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.

Chris Hedges: Propaganda, Endless War, Repression, Greed, and Betrayal

“If you can feel that staying human is worth while, even when it can't have any practical result whatsoever, you've beaten them.”

George Orwell

This video below is not new, but someone asked me for a summary of Chris Hedges' narrative of modern US history, and what he sees as the dwindling death of the American dream.

This video is a fairly decent example. I obviously do not agree with everything Hedges says. But I find his perspective much more plausible than other 'alternative histories' and viewpoints that come from left of center, and certainly moreso than those from the right.

I look at the political party to which I had belonged for most of my life, and I am disbelieving and ashamed. But I can find no easy home in the other. There are few places for the independent thinker to rest their head in rational moderation with decency. Hysteria, polarization, and division seem to be the order of the day.

I do not think that things will change until they get bad enough, and then we will finally see the change that will be required to forge a sustainable economic recovery.

Enjoy.

"We who lived in concentration camps can remember the men who walked through the huts comforting others, giving away their last piece of bread. They may have been few in number, but they offer sufficient proof that everything can be taken from a man but one thing: the last of the human freedoms -- to choose one's attitude in any given set of circumstances, to choose one's own way.”

Viktor E. Frankl


"Upon her recent passing at the age of 76, I took the opportunity to reread Bubby's memoirs. In four different instances, my grandmother had stood—amid the smoke of the crematoriums, the barking dogs, the trampling boots and swinging clubs—on the infamous "selection line" at the head of which Mengele and his minions stood, pointing left and right, sentencing some to back-breaking labor, and sending others to the gas chambers. In each of those instances, somebody would come along and say or do something that would change Bubby's fate from certain death to tenuous life. In one such incident, she already had been sent to the line of those marked for death when a man appeared as if from nowhere, physically removed her from that line and shoved her into the other, without saying a word.

Indeed, the miracles and the mysteries of the events of those days abound along with the horrors and the tragedies. In contrast to the vile actions of the "Angel of Death" were the noble and heroic actions of many "Angels of Life" who stood ready to risk their own lives for the sake of saving that of a stranger.

It is thanks in no small part to "Angels" like these, who stepped out from behind their own misery and grief to come to the aid of others, that generations now live on to tell the story. How clearly we see the infinite ripple effects of single acts of kindness and compassion, even if accomplished in a split second..."

Yossi Refson, Angels of Light

"Maximilian Kolbe, a Polish Franciscan friar, provided shelter to refugees from Greater Poland, including 2,000 Jews whom he hid from Nazi persecution in his friary in Niepokalanów. He was also active as a radio amateur, with Polish call letters SP3RN, vilifying Nazi activities through his reports.

On February 17, 1941 Kolbe was arrested by the German Gestapo and imprisoned in the Pawiak prison, and on May 25 was transferred to Auschwitz I as prisoner #16670.

In July 1941 a man from Kolbe’s barracks vanished, prompting SS-Hauptsturmführer Karl Fritzsch, the deputy camp commander, to pick 10 men from the same barracks to be starved to death in Block 13 (notorious for torture), in order to deter further escape attempts. One of the selected men, Franciszek Gajowniczek, cried out, lamenting his family ["My poor wife! My poor children! What will they do?"], and Kolbe volunteered to take his place.

During the time in the cell he led the men in songs and prayer. After three weeks of dehydration and starvation, only Kolbe and three others were still alive. Finally he was murdered with an injection of carbolic acid [14 August 1941] ...

Kolbe is one of ten 20th-century martyrs from across the world who are depicted in statues above the Great West Door of Westminster Abbey, London."

Jewish Virtual Library, Maximilian Kolbe

Gold Daily and Silver Weekly Charts

A nice bounce today.

The manipulation that we have seen since December is still holding on a bit.

We may hit a rough patch when the debt ceiling discussions begin in earnest in late January or February.

SP 500 and NDX Futures Daily Charts

I think the US equity market is in for a stiff correction sometime in the first quarter. It will probably be tied in with the debt ceiling fandango.

