SP 500 and NDX Futures Daily Charts - Non-Farm Payrolls Tomorrow

"As flies to wanton boys are we to the gods.

They kill us for their sport."

William Shakespeare, King Lear

It is easier for those who would be as a god to display their godly powers by crafting the simulacrums of life without vitality, such as asset bubbles. 

 

They lack that which is essential to create organic life and growth, which is the wisdom of love.

 

I suspect that we will see a fairly painful reckoning in the markets, probably within the next twelve months, but maybe not just yet.

While the lines of 'support' hold, the Fed has the wind at the back of the financial paper markets.

 

If you wish to know why there is no organic, broad-based recovery in the US, and probably the UK and Europe, listen to this short explanation from Elizabeth Warren here.

As you might have gathered from some of the quotes, I was rereading portions of Chesterton's book  Eugenics and Other Evils, what was then called 'scientific government.'    

I was particularly struck by one of his observations. 

“Evil always wins through the strength of its splendid dupes; and there has in all ages been a disastrous alliance between abnormal innocence and abnormal sin.”

 

What Chesterton refers to as 'abnormal innocence' is the willing naïveté of an ideology or theorists who suspend their experience and common sense to promote a particular ideal as the basis of a solution.  And of course the abnormal sin is evil, and not of the ordinary kind.  And the dupes are its deceptions.

 

In retrospect it is remarkable that he so deftly gets to the bottom of the social movements of his day, and almost predicts with stunning accuracy the adoption of mass sterilization and eventually mass euthanasia of 1930s and 1940s.

 

But we see similar examples even in our own time, if not of the same degree.  

 

The notion that people will act in perfectly good and rational ways is absurd when you say it that way.   But it is at the heart of so many of the economic theories that have plagued us in the deification of the modern markets and money in the past twenty to thirty years. 

 

This includes the massive confiscation and transfers of wealth through the abuse of financial paper, and the persecution and abuse of whole peoples and even nations through the tyranny of debts.

 

Dangerously willful delusions often open the door for great suffering and injustice.  And the irony is that they are so often enabled by the well-meaning sophistry of idealists, who would crush reality into meaningless to enable their models to roll forward with the greatest expediency.  

“I had thought of calling the next sort of superficial people the Idealists; but I think this implies a humility towards impersonal good they hardly show; so I call them the Autocrats. They are those who give us generally to understand that every modern reform will 'work' all right, because they will be there to see... And these people most certainly propose to be responsible for a whole movement after it has left their hands. Each man promises to be about a thousand policemen. If you ask them how this or that will work, they will answer, “Oh, I would certainly insist on this”; or “I would never go so far as that”; as if they could return to this earth and do what no ghost has ever done quite successfully—force men to forsake their sins. Of these it is enough to say that they do not understand the nature of a law any more than the nature of a dog. If you let loose a law, it will do as a dog does. It will obey its own nature, not yours. Such sense as you have put into the law (or the dog) will be fulfilled. But you will not be able to fulfil a fragment of anything you have forgotten to put into it.”  

G. K. Chesterton, Eugenics and Other Evils

Have a pleasant evening.

 

 

 

The Great Fallacy at the Heart of Modern Monetary Theory

As with all theories that miss the mark, Modern Monetary Theory presents some insights into the matter of course, but seems to hinge on one or two key assumptions that are more matters of assertion than historical or even practical experience. It is founded not so much an economic theory, but on a belief without a firm foundation.

This paragraph taken from Yves Smith's recent article about MMT

"The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency because it is the ISSUER of the currency, not simply the USER (as a household or private business is).

This issuing capacity means that the government does not face the same kinds of constraints as a private sector user of money, which in turn exposes the fallacy of the household analogy, so beloved in popular economics discourse."

The finances of a sovereign are most assuredly NOT like those of a household. And those of a Bank are not like a household either.

In several ways they can be the inverse of a household in their motivations. For example, when household spending is slack because of an economic shock, the government may wish to engage in more spending to counteract this.  Some think it is the role of government to keep the economy out of what is called a liquidity trap or as I understand it a feedback loop of cutbacks that greatly exacerbate the problem of slack demand.

This is one of the points of having a government, that is, to do things that the individual cannot do well alone, no matter how powerful they may think that they are, and to protect the rights of the many from those who are more powerful, both foreign and domestic.

But here is the matter of disputation, emphasis in caps theirs, in italics mine. "The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency because it is the ISSUER of the currency, not simply the USER."

