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.

Taibbi: Secret and Lies of the Bailout

This is a long piece from Matt Taibbi about the financial crisis and the bank bailout.

It is under-reported, too often overlooked, and well worth understanding.

I find it remarkable and almost disturbing that discussions by economists and thought leaders so rarely mention and account for the epic fraud and distortions created by the banking system. They occasionally mention it for the footnote of history, as they did the housing bubble and Greenspan's policy failures, so that they can go back at some future date and say that they did 'speak out.'

Big money has polluted the political process and stifled discussion in the corporate media. And they treat this like some embarrassing cousin whom the family rarely discusses in public.

It is the credibility trap. And it is crippling the Anglo-American economic system.

Rolling Stone
Secret and Lies of the Bailout
By Matt Taibbi
January 4, 2013

It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you'd think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we've been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?

Wrong.

It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.

How Wall Street Killed Financial Reform

But the most appalling part is the lying. The public has been lied to so shamelessly and so often in the course of the past four years that the failure to tell the truth to the general populace has become a kind of baked-in, official feature of the financial rescue. Money wasn't the only thing the government gave Wall Street – it also conferred the right to hide the truth from the rest of us. And it was all done in the name of helping regular people and creating jobs. "It is," says former bailout Inspector General Neil Barofsky, "the ultimate bait-and-switch."

The bailout deceptions came early, late and in between. There were lies told in the first moments of their inception, and others still being told four years later. The lies, in fact, were the most important mechanisms of the bailout. The only reason investors haven't run screaming from an obviously corrupt financial marketplace is because the government has gone to such extraordinary lengths to sell the narrative that the problems of 2008 have been fixed. Investors may not actually believe the lie, but they are impressed by how totally committed the government has been, from the very beginning, to selling it.

THEY LIED TO PASS THE BAILOUT

Today what few remember about the bailouts is that we had to approve them. It wasn't like Paulson could just go out and unilaterally commit trillions of public dollars to rescue Goldman Sachs and Citigroup from their own stupidity and bad management (although the government ended up doing just that, later on). Much as with a declaration of war, a similarly extreme and expensive commitment of public resources, Paulson needed at least a film of congressional approval. And much like the Iraq War resolution, which was only secured after George W. Bush ludicrously warned that Saddam was planning to send drones to spray poison over New York City, the bailouts were pushed through Congress with a series of threats and promises that ranged from the merely ridiculous to the outright deceptive. At one meeting to discuss the original bailout bill – at 11 a.m. on September 18th, 2008 – Paulson actually told members of Congress that $5.5 trillion in wealth would disappear by 2 p.m. that day unless the government took immediate action, and that the world economy would collapse "within 24 hours."

To be fair, Paulson started out by trying to tell the truth in his own ham-headed, narcissistic way. His first TARP proposal was a three-page absurdity pulled straight from a Beavis and Butt-Head episode – it was basically Paulson saying, "Can you, like, give me some money?" Sen. Sherrod Brown, a Democrat from Ohio, remembers a call with Paulson and Federal Reserve chairman Ben Bernanke. "We need $700 billion," they told Brown, "and we need it in three days." What's more, the plan stipulated, Paulson could spend the money however he pleased, without review "by any court of law or any administrative agency."

The White House and leaders of both parties actually agreed to this preposterous document, but it died in the House when 95 Democrats lined up against it. For an all-too-rare moment during the Bush administration, something resembling sanity prevailed in Washington.

So Paulson came up with a more convincing lie. On paper, the Emergency Economic Stabilization Act of 2008 was simple: Treasury would buy $700 billion of troubled mortgages from the banks and then modify them to help struggling homeowners. Section 109 of the act, in fact, specifically empowered the Treasury secretary to "facilitate loan modifications to prevent avoidable foreclosures." With that promise on the table, wary Democrats finally approved the bailout on October 3rd, 2008. "That provision," says Barofsky, "is what got the bill passed."

But within days of passage, the Fed and the Treasury unilaterally decided to abandon the planned purchase of toxic assets in favor of direct injections of billions in cash into companies like Goldman and Citigroup. Overnight, Section 109 was unceremoniously ditched, and what was pitched as a bailout of both banks and homeowners instantly became a bank-only operation – marking the first in a long series of moves in which bailout officials either casually ignored or openly defied their own promises with regard to TARP.

