I laughed a lot when it was announced that Obama wasn’t going to mint a platinum coin and effectively render the debt ceiling obsolete. And not because I hope for or expect the USA to immediately and chaotically default. Not because I expect the Federal government to not raise the debt ceiling again.
I laughed a lot because the platinum coin was a very, very silly idea. I laughed a lot because there was no clue of any such event taking place. It was a pure myth talked into prominence by Business Insider for pageviews and advertising dollars, and by other bloggers who should have known better.
Bruce Krasting writes that the platinum coin was killed by foreign central banks who thought it would set a dangerous precedent, and ultimately by Ben Bernanke:
It was the Fed, in a message delivered by Bernanke, that caused Obama to back off on any consideration of the Coin. There might have been wiggle room in existing law to print a Coin, but there is nothing that says that the Fed had to take it. And Bernanke said, “No”. When Obama ditched the Coin, he did it because it was no longer an option. Bernanke took the option off the table. The WH statement makes it sound as it it was their decision, that’s just smoke and mirrors.
I don’t even think it got that far.
As I wrote last week:
I think the chances of minting the platinum coin are still pretty much zero. Just something for pundits to bloviate about.
— John Aziz (@azizonomics) January 8, 2013
I think all parties other than the pundits thought the idea was ridiculous and totally unpalatable. For both Obama and Boehner — and especially Bernanke — negotiating a settlement is far, far more attractive than the signals of fiscal disarray that would have been sent by minting the platinum coin. Not to mention that minting a platinum coin and depositing it at the Fed to avert the debt ceiling would have been open to serious legal challenge. Compromise was the order of the day in 2011, and on the fiscal cliff, and it will be the order of the day on the debt ceiling again.
The people who advocated for the platinum coin were mostly doing so because they don’t like compromise. They wanted their side to effectively steamroller the other side into total submission. Right or wrong, that’s not how politics works. A deal will be done. It may not be a deal that Krugman, or Weisenthal, or Boehner, or Obama or Ron Paul or the country in general really likes, though.
azizonomics 
What about a 5 Trillion dollar copper and nickel coin?
I thought Governments can print at will, and as Legal Tender it extinguishes all liabilities. It is the private Fed that would have taken the real loss. If the Fed said no, then the US Government could have passed a Law took away Fed Powers.
Zimbabwe did it.
The real issues are the suppliers to the USA, swapping real goods for paper promises from a bankrupt State.
Unless the USA can trade its way with real tangible goods (Natural Gas), who is going to keep busting their guts to supply goods to the USA? I know with the Internet, the USA is pretty much buying from China, then reexporting online goods at a mark up. They are the Wholesale buyers and retailers to the world.
It looks like the USA, with its history of attracting the best minds has fallen on its feet once more.
they do the same with paper-lien bonds and they see no issue with that 😉
it’s just they pretend Fed “buys” it from “market” rather Treasury deposits it at Fed..
If there is a single point I wish that people would take away from reading my blog, it is this!
The US CAN trade its way (back to prosperity) with real tangible goods (Natural Gas, Agriculture, Electrical Transport, New Energy plus all the other as yet unimagined things) so the global economy will have reasons to supply goods back to people in the USA! Countries & companies are just like people who over time can have bad patches then good patches.
If you listen carefully to the Beach boy Lyric, you will hear the advertising jingle.
I gotta get me a Deuce Coupe!
JA: Thanks for the post. I agree with your comments; however, large holder’s of US debt—Asian sovereign wealth funds in particular—are now fully awake (if they’re not, they soon will be) to the fact that they are stuck. What to do? What to do? Systematically investing in, and buying, resources around the world before the US Dollar tanks and they are left holding the bag. The US will never be able to make good on it’s debts—the “tipping point” has been passed.
Buddy rightly comments the the US is bankrupt—from a GAAP accounting standpoint it should be non-functioning. (Half of the states in the US are literally surviving on smoke and mirrors bookkeeping.) But, the fact that the government can print their way out of the hole prevents that declaration from occurring. The fact that the Trillion Dollar coin idea ever ventured beyond the ONION website should tell anyone paying attention everything they need to know.
As silly as teh coin idea was it is no less irresponsible then the legalized couterfeiting scheme that QE whatever number is.
John writes:
“And not because I hope for or expect the USA to immediately and chaotically default.”
When the USD was no longer backed by a tangible asset, it became a defaulted currency.
It’s just that everybody got together and said, “Let’s make pretend.” And they did this because some of the people were still able to steal from the rest, so they’ll say/do anything to keep stealing.
And this is how the system works.
Kind of. People who wanted to redeem their dollars for gold could still do so, just not with the U.S. government. And any holders of dollars and dollar-denominated instruments since 1971 should have known full-well they were getting into a pure paper-and-trust game.
John: Before we, Obama, and the political and pseudo-financial press drop this topic, please recap why the idea was manifestly silly. My principal takeaway is that a “designated” coin, not just any platinum coin, would be no different from a batch of QE (“paper” money).
