional) than wreck the economy. But I don't think anyone actually wants to mint a coin or have the executive branch say they'll just ignore the debt ceiling. The goal of putting those ideas out there is to pressure Republicans to agree to a deal before defaulting, especially those who think they'll "win" if we default (as it would temporarily force massive spending cuts).
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby sardia » Wed Jan 09, 2013 2:32 am UTC

Silknor wrote:
More to the point, it would be one of those once-in-a-generation opportunities for Americans to see how much their local lives are disrupted when the government does not have the mandate to do its job efficiently.


That would be a government shutdown. Defaulting is more like a once-in-a-generation chance to see political brinksmanship crash the nation's economy and permanently increase borrowing costs for individuals, corporations, and the government.

I think Obama would rather be impeached (either with a platinum coin or with the less gimmicky sounding but less clearly constitutional, 14th amendment solution of declaring the debt ceiling unconstitutional) than wreck the economy. But I don't think anyone actually wants to mint a coin or have the executive branch say they'll just ignore the debt ceiling. The goal of putting those ideas out there is to pressure Republicans to agree to a deal before defaulting, especially those who think they'll "win" if we default (as it would temporarily force massive spending cuts).

What liberals are afraid of is that he' rather take a shoddy deal where the poor get gutted, rather than wreck the economy. Unless Obama puts some more emphasis behind the coin threat, I don't see the GOP giving any ground. Nor would I, if I were in charge, republican, and insanely conservative. I've seen him cave for the good of the country, all I would care about is my tiny white wealthy regional sect.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Silknor » Wed Jan 09, 2013 2:45 am UTC

sardia wrote:What liberals are afraid of is that he' rather take a shoddy deal where the poor get gutted, rather than wreck the economy. Unless Obama puts some more emphasis behind the coin threat, I don't see the GOP giving any ground. Nor would I, if I were in charge, republican, and insanely conservative. I've seen him cave for the good of the country, all I would care about is my tiny white wealthy regional sect.


I don't want to see a shoddy deal where the poor get gutted. Republicans don't want to see a deal with lots of tax increases on the wealthy. But I think wrecking the economy is going to be far worse for the poor than a deal that's predominately cuts to programs supporting the poor. And likewise for the rich and a deal that significantly raises their taxes. I think the Administration, and even much of the GOP, agrees.

But I wouldn't expect either side to give any ground for a while.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Tyndmyr » Wed Jan 09, 2013 3:00 am UTC

mosc wrote:A 1T platinum coin wouldn't do that much. You guys don't understand inflation very well. The government already prints money every year by the ton. The current US system has a value in the $65 trillion range. Creating a $1T asset out of thin air would have a noticeable effect in the short term as a small spike in inflation, probably controllable in a single year with federal reserve control. It would also not make even a 10% reduction in our deficit.


Most of that is not actually real money. Thanks to fractional reserve banking, etc, the "currency" in use vastly exceeds the dollars printed. However, it is still related to the actual printed dollars, known as M0 in economic terms(with more abstract, larger measurements having increasingly larger numbers).

For reference, current M0 is around 900b and change. So, a single 1T coin would more than double that. Yes, secondary effects are also going to happen from this, naturally, just like any other currency printing.

How do you get out of debt as a country? It's very simple. Really, you all are way off
1) Balance your budget (no new debt)


Honestly, I'd be thrilled to see just this step happen. It seems problematic in the current political climate, tho. It did happen with Clinton/Gingrich in a divided environment, but that DID involve a shutdown, and Clinton was probably among our more economically effective/willing to compromise presidents in recent memory.

2) grow the economy slowly and stably (grow GDB ~5% per year, stable inflation usually ~3% per year)


If you have the first, and don't get carried away with big changes, this actually isn't that bad. However, politicians exist to make laws. This very frequently involves increasing spending. If spending only increases in proportion to GDP...you're lucky.

3) wait

After 50 years, your debt/GDP will shrink to a managable level. It's not rocket science, it's how the US went from 144% debt/gdp after WWII to 30% when Regan took office. Same debt, bigger economy.


Keep in mind that the 50s were definitely boom years for many reasons...not all of which apply today. For instance, we had a bustling export market to all the countries that had war on their soil, while we didn't have it on ours. Def an advantage.

And, like others have noted, the 70s and onward were not free from economic problems themselves.

Iceman wrote:There's some misunderstanding on the $1 Trillion Dollar coin thing.

The reason it's a $1 Trillion dollar COIN is because it wouldn't be used as money, the intention would be to not add to the money supply at all. The $1 Trillion is not used to PAY down the debt, it would just be desposited with the fed as an asset, meaning you'd be allowed to have more debt.

It's like telling the Bank you added a wing to your house, so they value the house more and you're allowed to take out a larger mortgage. You're not paying off the mortgage, you're getting a bigger one.

So There would be no inflation as a result because no money is added to the economy at all.