Do you see what is missing here, and more importantly, what is implied?

What is missing is the acknowledgement that the users of a currency, call them 'the market,' can and will and have quite often throughout history questioned the valuation of a currency, and often to the point of practical worthlessness, if certain actions are taken by the sovereign in creating their currency.

 

This speaks to a principle that I spelled out some time ago, that the practical limit on a sovereign government in printing money is the willingness of the market to accept it at a certain value. And this applies to any sovereign, more readily perhaps if they are smaller and weaker, but always given time nonetheless.

If Russia, for example, were to merely start printing more rubles and set a target valuation for them, they could enforce this internally. And in fact, many sovereigns have done so throughout history. I remember visiting Moscow shortly after the fall of the Soviet Union, and marveling at the disconnect between the official stated valuations and the actions of the ordinary people in seeking alternatives like the US Dollar, gold, diamonds, and even Western style toilet paper, a more useful sort of paper than the ruble.

Technically Russia could not become insolvent in rubles, because they could always print more of them to pay all their debts, make purchases, and salary payments. The great caveat in this is that Russia had to maintain a measure of control and enforcement to make that principle 'stick.'

And this is what probably makes MMT inadvertently statist, and dangerous. That is because this belief only works within a domain in which the state exercises complete control over valuation.

In the case of the US dollar as a global reserve currency, if this theory is applied, and one of my great fears is that it will be, then there is an inherent need for the Dollar Cartel to continuing expanding their span of control over all of the producing and purchasing world, in order to enforce this belief.

I am sorry to have to disagree with people whom I like and enjoy reading, but as you can see I think there is an important point of disagreement here. And given the number of sovereigns who have defaulted, causing significant pain in their people and in the lives of others, it is not a trivial thing.

I suppose that there are many other things in MMT that are correct, as it seems to be quite the usual thing in many ways, but there is an important exception in the assertion that the state has no limit to its power to set value, because that is exactly what is implied in the canard that a sovereign cannot default in its own currency. Technically it cannot because it can always print more than enough pay off debts and make more purchases. But it can create money in such a way as to break the confidence of the market, and call its valuation into question. And this is a de facto default.

What happens when the people refuse to accept it at their stated value?  What happens to people who do not agree that the State can do no wrong?  Because if the State can never be at fault in creating and spending money, that makes it a problem and a source of great mischief.

 

In the historical examples the government always resorts to force of some sort in varying degrees, and official exchange rates, and other actions not only on their own people but on their neighboring sovereigns who refuse to submit to the valuation of a currency by official diktat.

It is a dangerous statement that might be remedied by an acknowledgement that there are practical limitations on the power of the State in creating money, and that it is related to the willing acceptance and confidence of the people in its fairness and justice, and especially people who are not part of that same economic sphere of influence.   And if the adherents of a belief cannot agree with this, then it calls into question all the other aspects of a belief that is based on such an absurdity a priori principle. 

 

So it was with the 'efficient market hypothesis,' which believed that people acting in a group are naturally good and rational, and therefore needed little or no regulation.  It was widely accepted in economic circles, and those who did not accept it were dismissed as unsophisticated.  And it did not matter that this assumption was shown to be blatantly incorrect to anyone who is familiar with the reality of the marketplace, or has ever driven on a modern high speed motorway.

People on the whole are not naturally rational, good, and self-regulating to a degree sufficient to permit with the dispensation of the rule of law.  If only this were true!  And a persistent minority among them are so much not inclined to the good as to be sociopaths and inclined to be criminals.

And unfortunately politicians who act for the State are not angelically good and beneficent either. But this is what is implied in creating a system that allows for their acquiring and exercising almost unlimited power that is beyond question, in money or in anything else, but in particular something as important as the general means of exchange and valuation.

It's Official. Krugman Does Not Understand the Value of Money

Well I did say that Mr. Krugman should proceed, and like Mitt Romney, he did, and doubled down.

I am not quite sure I have the words.  Chris Hedges was right.

Like other progressives and independents, I have been discouraged that many old school liberal economists have had so little to say about financial reform, and the frauds in the banking system, even as they blindly pressed their case for more stimulus to be distributed without repairing a broken financial system that taxes the real economy with fraud.   It is 'whatever works' as they define and measure it. Justice and equity have no part in their calculations. They learned part of the lesson from FDR, but not the part that really matters, and that made him memorable.