Of many historic examples (thrones, crowns, swords, priest & witch doctor trinkets, wands, etc.), one example seemingly stands out: a large stone under the Scottish throne that was accepted as not only symbol but as actual source of power — like a heavy bearer bond. I guess this was better than primogeniture/divine right, where the king and all his progeny had to be dead before a new royal line was legitimate.
It’s silly because it would have made a mockery of the Rule of Law, and would have embarrassed and pissed off America’s creditors by painting America in a state of fiscal and legislative disarray. Using a loophole to get around norms and customs is Banana Republic politics. In a civilised society if you need to change a law, you change it the normal way.
Am I missing something(s)? Doesn’t the mockery, disarray, loopholes exist already with QE?
Not so much. There’s no “loophole” that allows the Fed to do QE. The Fed is exercising its defined powers granted by Congress. Bernanke’s post-2008 behaviour was expectable based on his past writings on Japan, the Great Depression, etc and Milton Friedman’s writings on the Great Depression. There is no such precedent for the Trillion Dollar Coin(s).
Can’t you imagine sitting around the dining room table in the 1840’s [in the U.S. South], talking about how although slavery might not be the greatest thing in the world, what would these poor, wretched people do without us giving them something to do all day and food to eat. They would probably up and die without us looking after their needs.
THIS is how these people rationalized slavery [slave-labor].
And this is very similar to the contemporary conversations you hear, here, there, and everywhere, about how we just need to tweak the system; tell the politicians not to lie so much, and the bankers to not be so greedy, and CEO’s not to send everybody’s job overseas, and so on and so forth.
The problem is not that people are so [fill in the blank], but instead, that the state and the corporation not only support this behavior, but encourage all of it [as long as you get them in], and remunerate you accordingly.
There’s a reason why the few have most everything, and it’s not because they are smarter [viz., better able to manipulate the system to their advantage] then everybody else. Instead, it’s because they don’t give a shit about anybody but themselves [generally speaking].
All systems are designed by the people described above, because the people who actually care about other people are busy helping them instead of figuring out newer and more creative ways of scamming people out of their hard earned labor-value.
People need to look at what’s going on a call a spade a spade instead of rationalizing their own dependency on the system and saying, “fill in the blank.”
Radio Free Market is proud to offer a short but very important interview by Patrick Barron with Detlev Schlichter, author of Paper Money Collapse–The Folly of Elastic Money and the Coming Monetary Breakdown. In this interview Mr. Schlichter discusses a key chapter of his book titled “The Intellectual Superstructure of the Present System”. We learn that influential economists and policy makers in governments and central banks limit their view of what constitutes a “good” economy by adhering to a philosophy that frames the Market Economy as a single whole rather than a reflection of millions of actors each choosing individually.
[audio src="http://radiofreemarket.files.wordpress.com/2013/01/rfm-pat-barron-and-detlev-schlichter.mp3" /]
It wasn’t a pointless idea. It gave Krugman a golden opportunity to make a total idiot of himself yet again. Who said economists weren’t funny?
Yes PK really embarrassed himself here. Although one telling moment is that he did write during all this that it was a good idea to stock up on canned food, bottled water and spare ammunition in case of a US Treasury default. So, um, yeah.
Citizens should not just be arbitrarily traded between national politicians thanks to their emotions or the mob rule of various referendums as to who owns what. People should be allowed to own themselves.
http://www.nytimes.com/2013/01/06/world/americas/argentinas-call-for-return-of-falkland-islands-causes-a-stir.html
Pingback: Ding Dong the Coin Is Dead | My Blog
Germany wants its Gold back
http://www.zerohedge.com/news/2013-01-14/it-begins-bundesbank-commence-repatriating-gold-new-york-fed
OK, I guess it is to appease the German masses and debunk the conspiracy theorists. I am sure the Germans will be charged a nice “administrative” fee to physically process this move.
From what I understood it was sent abroad to protect it from Communist attack. Do they fear some sort of attack in the USA? Foreign? Civil?
Why don’t they just sell the Gold and exchange for USA dollars and have USD sitting on a Bank ledger/server, in some foreign Bank under US guidance/protection?
It certainly would be cheaper?
REPRESENTATIVES FROM BAIN CAPITAL ALSO CHATTED WITH THE BITCOINERS FOR A WHILE
http://www.theverge.com/2013/1/11/3864592/bitcoin-punks-go-corporate-at-ces
Could Gold soar to $20,000 WITHOUT the US Dollar crashing? I think so. Imagine how much confidence would be instilled in the US if a Peace deal for the MidEast could be arranged.
Someone just tell Obama to load up on Gold (& bitcoins) and send him straight E1 with that King who’s in the news. This could work so perfectly it is almost unbelievable
aziz you should seriously condence all this into 1 easy to read piece called
“Plan for World Peace”
After all, you’re much better at writing blogs than me…but first I should let you know about:
Citizens should not just be arbitrarily traded between national politicians thanks to their emotions or the mob rule of various referendums as to who owns what. People should be allowed to own themselves.
http://www.nytimes.com/2013/01/06/world/americas/argentinas-call-for-return-of-falkland-islands-causes-a-stir.html
If that seems incoherent, consider the attached PDF, published by the National Defence Academy & the Institute for Peace Support and Conflict Management in Vienna. It runs through President Woodrow Wilson’s idea of self-determination to enable “a sort of United States of Western Civilisation”…which was…”rebuffed not only by Europeans but also his own colleagues and advisers”. His Secretary of State, for example, Robert Lansing characterised Wilson’s natural idea of self-determination as a “principle with enormous destabilising force when faced with practical realization” (P81). Of course, nothing could be further from the truth.