If memory serves, there used to exist $100,000 bills that were essentially used for the same purpose.

However, these aren't real assets. They're still printed dollars, which means that we have a greater ratio of dollars to real assets. Using this as a basis for increased borrowing IS the exact same effect as normal printed money is used for.

Now, you can get away with inflating the money supply a little bit, suffer a touch of inflation, but pad the budget a bit. Not a big deal. The practice of making imaginary "trillion dollar coin" wealth as a justification to borrow more money, though, is a bit crazy.

It's probably not as bad as actually defaulting, I grant you...but this is because defaulting is like, "holy shit" bad. Like, hopefully you have gold under your mattress bad. However, I can think of no advantage to printing trillion dollar coins instead of merely raising the debt limit. It has all the downsides of raising the debt limit plus a few.

sardia wrote:The fact that we are even discussing printing a platinum coin to run around Congress is a really bad sign. =( Is Obama even considering this option? What about a repeat of the last year's debt ceiling deal? We can ask the poor for more right? They have been riding high on those welfare checks, surely they could chip in another trillion.


It's been seriously proposed by a dem senator(forget which one), and has been supported by Krugman, an economist of some note*.

It's also been proposed to be banned by a republican senator. So...strangely enough, it seems to be considered seriously by at least a few people.

*He's actually quite good with some things. However, mention QE or printing cash, and his answer is invariably "print all the moneys".

Tirian wrote:
sardia wrote:The fact that we are even discussing printing a platinum coin to run around Congress is a really bad sign. =( Is Obama even considering this option?


The fact that Congress has to authorize a separate vote to pay for the debts that they incur with their own budgets and that congressional leaders in the opposition don't whip enough of their memberships to keep it from being a symbolic protest vote is a really bad sign.


I admit, I often wish that every bill passed had to have funding attached to it. Wouldn't work with the taxes as is, but with a flat tax, I could imagine someone saying "well, this bill will cost us all an additional .1% tax. Is it worth it?" An interesting thing to consider to avoid the issue of spending being popular but taxation being unpopular, but probably a pipe dream.

sardia wrote:What liberals are afraid of is that he' rather take a shoddy deal where the poor get gutted, rather than wreck the economy. Unless Obama puts some more emphasis behind the coin threat, I don't see the GOP giving any ground. Nor would I, if I were in charge, republican, and insanely conservative. I've seen him cave for the good of the country, all I would care about is my tiny white wealthy regional sect.


I think your reasoning for their motives is a little bit suspect. "they only care about the group they're in" is usually hyperbole. It's the same BS argument that result in conservatives railing against the "liberal media". Reality is more complex.

Realistically, their supporters come from many walks of life...certainly, there is no shortage of not-well-off rural republicans, and these people are kind of unhappy with the last deal. It's not a matter of "only rich white people". It's a matter of if you blow off your voter base, pretty soon you have no voter base.

And relying on obviously stupid threats to try to force things further to your side only results in further suboptimal compromises. Default is utterly worse than any deal. A stoppage might not be terrible, depending on the length, but you probably want to keep that minimal. In any case, dramatic changes are generally not good for the short term economic outlook, and having just barely gotten out of a recession, we're ill prepared to take a financial hit to the face.

Easing ourselves back to a balanced budget is for the best, but anyone who thinks we can do this purely through taxation hasn't looked at the effect that'd have on disposable income, and thus demand, and thus, GDP. This isn't about getting a "shoddy deal". It's about not trashing the entire economy over trying to win more.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby jseah » Wed Jan 09, 2013 3:05 am UTC

Silknor wrote:As for inflation, I'm not sure that would really be a problem. If Obama pledges to issue bonds to replace the coin's value once the debt ceiling is lifted, and then melt the coin, market expectations of future inflation should be negligible because the money supply is only changing for the days or weeks needed to raise the debt ceiling (and I'd expect a deal following the minting to fix the loophole that lets platinum coins of arbitrary value to be minted in the first place). See here (emphasis added):

As a temporary measure to increase the debt limit by a strange method, then ok, I accept it probably won't be inflationary (one can never be too sure, but it looks identical to raising the debt limit).
At least it shouldn't be more inflationary than just directly increasing the debt limit.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Tyndmyr » Wed Jan 09, 2013 3:07 am UTC

jseah wrote:
Silknor wrote:As for inflation, I'm not sure that would really be a problem. If Obama pledges to issue bonds to replace the coin's value once the debt ceiling is lifted, and then melt the coin, market expectations of future inflation should be negligible because the money supply is only changing for the days or weeks needed to raise the debt ceiling (and I'd expect a deal following the minting to fix the loophole that lets platinum coins of arbitrary value to be minted in the first place). See here (emphasis added):

As a temporary measure to increase the debt limit by a strange method, then ok, I accept it probably won't be inflationary (one can never be too sure, but it looks identical to raising the debt limit).
At least it shouldn't be more inflationary than just directly increasing the debt limit.