They make themselves and their models willfully blind to the crony capitalism that exists between the Fed and Wall Street, and the manipulation in the markets, and the lack of any credible prosecutions for some of the most egregious financial crimes since the 1920's.  How many more scandals will have to be revealed before they end their denial?

But in grabbing this whacko platinum gimmick of overt monetization which typifies almost everything that is wrong about modern economics, and in stubbornly claiming that it can do no harm, while dismissing anyone who expresses concern as some economic Luddite, Krugman and too many others have shown the purblind ignorance of the ideologue who does not understand what is wrong, and why the people are becoming restless. 

And they answer them with sophistry and derisive baby talk.  No wonder that economics is a disgraced profession. 

The greatest irony is when we become what we hate.

This is another example of the credibility trap, and a failure in leadership.  The Emperor is naked, and the people do not quite know what to do about it except to mill about in restless and embarrassed silence.

...For many people on the right, value is something handed down from on high It should be measured in terms of eternal standards, mainly gold; [Because something is not purely arbitrary does not require that it be divine - Jesse] I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn’t kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume. 

And given that the laws of value are basically divine, not human, any human meddling in the process is not just foolish but immoral. Printing money that isn’t tied to gold is a kind of theft, not to mention blasphemy.  [Again, the intolerance of the ideologue, who is so far over on the continuum that they can only look across and see their other extreme, entirely overlooking the middle - Jesse]

For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better — and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes.  [Money is just another tool, a cool toy, to the financial engineers who govern the economy like a benevolent elite.  They do not understand value and consequences as they tinker and experiment, hoping for better luck next time.  And amongst financial engineers, Greenspan was Dr. Frankenstein. - Jesse]

It often makes sense to put constraints on our actions, e.g. by pegging to another currency or granting the central bank a high degree of independence, but these are things done for operational convenience or to improve policy credibility, not moral commitments — and they are always up for reconsideration when circumstances change.  [The ruling übermenschen are above conventional morality in their arcane knowledge. And how does one measure 'better outcomes?' For at the end of the day, economics is no pure science, but a social science of a certain class of policies, and policy has its roots in 'justice.' This is why the financiers must operate in secret, like the great Wizard of Oz. Because they have no science, but do not wish to be encumbered by anything, and especially something as inconvenient as justice, as they conduct their experiments. - Jesse]

Now, the money morality types try to have it both ways; they want us to believe that monetary blasphemy will produce disastrous results in practical terms too. But events have proved them wrong. [Yes that's right. The credit bubble, tech bubble, and housing bubbles have been benign and not based on policy errors. All of them were facilitated by economic quackery from both sides.  But the would be elite can admit no error. - Jesse]

And I do find myself thinking a lot about Keynes’s description of the gold standard as a “barbarous relic”; it applies perfectly to this discussion. The money morality people are basically adopting a pre-Enlightenment attitude toward monetary and fiscal policy — and why not? After all, they hate the Enlightenment on all fronts.  [As he cries for more leeches to bleed the patient... - Jesse]

The bottom line is that we aren’t really having a rational argument here. Nor can we: rationality has a well-known liberal bias. [The hubris of an ideology or a professional class in failure knows no bounds. - Jesse]

Paul Krugman, Barbarous Relics

Gold Daily and Silver Weekly Charts - The ¥100 Trillion Pair of Chopsticks

Intraday commentary on The Platinum Coin Debate here.

Here is a decent summary of the Platinum Coin chronicles from The Atlantic.

I think that the fact that this nonsense is being discussed by Very Serious People demonstrates how far off the cliff of reason our financial and political systems have already gone. Let's hope China et al. are willing to view America's antics with the same jolly forbearance.

I got a kick out of this late breaking article over at ZH, and about the ¥100 Trillion Pair of Chopsticks.

It is not enough to be willing to print money, and give it to your wealthy friends for their personal enjoyment. That looks like foreign aid being given to some hard luck third world country where the money flows primarily to their warlords, and little reaches the people. You have to find the guts and the honesty to take on the hard job of reforming the corruption, imbalanced economic structures, and cronyism between the oligarchs and the government that got to where you are in the first place. And that is where the credibility trap comes in.

What concerns me a bit is not that so many otherwise intelligent people do not understand the nature of money, because so few really do. What really concerns me is that those that do understand what is going on seem to be toying with this whacko monetization scheme, which shows a certain desperation and lack of a Plan B that should make those who are holding their paper very uncomfortable.

If anything could bring a couple million people with torches and pitchforks to Washington in protest, the Platinum Coin pretension might just do the trick.