President Woodrow Wilson was just ahead of the game.
Could Gold soar to $20,000 WITHOUT the US Dollar crashing? I think so. Imagine how much confidence would be instilled in the US if a Peace deal for the MidEast could be arranged.
Too many tribes in Europe. Wilson’s plan put Europe back. The Austro-Hungarian Empire was cosmopolitan and worked. But the countries (Croatia etc) lost self determination when they joined the Euro. Destabilise then stabilise, with a new set of rulers!
I read the paper you linked. Interesting and in a nutshell Vladimir Putin was right about Kosovo being a dangerous precedent as it overturned years of International Law alluded to in this article.
Effectively every ethnic/tribe can seek self determination under the Kosovo precedent, causing a litany of secessionist movements to gain control over resources etc.
Russia being a kaleidoscope of ethnic tribes (Siberia and Far East) is ripe for turmoil.
An example of the issues faced:
44
4.Territorial and Ethnic Self-Determination
In the case of self-determination, the main issue is to decide who the’selves’ entitled to self-determination are. Next to it comes the question concerning the legitimate authority to decide about who the ‘selves’ are.In principle, the ‘selves’ could be considered entire peoples inhabiting certain portions of a territory. This begs the next question: What is the meaning of ‘peoples’? Or, which parts of territory form the territorial base for the legitimate exercise of self-determination? On the top of this comes the issues of legitimate authority: Who shall decide on the legitimate categories of self-determination, be it territories or populations?”
MIGHT MAKES RIGHT!
For all you Secessionists out there, the fact that the USA heartland (Red States) has many ICBMs, and a Military Coup could be a possibility. Many Military coups occur when Judicial and Legislative law is gridlocked on partisan lines.
Since the UN and other International Courts get their funding from the USA. A collapse in the USA as we see it, would see total disarray of these legal institutions.
I should add, not that it matters that much, but the right to self determination is part of the UN charter and it was a “UN court” that ruled against Elliot & co…
Like Chomsky said in his latest interview, the media has been undermining markets based on poor analysis but the new media like individual experts such as Jim Rickards, yourself & Zero Hedge are now in the seat of the up and coming stars, essentially
How do you even value a free press? I mean, seriously? IT’S INVALUABLE. And the US Rule Of Law still far outperforms practically all other States on the Planet, frankly, especially when you consider its giant degree of power
Me, Jim Rickards and Tyler. Nice set of people.
Who, exactly, elected Ban Ki-Moon?
http://www.ynetnews.com/articles/0,7340,L-4332470,00.html
IF E1 was privatised between the relevant authorities then they could freely discriminate as to who is and is not allowed in the E1 zone, and none of this random confusion would reign. The owners of E1 could sit around a table and literally hand pick whoever the most calm and rational representatives of their respective groups were
“it’s kind of hard to decide who is the actual owner”
http://www.gata.org/node/12121
– this is the chief problem with “public property” – be it a whole State or a little bar of Gold – it is practically impossible to seriously verify who owns what, who’s responsible for what, so this in turn makes accountability and organisation exceptionally difficult, EVEN IF the relevant parties have good intentions.
my above comment also applies below:
http://www.jpost.com/MiddleEast/Article.aspx?id=299722
“State disputes activists’ claim that land was private Palestinian property” … private Palestinian property? But Palestine is NOT a one individual, or not even a clearly definable group: what makes someone Palestinian? This chaos is caused by the idea of public property. Belief in the idea of public property – i.e. owning the ownerless – is a kind of pathological retardation of the human mind most likely caused by fear.
in short,
E1 Counter-Claims Prove Public Property Is Usustainable
Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? Your playing small does not serve the world. There is nothing enlightened about shrinking so that other people won’t feel insecure around you. We are all meant to shine, as children do. We were born to make manifest the glory of God that is within us. It’s not just in some of us; it’s in everyone. And as we let our own light shine, we unconsciously give other people permission to do the same. As we are liberated from our own fear, our presence automatically liberates others.
see the youtube clip:
Neil deGrasse Tyson – We Stopped Dreaming (Episode 1)
The Most Astounding Fact – Neil deGrasse Tyson
Youtube clip: We Stopped Dreaming (Episode 2) – A New Perspective
the world will know peace when the power of love overcomes the love of power
The root of your writing whilst sounding reasonable originally, did not really work perfectly with me after some time. Someplace throughout the paragraphs you were able to make me a believer unfortunately only for a short while. I still have got a problem with your leaps in assumptions and you would do nicely to help fill in those gaps. When you can accomplish that, I would certainly end up being impressed.