It is absolutely identical to raising the debt limit if absolutely everyone takes Obama on faith that this is not real money.

This is a questionable assumption...but even so, there is clearly no advantage over raising the debt limit. Only possible disadvantages.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Derek » Wed Jan 09, 2013 3:26 am UTC

sardia wrote:By that definition, those treasury bonds we have are junk too. Those are pieces of electronic paper, not even a real platinum object, which has value. Don't get me wrong, I'm against this coin thing, but not because it won't work. You have to realize that money only has value because of our faith in it. So long as you have faith in the US treasury, you'll accept w/e they damn want. There's the flip side to this, and that our treasury bills won't always be accepted at such low interests rates, a measure of their faith in the US.

The difference is that a $1 trillion coin is too large to be used for anything, which ironically makes it worthless. Yes, everyday cash only has value because people believe it has value, but cash also possesses the critical property that it can be used in transactions. The trillion dollar coin cannot. At best, it could represent a tiny fraction of it's nominal value, not nearly enough actually back the debt that it's supposed to back.

To put it another way, if the Fed, after receiving it from the mint, were to sell this coin, how much do you think it would sell for? Any ordinary money, even a $100,000 bill, can easily sell for it's face value minus epsilon. What do you think a trillion dollar coin would sell for?

If the government minted one million $1 million coins, it would be simply printing money. But minting a $1 trillion coin is effectively defaulting on $1 trillion of debt. If the government does buy the coins back and melt them, then both cases are the same and they are neither printing money nor defaulting, but you still have to have investors trust you or you'll have negative effects from worried investors.

EDIT: I guess a better way of saying what I mean is, if it's just a way to skirt around the debt ceiling, a trillion dollar coin will work fine. But as a way of actually financing the debt, it's effectively a default.
Last edited by Derek on Wed Jan 09, 2013 4:05 am UTC, edited 1 time in total.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Silknor » Wed Jan 09, 2013 3:41 am UTC

Tyndmyr wrote:However, I can think of no advantage to printing trillion dollar coins instead of merely raising the debt limit. It has all the downsides of raising the debt limit plus a few.


I don't think there are any, and don't know of anyone advocating minting a platinum trillion dollar coin over a clean debt limit increase. But it's far better than a default, of course, and the existence of that option may push a deal closer to what the President wants because his hand is stronger, eg. more (or more progressive) tax increases, and less cuts or less regressive cuts, or even abolishing the debt ceiling and platinum loophole altogether.

I admit, I often wish that every bill passed had to have funding attached to it.


It's not universal, but by and large this is already the case for most bills. Recent Democratic Houses have adopted a pay as you go (PAYGO) rule, while the Republican 112th House adopted a cut as you go (CUTGO), which exempts tax cuts from the requirement not to add to the deficit. Obviously some major bills have (thankfully) not followed this, like ARRA and the 2010 and 2013 tax cut deals. Others have though, with the most notable example being the ACA.

Easing ourselves back to a balanced budget is for the best, but anyone who thinks we can do this purely through taxation hasn't looked at the effect that'd have on disposable income, and thus demand, and thus, GDP.


Have you actually ever seen anyone in Congress or otherwise influential advocate this? Because I haven't, outside of plenty of straw Democrats that show up in Op-eds written by Republicans. Obama certainly doesn't think so. By contrast, the idea that the the budget should be balanced exclusively through spending cuts (or spending cuts plus tax cuts!) is practically Republican gospel, having showed up in official Republican budgets, Romney's proposals, etc.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Tyndmyr » Wed Jan 09, 2013 3:44 am UTC

Honestly, I don't think the democrats are seeking a balanced budget, overall. Oh, a few here and there might advocate it, but I think most would be quite satisfied with a bit of additional taxation on the rich and boosting the debt limit.

However, most people will accept that a balanced budget is generally a good thing, and running a constant deficit/debt is not an ideal long term strategy, even if it might make sense in a short term one.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Tirian » Wed Jan 09, 2013 3:45 am UTC

Silknor wrote:
More to the point, it would be one of those once-in-a-generation opportunities for Americans to see how much their local lives are disrupted when the government does not have the mandate to do its job efficiently.


That would be a government shutdown. Defaulting is more like a once-in-a-generation chance to see political brinksmanship crash the nation's economy and permanently increase borrowing costs for individuals, corporations, and the government.