Editorial comment on the state of modern economics in the video clip below.

The twilight of ancien régimes and dying empires may embrace extravagant fashions in thought and produce eccentric, démodé behaviour, but sometimes they are set to catchy tunes.

As for the rest of the world:

“The burning question that I always have, I’m amazed at their ongoing willingness to continue to accumulate, and hold, such large amounts of US denominated bonds. It’s been my view that they are basically playing a Ponzi scheme.

I’ve had that confirmed when I’ve had long discussions with different sovereign wealth funds and different government agencies around the world. They’ve been willing to play this game, but more and more now, as their domestic economies have grown and the US portion of their exports becomes smaller, and with the amount of T-Bills that they have (already) accumulated, I believe they’ve reached the boiling point where they are really going to be unwilling to grow their reserves (of US Treasuries).

Just the process of not growing their reserves is going to be very disruptive. If they are not willing to accumulate more T-Bills, this is going to force the trade deficit closed. I think that is really going to rock the financial world at some point in the near future..."

Sprott President Kevin Bambrough in today's KWN Interview

More on the Platinum Coin? Please Proceed, Mr. Krugman...

"Well, the trillion-dollar-coin thing — deal with the debt ceiling by exploiting a legal loophole to have the Treasury mint one or more large-denomination coins, deposit them at the Fed, and use the cash in the new account to pay bills — has really taken off. Last month I spoke with a senior Fed official who had never heard of the idea; these days it’s all over. [It has been around for quite some time in monetary theory circles, where P.K. apparently does not dally - Jesse]

There seem to be two kinds of objections.

One is that it would be undignified. Here’s how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac — a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, “My god, we can’t dress the secretary up as a clown!” Even when it will make him a hero who saves the day?

[Is that like 'The Committee to Save the World?' I would not call it disarming the maniac so much as shooting the hostage to nullify the maniac's leverage. And the clown suits have already seen quite a bit of wear by economic policy whizkids in the past twenty years. Have you ever heard the one about how a US housing bubble is impossible? Or that markets do not need regulation because they are naturally efficient? Or that economics is, as Jamie K. Galbraith said, a 'disgraced profession?' - Jesse]

The other objection is the apparently primordial fear that mocking the monetary gods will bring terrible retribution. [There are no methods of argument so childish and often viciously petty than those that roam the halls of university departments, or talk radio. - Jesse]

Joe Weisenthal says that the coin debate is the most important fiscal policy debate of our lifetimes; I agree, with two slight quibbles — it’s arguably more of a monetary than a fiscal debate, [I can't believe you went there to grab a cheap point but one must do what one must when they don't have anything else. - Jesse] and it’s really part of the broader debate that has been going on ever since we entered the liquidity trap. [It has been going on for time immemorial, for those that have looked at the history of money more deeply than the pages of the NY Times. - Jesse]

What the hysterics [DeLong derided them as 'puritans' when they brought up the moral hazard of TARP, and they were right - Jesse] see is a terrible, outrageous attempt to pay the government’s bills out of thin air. This is utterly wrong, and in fact is wrong on two levels.

The first level is that in practice minting the coin would be nothing but an accounting fiction, [a fiction has more weight than thin air? - Jesse] enabling the government to continue doing exactly what it would have done if the debt limit were raised."

Paul Krugman, Rage Against the Coin, 8 January 2013

No this is not correct Mr Krugman. IF the debt limit is raised, the Treasury can continue to issue more debt subject to the same constraints of the marketplace.  But once they take the step of erasing the existing debt through the ridiculous gimmick of over monetization, the process can never be the same again.

The current monetary expansion and system at least maintains a pretense of virtue, and the virtue of Caesar's wife must be above suspicion.

As an experiment I talked with a few intelligent people, mostly engineering types, who don't really have the time to follow the details of economics. I asked them about 'the platinum coin' and they mostly said, 'Oh I heard about it but don't really understand it.'

When I explained what it actually was, they all thought it was barking mad, and found it hard to believe. You see, the vast majority of people still hold to their illusions about how things are in the world.

Personally I think the whole debt limit concept and debate is ridiculous, because the spending has already passed through the appropriations process in Congress where it belongs. If they wish to change something they should do it there.

I would like to see Obama take a principled stand, as that wily politician Clinton did, and call them on their threats as he ought to have done on the fiscal cliff, but deferred out of concern for the unemployed, the middle class, and at least eight important corporate subsidies.