Congress was furious. "We've been lied to," fumed Rep. David Scott, a Democrat from Georgia. Rep. Elijah Cummings, a Democrat from Maryland, raged at transparently douchey TARP administrator (and Goldman banker) Neel Kashkari, calling him a "chump" for the banks. And the anger was bipartisan: Republican senators David Vitter of Louisiana and James Inhofe of Oklahoma were so mad about the unilateral changes and lack of oversight that they sponsored a bill in January 2009 to cancel the remaining $350 billion of TARP.

So what did bailout officials do? They put together a proposal full of even bigger deceptions to get it past Congress a second time. That process began almost exactly four years ago – on January 12th and 15th, 2009 – when Larry Summers, the senior economic adviser to President-elect Barack Obama, sent a pair of letters to Congress. The pudgy, stubby­fingered former World Bank economist, who had been forced out as Harvard president for suggesting that women lack a natural aptitude for math and science, begged legislators to reject Vitter's bill and leave TARP alone.

In the letters, Summers laid out a five-point plan in which the bailout was pitched as a kind of giant populist program to help ordinary Americans. Obama, Summers vowed, would use the money to stimulate bank lending to put people back to work. He even went so far as to say that banks would be denied funding unless they agreed to "increase lending above baseline levels." He promised that "tough and transparent conditions" would be imposed on bailout recipients, who would not be allowed to use bailout funds toward "enriching shareholders or executives." As in the original TARP bill, he pledged that bailout money would be used to aid homeowners in foreclosure. And lastly, he promised that the bailouts would be temporary – with a "plan for exit of government intervention" implemented "as quickly as possible."

The reassurances worked. Once again, TARP survived in Congress – and once again, the bailouts were greenlighted with the aid of Democrats who fell for the old "it'll help ordinary people" sales pitch. "I feel like they've given me a lot of commitment on the housing front," explained Sen. Mark Begich, a Democrat from Alaska...

Read the rest here.

Gold Daily and Silver Weekly Charts - The Usual Jobs Report Shenanigans

The metals were hit yesterday and today after a weak jobs report and an uptick in unemployment made a bit of a canard out of the Fed minutes suggesting that they will be able to cease their monetary easing and bond buying anytime soon.

They may shift to some other mechanism, but they will continue to expand the money supply.

The smackdown in silver was particularly heavy handed and obvious, but gold was not far behind.

A trader suggested that the bullion banks are trying to shake out the big open interest on the Comex with these intraday raids, hitting stops and discouraging further buying and, God forbid, delivery.

SP 500 and NDX Futures Daily Charts - Weak Jobs Data Sparks Rally

The unemployment rate upticked to 7.8%, and the jobs added number was mediocre as expected, with 155,000 jobs being added.

Stocks rallied on beginning of the year enthusiasm.



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Wages: The Median and the Mean

The 'mean' is the average of all wages.

The 'median' is the wage in the middle, that is, what is earned by those people in the numerical middle of the population.

And the ratio of the median to the mean continues to fall, as the rich get richer, and a large part of the country is left behind, as a matter of policy.

This is the plight of 'the 47%.'



Source: SSA

Gold Daily And Silver Weekly Charts - Non-Farm Payrolls Tomorrow

The metals were hit late day because some of the Fed member are fantasizing about an economic recovery this year, and of course, we get the Non-Farm Payrolls number tomorrow.

SP 500 and NDX Futures Daily Charts

Non-Farm Payrolls tomorrow.

The FOMC minutes suggested that some of the Fed board think they can cut back on QE in 2013.

Well they can, but it won't be because the economy has recovered.

Unfettered Capitalism and the Great Crash of 1929

“The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced.

The manners of capitalism improve. The morals may not...

When the modern corporation acquires power over markets, power in the community, power over the state and power over belief, it is a political instrument, different in degree but not in kind from the state itself. To hold otherwise — to deny the political character of the modern corporation — is not merely to avoid the reality. It is to disguise the reality.

The victims of that disguise are those we instruct in error. The beneficiaries are the institutions whose power we so disguise. Let there be no question: economics, so long as it is thus taught, becomes, however unconsciously, a part of the arrangement by which the citizen or student is kept from seeing how he or she is, or will be, governed...

The conventional view serves to protect us from the painful job of thinking.”

John Kenneth Galbraith

"To allow the market mechanism to be sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society.

For the alleged commodity "labor power" cannot be shoved about, used indiscriminately, or even left unused, without affecting also the human individual who happens to be the bearer of this peculiar commodity. In disposing of a man's labor power the system would, incidentally, dispose of the physical, psychological, and moral entity "man" attached to that tag.

Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime, and starvation.

Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed...

Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance, as well as its business organization, was protected against the ravages of this satanic mill."

Karl Polanyi, The Great Transformation, 1944