Without borrowing authority, the government could still spend money, it's just restricted to what they take in from day to day. The administration could choose to make debt service the highest priority and weather a shutdown without ending our no-default streak, and I have a feeling that they would be inclined in that direction. On one side, that leaves the administration with a lousy choice between delaying Social Security checks and not funding our soldiers in the field that will make them unpopular. On the other side, they can make the obvious counterargument that the choice itself was completely artificially generated by an intransigent and extortionist opposition party. I don't really want to think about it, but it's hard to imagine the public enduing inaction for more than a day or two.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby sardia » Wed Jan 09, 2013 3:46 am UTC

Tyndmyr wrote:
jseah wrote:
Silknor wrote:As for inflation, I'm not sure that would really be a problem. If Obama pledges to issue bonds to replace the coin's value once the debt ceiling is lifted, and then melt the coin, market expectations of future inflation should be negligible because the money supply is only changing for the days or weeks needed to raise the debt ceiling (and I'd expect a deal following the minting to fix the loophole that lets platinum coins of arbitrary value to be minted in the first place). See here (emphasis added):

As a temporary measure to increase the debt limit by a strange method, then ok, I accept it probably won't be inflationary (one can never be too sure, but it looks identical to raising the debt limit).
At least it shouldn't be more inflationary than just directly increasing the debt limit.


It is absolutely identical to raising the debt limit if absolutely everyone takes Obama on faith that this is not real money.

This is a questionable assumption...but even so, there is clearly no advantage over raising the debt limit. Only possible disadvantages.

I'm still waiting on the starting terms for negotiations; so far all I hear are: these x things are off the table, or I refuse to negotiate. Kinda hard to come to a compromise when that's all you hear.

Tymyndor: I think the problem lies at the separation of what elected republicans want from what their constituents want. You talk of this voter base as if it was the majority of the party, and as if they were representative of the GOP constituency. It's not, the GOP is consistently more conservative than the people who vote for them, mainly due to the events of the primary elections. The GOP has paid in seats to Congress on what should have been easy victories for their passionate defense of their principles. You talk of how they can't alienate their base too much without losing their base. While I wouldn't say that Congressmen have free reign, they do have a wider latitude than you think. Those tea party backed primary challenges of the last 4 years are losing strength, just need a few more election cycles to wash them out. More importantly, demographics are on the side of the nonrepublicans. You can't rely on the old white vote forever. Sure you'll alienate a few of them, but there are bigger groups to woo over. Get some latinos or blacks on the GOP boat, and you'll be back in the white House in no time.

"The difference is that a $1 trillion coin is too large to be used for anything, which ironically makes it worthless. Yes, everyday cash only has value because people believe it has value, but cash also possesses the critical property that it can be used in transactions. The trillion dollar coin cannot. At best, it could represent a tiny fraction of it's nominal value, not nearly enough actually back the debt that it's supposed to back.

To put it another way, if the Fed, after receiving it from the mint, were to sell this coin, how much do you think it would sell for? Any ordinary money, even a $100,000 bill, can easily sell for it's face value minus epsilon. What do you think a trillion dollar coin would sell for?"
It would sell for 1 trillion dollars because banks are required to accept whatever the Fed demands of them. The coin tactic is inflationary, stupid, and reckless, but it does do what they say it does: adds 1 trillion in assets so the government can spend another trillion without hitting the debt ceiling.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Derek » Wed Jan 09, 2013 4:12 am UTC

sardia wrote:"The difference is that a $1 trillion coin is too large to be used for anything, which ironically makes it worthless. Yes, everyday cash only has value because people believe it has value, but cash also possesses the critical property that it can be used in transactions. The trillion dollar coin cannot. At best, it could represent a tiny fraction of it's nominal value, not nearly enough actually back the debt that it's supposed to back.

To put it another way, if the Fed, after receiving it from the mint, were to sell this coin, how much do you think it would sell for? Any ordinary money, even a $100,000 bill, can easily sell for it's face value minus epsilon. What do you think a trillion dollar coin would sell for?"
It would sell for 1 trillion dollars because banks are required to accept whatever the Fed demands of them. The coin tactic is inflationary, stupid, and reckless, but it does do what they say it does: adds 1 trillion in assets so the government can spend another trillion without hitting the debt ceiling.

They only have to take it if they have the US government owes them money. US currency is legal tender for all debts. You don't have to accept someone's money if they don't owe you anything. And I highly doubt that any bank is owed a trillion dollars by the US government, so no, they don't have to take it. Or if they take it whatever amount of debt they do have, they don't have to make change for the rest, and it's real worth in that case is much less than it's nominal value (equivalently, it "sold" for far less than a trillion dollars).

I added a clarifying edit to my post above before I saw your reply, but I'll quote it here in case you missed it:
EDIT: I guess a better way of saying what I mean is, if it's just a way to skirt around the debt ceiling, a trillion dollar coin will work fine. But as a way of actually financing the debt, it's effectively a default.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby LaserGuy » Wed Jan 09, 2013 4:21 am UTC

sardia wrote:
LaserGuy wrote:
Tyndmyr wrote:
CorruptUser wrote:In reality, the US has only 3 ways of dealing with the debt. The 1st way is to print it all away, via hyperinflation. The 2nd is to reneg on it at least partially, which would still lead to hyperinflation and other problems. The 3rd way is to magically fix the economy to the point where the US can get another $1T/yr in taxes, which is not going to happen short of someone discovering how to turn atmospheric heat into electricity.