Alcoa put in respectable results after the bell.

Gold Daily and Silver Weekly Charts - The Silly Season

“So comes snow after fire, and even dragons have their endings.”

J.R.R. Tolkien, The Hobbit


"This empire, unlike any other in the history of the world, has been built primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men."

John Perkins

Earnings season tomorrow after the bell with Alcoa.

The silly season continues as the debt ceiling has caught the can which was kicked down the road by the fiscal cliff.

It will only get stupider as the year goes on.

You can read some commentary about 'The Platinum Coin' if you scroll down for the last few postings.

I suspect strongly that this is all jawboning and political posturing. Who can take these jokers seriously excepting for the power of the office that they hold? The approval rating for Congress is around a disgraceful ten percent. But since they do not care what the people think, but only those few wealthy patrons who pay them their millions in contributions, it ought not surprise us all that much.

But in the interest of keeping it 'real' I think that all those who promote this Platinum Coin idea should be paid this year with a nice shiny single platinum coin, as a symbol in lieu of their normal salary.

Perhaps that will help them to understand why people who have saved their money and are receiving almost no interest for it are so aghast at this latest frivolous idea coming down from the economic sophisticates and their fellow travelers.

The lying and looting will continue until confidence improves.

SP 500 and NDX Futures Daily Charts - Earnings Season Begins

Earnings season kicks off tomorrow with Alcoa after the bell.

The VIX chart is included to show its dramatic drop back to complacent lows since the end of December and the 'fiscal cliff.' Almost time for another wash and rinse.

The debt ceiling fight looks to be bloody, with both sides already talking trash about threatening debt default, shutting down the government, and platinum coins.

Never waste a crisis they say.

Common decency and humanity are in short supply.

Chris Hedges speaks about the fiscal cliff and financial system here.

The Legacy of the Fed and the US Experiment with Fiat Currency In One Chart

Please notice that the CPI really 'gets some legs' when Nixon closed the gold window and released the modern monetary theory from its next to last restraint, the bond vigilantes being the last thin blue line.

And below that a quote on the modern monetary system, in which I detect the root of Paul Krugman's confusion about money.

To his credit, Krugman does recognize the liquidity trap, which sets him head and shoulders apart from the Austerians. He just does not understand the markets and how they work in practice rather than theory, and the absolutely compelling need for reform. But that puts him in with most regulators, central bankers, and the herd of academic economists.

Shifting Mandates: The Federal Reserve’s First Centennial
Carmen M. Reinhart and Kenneth S. Rogoff

For presentation at the American Economic Association Meetings, San Diego,
January 5, 2013

Session: Reflections on the 100th Anniversary of the Federal Reserve

Read the entire paper in PDF form here.


h/t Bill P and Business Insider

"The current world monetary system assigns no special role to gold; indeed, 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 [History suggests that while they technically can print as much as they wish, there is an effective upper bound along with a law of diminishing returns in there somewhere. Weimar and John Law, amongst others, tended to show that. - Jesse]

There are powerful advantages to such an unconstrained system. Above all, the Fed is free to respond to actual or threatened recessions by pumping in money. To take only one example, that flexibility is the reason the stock market crash of 1987—which started out every bit as frightening as that of 1929—did not cause a slump in the real economy.

While a freely floating national money has advantages, however, it also has risks. For one thing, it can create uncertainties for international traders and investors. Over the past five years, the dollar has been worth as much as 120 yen and as little as 80.

The costs of this volatility are hard to measure (partly because sophisticated financial markets allow businesses to hedge much of that risk) [O brave New World, that has such derivative sophisticates in it. - Jesse] but they must be significant. Furthermore, a system that leaves monetary managers free to do good also leaves them free to be irresponsible—and, in some countries, they have been quick to take the opportunity." [Yes, THOSE countries may experience a financial collapse because of a monetary credit bubble, no doubt because of a lack of economic sophisticates. - Jesse]

Paul Krugman, The Goldbug Variations, 22 November 1996

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.