The 'platinum coin' permits direct monetization of debt in a non-market transaction between the Treasury and the Fed, which is something that the supposedly independent Fed does not allow.   This is the mechanism which, in Greenspan's words, emulates the rigor of the and external standard like gold in imbuing confidence to the process.

The MMTers address this risk in confidence with arguments similar to a reaction I saw recently to a comparison of such gimmicky monetization to Weimar. 'Their currency failed because the debt they had to pay was denominated in foreign currency.'

And this is correct. In an increasingly brazen monetization, political control over the users of the currency and holders of the debt becomes increasingly important. And Germany did not have the power to exert control over those countries, England and France in particular, which held their debt. That attempt at expanding their control was to come later.

When faith falters in a false proposition based on the need for ever increasing expansion, first fraud and then force must ensue, or it fails. Just ask Bernie Madoff or Jon Law.

Now I think I understand that Mr. Krugman is doing the time honored thing that many publicly important economists tend to do,  which is carrying the analytical water for his political team, which is all good and well.   I am not opposed to many of the things he recommends, if only he could bring himself to realize that reforming the system as Roosevelt did while providing stimulus is a sine qua non.

But what Mr. Krugman forgets is that when the other side makes themselves look silly and irresponsible, there is some merit in acting like an adult and taking the higher ground, refusing to stoop to the same level.  When you deal with thugs, they can drag you down to their level, and then beat you with experience.  It is no accident that the Congressional approval rating, driven largely by the House Republicans, is at all time lows. 

People may be slow to react, but they are not entirely stupid. "You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time."

And I think, or perhaps even fear, that Mr. Krugman does believe what he is saying. At first I was skeptical, but then I read back a little and found this initial flaw in his assumptions.

"...the Federal Reserve is not obliged to tie the dollar to anything. It can print as much or as little money as it deems appropriate."

This is correct, but one must add, subject to the valuation assigned to that money by those portions of the marketplace that the monetary authority cannot otherwise intimidate, manipulate, or control, if confidence unravels.

I am not a hard money advocate. But if Mr. Krugman wants to keep making the case for hard money, and provoke a reaction that we all may eventually regret, he should keep making the case that our current system of money is little more than 'an accounting fiction.' People are already suffering financial repression because of the Fed's misguided policies of stimulus without sufficient repair and renewal.

And the argument of 'where is the inflation' is not all that dissimilar to the arguments we heard while the credit bubble was pumped up, the financial sector expanded beyond all reasonable measure, and fraud inflated bonuses from 2003 to 2007, 'where is the financial crisis?'

I know this may sound harsh, but when one is in a very public position of power, and standing for what remains of the liberal conscience and the tattered liberal class, it does provide a very loud amplifier, and brings some additional responsibilities.  

I have little doubt that what I say will be ignored, because you still consider this some sort of policy debate, and why would call attention to the salient counter-argument?  And that is what is important, right?  Winning.  We seems to have been winning a lot as a country lately, and losing everything that really matters in the process.

I will give credit to Obama that he rarely descends to such silliness.   Although he does seem to lack the higher leadership skills and unshakable principles for which he clearly stands, in the manner of an FDR, a JFK, Jackson, or a Lincoln.   He is a Chamberlain, a cynical dealmaker, and not a Churchill.

And that is a pity, because that is what the times require.

Without substantial reform, there will be no sustainable recovery.

Why Paul Krugman Should Not Be Treasury Secretary

As you may have heard, there is a petition making the rounds to suggest to Obama that he appoint Paul Krugman to be Treasury Secretary. As if. Obama is a CEO president, and no idealistic progressive.

I wanted to memorialize this column by Paul Krugman because I have the feeling that five years from now he will have forgotten that he wrote it, or handwave it away, suggesting that it was merely a sarcastic fancy or some clever political ploy.

To me this speaks to the silliness, careerism, and political immaturity that infests the heart of the economics profession. There are no politics so petty, and yet so vicious and yet silly, as those that often infest academic departments.

What Krugman suggests here is that in response to the Republicans taking the nation's credit rating and debt hostage, that Obama should take the nation's currency hostage and threaten to use seignorage to erase the debt and thereby render the debt ceiling moot. If this were a pickup football game, it is the equivalent of calling 'Statue of Liberty play!'

While I feel his pain and frustration at the current political climate in Washington, this is not some minor league blogger spinning their latest fantasy, but a Nobel prize winning economist writing in the NY Times who is using his bully pulpit to endorse extreme economic nonsense.