Well, there's also a reduction in government spending as a 4th option. It also has tradeoffs, mind you, but at least it is possible(probably most possible combined with a degree of taxation).

There's also yet another possibility, which is to raise the debt limit again. Yes, yes, I know this also comes with downsides, but it's happened what, like seventy times before? It might well happen again.


Well, in the short term certainly, the debt ceiling will get raised. It's only a crisis because the Republicans have manufactured it to be a crisis to get leverage over the administration, and it's just a question of what concessions (if any) they'll be able to extract in exchange for doing it. Addressing the debt in the long term, not so easy. Either cutting spending or increasing taxes enough to wipe out the deficit is probably enough to throw the economy back into recession--at least, if you tried to do it all at once. The debt as a percent of GDP is not so large compared to other countries and is still well below historic highs. If the deficit can be reduced gradually to zero over a medium term--10-15 years, say--then economic growth will take care of the debt.


This skips over the painful and important steps of balancing the budget. The cheerleaders for our budget consists of defense, medicare/medicaid, social security, and domestic spending, except domestic spending has no hardcore defenders. During the last debt ceiling, did we manage any curtailing of the first 3? I know The Affordable Care Act helps with new taxes and reduced expenditures, but that's The Affordable Care Act. Did we really only cut from the discretionary spending from the debt ceiling debate?


No, we just raise (or eliminate) the debt ceiling. It's irrelevant to problem of the debt/deficit. Balancing the budget in the short term isn't necessary, and doing so would probably be disastrous for the economy. So don't. Make modest reductions in spending or modest increases to revenues every year with the goal of eliminating the deficit in 10 years or whatever.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby sardia » Wed Jan 09, 2013 4:33 am UTC

I'm sorry, I meant balance(roughly) the budget over the long term. Yea, balancing the budget now would be recessionary. Still no signs of people touching SS or defense spending, and I'm not sure when we'll bother with our healthcare spending again. People are still touchy after the The Affordable Care Act debacle.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby LaserGuy » Wed Jan 09, 2013 4:44 am UTC

sardia wrote:I'm sorry, I meant balance(roughly) the budget over the long term. Yea, balancing the budget now would be recessionary. Still no signs of people touching SS or defense spending, and I'm not sure when we'll bother with our healthcare spending again. People are still touchy after the The Affordable Care Act debacle.


Well, yes, I do think that part of the solution will be people starting to act like mature adults and deal with the parts of spending that are obviously a significant portion of the budget.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Thesh » Wed Jan 09, 2013 4:52 am UTC

Well, if you accept that most of the deficit is due to the economy, your first step would be to fix the economy.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby KnightExemplar » Wed Jan 09, 2013 5:30 am UTC

sardia wrote:I'm sorry, I meant balance(roughly) the budget over the long term. Yea, balancing the budget now would be recessionary. Still no signs of people touching SS or defense spending, and I'm not sure when we'll bother with our healthcare spending again. People are still touchy after the The Affordable Care Act debacle.


IIRC, Social Security is basically balanced until 2035 or so. SS has its own set of taxes, and there was a law passed in the 1980s that set up a huge trust fund for SS. So technically, other government programs are borrowing money from the SS system. Social Security will be a problem, but it isn't nearly as large as the current health care problems. In contrast, Medicare is going to run out of money by the early 2020s. (or more precisely, the trust fund for Medicare will run out of money. So Medicare will start borrowing money in 2020). So as far as Social Security vs Medicare debate... the Medicare problem is more urgent.

So whether we are frustrated by health care or not, we ought to still solve health care first. As far as the major expenditures of this country are concerned.

Defense... well... no one seems to want to touch that.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby sardia » Wed Jan 09, 2013 6:33 am UTC

No, SS isn't "balanced", it loses more money than it makes now and it is dipping into it's trust fund of Treasury bills that are bought in it's name. We could apply smaller changes now rather than apply bigger cuts later. Of course, considering how violently strong the SS receivers are, I wouldn't want to touch that monster without everyone else helping me. Even though I'm against the GOP's positions, I hope they try to get some reductions in SS spending. If we're gonna put ourselves into recession, we might as well fix SS as a consolation prize. Quite frankly, I don't see how the Democrats will accept the GOP dismantling the ACA via debt ceiling cuts.

Btw, I'm not a big believer that having such a large stash of T-bills that one arm of the government owns from the rest of the government means it's ok. If I had a piggy bank that stored my SS savings, and I then took that money out and replaced it with IOUs, that's what the government did with our SS deposits. So long as I honor those IOUs, it'll be fine, but assuming SS won't have an effect on our budget is silly. Those treasury bills that SS cashes in, where does the money come from? More treasury bills. What happens when we replace our entire stock of SS T-bills with generic ones? We pay them off through general tax revenues. This has other effects, but the main point is that SS is already and will continue to eat into our general revenue, and we should raise benefits/cut spending to smooth out the hangover.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Silknor » Wed Jan 09, 2013 8:12 am UTC

Tyndmyr wrote:Honestly, I don't think the democrats are seeking a balanced budget, overall. Oh, a few here and there might advocate it, but I think most would be quite satisfied with a bit of additional taxation on the rich and boosting the debt limit.

However, most people will accept that a balanced budget is generally a good thing, and running a constant deficit/debt is not an ideal long term strategy, even if it might make sense in a short term one.


I agree that most Democrats aren't seeking a balanced budget, especially over the medium-term, and I'm glad. Not having a balanced budget doesn't mean that you have to have a growing or unsustainable debt/GDP ratio.

As for the long-term, and I mean say, 25 years plus. It's kind of silly to worry about. As we go that far out and beyond, much of the deficit is driven by rising health care costs, which projections assume will rise at roughly the same amount as they have been previously. That could change radically, as could plenty of things on the economy, longevity, and defense fronts. And short of a constitutional amendment, trying to set binding revenue and spending targets for future Congresses seems impossible.

Tirian wrote:Without borrowing authority, the government could still spend money, it's just restricted to what they take in from day to day. The administration could choose to make debt service the highest priority and weather a shutdown without ending our no-default streak, and I have a feeling that they would be inclined in that direction.


I think debt-service would be the top priority too, but that doesn't mean the markets would give us a pass. Defaulting on some of our legally obligated payments, even if they're to our citizens and companies, is a crystal clear message that our political system is broken. And such a system is much more likely to default again, possibly hurting bond repayments as pressure to make Social Security payments, or paying our soldiers or hospitals grows. It's also more likely to attempt to inflate away large portions of the debt. Fears of either would lead to higher borrowing costs, which, of course, would further increase the debt.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Malice » Wed Jan 09, 2013 8:45 am UTC

We can't (and shouldn't) touch health care in any major way until The Affordable Care Act is fully implemented and the system adjusts to it.

The trillion dollar coin is a very silly option, and worse than a clean debt ceiling raise, but it's many times better than fucking over the poor yet again (or defaulting of course).
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Iceman » Wed Jan 09, 2013 4:18 pm UTC

While the 1 Trillion dollar coin seems very silly, I think we should be aware of how silly 'Raising the debt ceiling' itself is too.

Both of them are ficticious increases in debt limits and both of them are a signal that debt holders of the US should be worried.

One solution is 'I'm going to add Fake Collateral so I can borrow more because I'm limited to X amount above my Collateral'

The other is 'I'm going to change the X amount above my Collateral I'm allowed to borrow'

Both solutions are ficticious workarounds. So while the Coin seems just intuitively more silly, it's just as ridiculous as the other conventional solution....in neither case is anything in the situation actually changing, its only changing on paper.

The basic model of government debts is supposed to be you borrow now and pay back with future revenues which presumably grow over time.
That's fine.

The Issue with US Debt is it's becoming too big...not just in comparison to its GDP...other countries have worse Debt to GDP...but it's becoming to big for the World's GDP.
If Spain is fucking up and ends up with a 160% Debt to GDP...ok that's bad but its kind of ok, we can consume that.

But if the US was at 160% debt to GDP, its debt would be about half the Money Supply on Earth. There's a point at which it cannot be absorbed at all, that the money, the resources, to finance the country doesn't exist.

If there's literally no plan or intention to ever reduce the deficit, and currently there is no intention whatsoever to do this, then we face the fact that inevitably this debt will default at some point, whether it's 10, 50, 100, 1000 years it will eventually default.

The trillion dollar coin is a very silly option, and worse than a clean debt ceiling raise, but it's many times better than fucking over the poor yet again (or defaulting of course).


So when you say things like this...You have to realize China and Japan and Europe and your own future citizens are financing you helping the poor people in the richest country. You Do Not HAVE this money and its unsustainable to do. This eventually leads to complete ruin.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Zamfir » Wed Jan 09, 2013 5:21 pm UTC

While the 1 Trillion dollar coin seems very silly, I think we should be aware of how silly 'Raising the debt ceiling' itself is too.

Both of them are ficticious increases in debt limits and both of them are a signal that debt holders of the US should be worried.

One solution is 'I'm going to add Fake Collateral so I can borrow more because I'm limited to X amount above my Collateral'

The other is 'I'm going to change the X amount above my Collateral I'm allowed to borrow'

That doesn't add up. There is no collateral in the first places, and debt ceilings and similar limits are not formal promises to investors. All limits here are fictitious, self-imposed by the government and internal to it.

The issue is, which part of the government is allowed to change what, and through which process. The treasury is supposed to be limited in its actions without approval from the congress. It cannot issue unlimited debt, cannot issue unlimited currency, cannot directly order the reserve banks to buy debt.