For him to say that it is 'silly but benign' to threaten to take the step of overtly monetizing the nation's debt without market involvement to evade the debt ceiling, and to institutionalize the notion that the currency is nothing more than the squeaky toy of the Treasury, is almost as incredible as it is reckless and immature.

But it does demonstrate that all too often we tend to become what we despise.

Be Ready To Mint That Coin
By Paul Krugman
January 7, 2013

Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.

For those new to this, here’s the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit — tax and spending bills the president is legally required to implement — and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.

And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can’t pass through normal constitutional processes.

Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all...

Read the rest here.

Platinum Coin: Crossing the Monetary Rubicon

You may be reading more and more commentary about the platinum coin solution, and arguments why it doesn't really matter if the US does it or not.

To summarize the concept, the Treasury creates one special platinum coin, with a stated face value of $500 billion or so.

They trot down to the Fed and deposit the special coin(s), redeeming that amount of US notes and voila. It is a overt monetization, but the platinum coin adds a novel touch, and a bit of shiny misdirection.

Some mainstream economists seem to be toying with the idea of climbing aboard the train with the Modern Monetary Theorists. Enthusiasm Builds for Trillion Dollar Coin . Paul Krugman has a typically obtuse take on this in a recent column titled Monetary Rage.

I am not going to argue the pros and cons of this approach at this time. I have said quite a bit about this, and MMT, before. For me it shows that economic silliness is not the exclusive domain of the Austerians.

But I do want to firmly draw your attention as to why this particular solution and approach to the debt is important, and why it raises concern among many, even though that concern is often scorned and ridiculed by the economic savants. And by the way, this is very reminiscent of the same reactions to Alan Greenspan's policies, TARP, and the housing bubble with many of the same players in similar roles.

From a Bloomberg story entitled: Why We Must Go Off the Platinum Cliff.

"In case you're not familiar with this idea: In general, the Treasury Department is not allowed to just print money if it feels like it. It must defer to the Federal Reserve's control of the money supply. But there is an exception: Platinum coins may be struck with whatever specifications the Treasury secretary sees fit, including denomination.

This law was intended to allow the production of commemorative coins for collectors. But it can also be used to create large-denomination coins that Treasury can deposit with the Fed to finance payment of the government's bills, in lieu of issuing debt."

Currently it is against the laws of the land for the Treasury to issue debt, and for the Fed to buy it directly, as opposed to running that debt through the test and discipline of the markets. I researched this a number of years ago, and do not recall the particular law offhand, but in effect the Treasury cannot sell debt directly to the Fed. It must pass through the marketplace first to be valued.

This is all the difference between a democracy, as imperfect and occasionally corrupted as it may be, and a diktat by a central authority.

The platinum coin solution uses a statute regarding commemorative coins to evade that law of money. If the Treasury creates money out of nothing on its own volition, whether it be by assigning a purely whimsical value to a platinum coin, a wooden nickel, or a magic money wand, and deposits that symbolic object with the Fed, it is a game changer. It is purely arbitrary monetization.

And that step requires debate and a proper law, if the country chooses to accept it.

Now one might argue that this sort of overt monetization means nothing. And the MMTers have plenty of convoluted arguments why it does not matter, at least to them. And if anyone objects to their sophistry, they are ridiculed. They might say that the Fed is monetizing the debt already, and inflation has not resulted. But that is not the point. The Fed are pretending that they are NOT doing it, and are thereby maintaining appearances and some level of deniability.

But what people forget, or rather, what they would like us to forget, is that a modern fiat currency is based on the full faith and credit of the issuer, and the willingness of people in the market place to trust them, their word as contract, and the integrity of their actions.

Trust is a funny thing. One can bend it, twist it, and strain it by their actions over time. But at some point it may break, and the parties expected to maintain that trust may say, 'enough!'

And trust is gone, broken. And retracing one's steps to regain it is not a simple matter of a apologizing for and remediating their latest transgression, but a long slow climb back through what in many cases are years of continuing abuse and broken promises.

It is good to note that when dealing with people's resistance to accepting this monetization and artificiality of value, the MMTers quickly resort to arguments that involve the use of force, legal but even physical, in order to stifle dissent to an arbitrary monetary power.

That is the significance of taking the step of overt monetization at will, which is what the gimmicky platinum coin solution is all about. And those who promote it best understand that this is what they are doing, and be prepared for the consequences.