The coin (if any court would take it serious) would be an unintended loophole in those limits. Raising the debt ceiling would be the intended process through which the US government as a whole makes decisions.

Anyone who buys US debt does so in the knowledge that the government might issue more debt, or might monetize debt, or that it could decide to default on its debt without recourse for the debtors.They also know through which processes the government has to go to get to such decisions, and in those grounds they can estimate how the government will act.

The coin trick on the other hand would be a surprise, a change in how the government operates with respect to fiscal and monetary matters.


EDIT for general interest: this is a transcript of a recent panel discussion about the crisis and the US debt. The speakers (economists) are fairly high up the tree, both academically and politically-connectly. Also, huge egos all of then, and some seen to hate each others guts (esp. Krugman and Uhlig). Amusement for the whole family.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Iceman » Wed Jan 09, 2013 6:18 pm UTC

The collateral is actually either Tax Revenues or Treasury Funds. So yes, it's not existant and ficticious too, but that is the collateral. It's like when a company securitizes an income stream.

Since the government can raise limits, default, monetize etc... without recourse, the sole concern of the investor is the concern over the outcome of the action.

Both raising the limit and minting the coin result in the same increase in debt, because the actual increase in debt was determined long ago. This is merely a discussion of how to finance the increase in that debt.

The raising of the ceiling and the 1 T coin produce an identical result for the investor. The method won't make a difference to them.

Where it does make a difference yes is in internal politics of the country, the executive would be now able to raise the debt limits as it sees fit. However, as many people have pointed out during this whole process, the House and Senate still had to approve the actual budgets regardless.

So All 3 branches and both parties agreed to spend the money, but now they won't agree to acquire the money they agreed to spend.
Investors, knowing the money is being spent anyway should be indifferent as to how the raise is authorized. They'd only be concerned if it's NOT authorized, forcing default or monetization. So from an investor point of view, having more than one method to authorize it should be mildly good.

Since the coin vs ceiling doesn't increase the US's propensity to spend, it only increases its ability to finance what it already agreed to spend, it won't make a difference to the aggregate amount, since all future spending is still restricted by the same process that has always restricted it.

Essentially the US ordered a package COD. They owe $50 for the package and everyone's already agreed to that. Their Credit Card was maxed, so they want to pay cash instead. The delivery company already knew it was getting $50 regardless, and would only be concerned if the package got sent back.
But just because you can pay Cash or Credit now doesn't make you more or less likely to order more packages, and ordering more still required the same agreement it did before.

So I follow what you're saying, but you'll find this improves the relations with investors because its safer to rely on the government now and it doesn't mean their debt load would be higher than it otherwise would be, Republicans/Democrats can still block budgets and bills.

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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby mosc » Wed Jan 09, 2013 6:21 pm UTC

sardia wrote:No, SS isn't "balanced", it loses more money than it makes now and it is dipping into it's trust fund of Treasury bills that are bought in it's name. We could apply smaller changes now rather than apply bigger cuts later. Of course, considering how violently strong the SS receivers are, I wouldn't want to touch that monster without everyone else helping me. Even though I'm against the GOP's positions, I hope they try to get some reductions in SS spending. If we're gonna put ourselves into recession, we might as well fix SS as a consolation prize. Quite frankly, I don't see how the Democrats will accept the GOP dismantling the ACA via debt ceiling cuts.

Social Security needs no "trust fund". The entire conversation is misleading. It is a revenue neutral design. People pay in, people get benefits. For decades, we have had more people paying in (baby boomers) than people taking out. This was not intended. It happened because the population did not grow at a constant rate. We had a baby boom. The design is quite clear on what should happen when these people retire. The system should run a deficit and gradually eat away at it's surplus until it returns to a more revenue neutral balance when the birthrate is more stable. IT IS A GOOD THING IT IS RUNNING IN DEFICIT RIGHT NOW! Social Secuirty's age limit is not tied to the life expectancy however it's benefit costs are. Because of this, if you forecast out far enough with an ever-increasing life expectancy, you will eventually see a "broken" system. The life expectancy has gone up for year and social security's retirement age has in general changed with it. It is ludicrous to assume a fixed retirement age until the end of time and then forcast out to see if social security would remain "balanced".

The GOP wants to abolish social security but is well aware how unpopular that position is. Because of it they attack it by saying it is financially unsound and often recommend gradual reductions in it's benefits. It is not financially unsound. The system pays for itself. The real purpose of their argument is a desire for a reduction in social security scope independent of it's financial backing. It is state run, not for profit insurance. It is working exactly as intended. The Baby Boom entering the workforce created a surplus and the Baby Boom leaving the workforce will eliminate the surplus, AS INTENDED. Changes in life expectancy will continue to unbalance the system as long as the retirement age is a fixed number. Bills to tie the retirement age of Social Security to the average life expectancy have routinely been opposed by the GOP.
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Silknor
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Silknor » Wed Jan 09, 2013 6:52 pm UTC

mosc wrote:The system should run a deficit and gradually eat away at it's surplus until it returns to a more revenue neutral balance when the birthrate is more stable.

[...]

It is not financially unsound. The system pays for itself. The real purpose of their argument is a desire for a reduction in social security scope independent of it's financial backing. It is state run, not for profit insurance. It is working exactly as intended. The Baby Boom entering the workforce created a surplus and the Baby Boom leaving the workforce will eliminate the surplus, AS INTENDED. Changes in life expectancy will continue to unbalance the system as long as the retirement age is a fixed number. Bills to tie the retirement age of Social Security to the average life expectancy have routinely been opposed by the GOP.


The GOP have been the ones pushing to increase the Social Security retirement age, though perhaps not in some automatic formula based on life expectancy.

As for the financial soundness, I don't think you're right there. It's not like once the Baby Boom generation dies then balance will be restored. The last trustees report projects that Social Security will continue paying out more than it takes in for the entirety of the 75-year projection (see PDF page 57, intermediate prediction, which shows the combined OASDI deficit growing from roughly 1% of taxable payroll now to more than 4% by 2090).

So no, it's all going as planned (we're still phasing in the last increase in retirement age). But it's also not in a crisis. The changes needed to put it on a long-term balanced path aren't severe (revenue over the long term is expected to support 73-75% of scheduled benefits after trust fund depletion). Nor are they limited to raising the retirement age (which is very regressive, because the life expectancy gains have been largely in the upper incomes, while lower income professions are more likely to work in areas that are more physically demanding and thus less viable that they keep working well into their late 60s or early 70s). Here's the summary of solutions from the report:

Spoiler:
For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period, lawmakers could: (1) increase the combined payroll tax rate for the period in a manner equivalent to an immediate and permanent increase of 2.61 percentage points (from its current level of 12.40 percent to 15.01 percent);1 (2) reduce scheduled benefits for the period in a manner equivalent to an immediate and permanent reduction of 16.2 percent; (3) draw on alternative sources of revenue; or (4) adopt some combination of these approaches. Lawmakers would have to make significantly larger changes for future beneficiaries if they decide to avoid changes for current beneficiaries and those close to retirement age.


Note that raising the retirement age is just another way of cutting benefits. Except it falls hardest on the people who will enjoy the least years of retirement, who also tend to be poorer.
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Re: Fiscal Cliff Ends, For Now, Debt Ceiling in 2 Months

Postby Iceman » Wed Jan 09, 2013 7:11 pm UTC

Social Security is a Trust Fund.

When there is a surplus for a year, funds are invested in Government securities, when there is a deficit, funds are gained by selling or not renewing those securities.

The SS Program is taking money now from people currently working and giving it to retired peoples collecting it, but it has an obligation to also pay the people paying now in the future.

Therein lies the issue with it, the current SS system is underfunded by $15.1 Trillion. What this means is that with the rates it is supposed to pay out and the revenues it is expected to collect, amortized back to present day values, they're currently $15.1 Trillion below where they should be.

What this means is either they need to increase the revenues, or lower the amount they pay out. So if that amount is based on the obligation of giving everyone $1,000 a month, they can balance this by paying a 35 y/o person today only $350/month when they retire.

Again I think you are confusing two terms. There is a 'Surplus/Deficit' and 'Funded/Unfunded' status.

Surplus and Deficit only refer to that individual year, though in the past 40 years, only 4 have been in Surplus.

The Funded status is how much extra money they have or how much they need in order to pay out what they've promised to pay out in the future....Even after assuming we continue to get revenue in and earn interest from existing investments.

It's that status where it's short by $15 Trillion, they need $15 Trillion more in current day assets in order to ensure that a person entering the workforce today gets what he or she expects when they retire...and that's even when we account for new people paying in at that time.

There's currently just over 2 workers for every collector of SS, but the money paid in by the workers is only a small fraction of what's being paid out.

So no, it's not currently sustainable, it is not a good thing to be in a deficit, its not a good thing its unfunded.

To make matters worse, the assets Social Security has are actually government debt. Meaning as Social Security depletes its assets, it's not consuming the US Debt meaning the US will have to find other people to sell that to. SS programs own 50% of US debt.... It can't even really deplete what it does have in assets.

The system is financially unsound... when it says it 'pays for itself' it means yes, it can only pay out what it takes it....but that just means 'What we pay out will fall if we don't have enough money'

So while your parents may have paid in $30,000 in their lifetime, they collect $75,000 in retirement. A person entering the workforce now many pay in $45,000 and get $10,000 back in retirement.

tl;dr It's not currently funded enough and projections of COLA, Life Expectancy and Future Worker Revenues aren't enough to cover future costs to the tune of $15 Trillion


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