The trillion-dollar coin actually represents one of the most important principles of popular prosperity ever conceived: the creation of money by sovereign governments, debt-free.
Last week on The Daily Show, Jon Stewart characterized the proposal that the White House circumvent the debt ceiling by minting a trillion-dollar coin as an attempt to "just make shit up."
Economist and New York Times columnist Paul Krugman responded with a critical blog post accusing Stuart of a "lack of professionalism" for not taking the trillion-dollar coin seriously. However, Krugman himself had called the idea "silly." He thought it was just less silly -- and less dangerous -- than playing with the debt ceiling, which was itself an unconstitutional shackle on the Treasury's ability to pay debts already incurred by Congress.
Stewart responded on Jan. 15 that he stood by his "ignorant conclusion that a trillion-dollar coin minted to allow the president to circumvent the debt ceiling, however arbitrary that may be, is a stupid f*cking idea."
It's all good fun -- or is it? Most commentators have missed the real significance of the trillion-dollar coin. It is not just about political gamesmanship. For centuries, a secret battle has raged over who should create the nation's money supply -- governments or banks. Today, all that is left of the U.S. Treasury's money-creating power is the ability to mint coins. If we the people want to reclaim that power so that we can pay our obligations when due, the Treasury will need to mint more than nickels and dimes. It will need to create some coins with very large numbers on them.
To bail out the banks, the Federal Reserve, as head of the private banking system, issued over $2 trillion as "quantitative easing," simply by creating the money on a computer screen. Congress, the White House, and the Treasury all rolled over and acquiesced. When it was proposed that the government bail itself out of its budget woes by minting a $1 trillion coin, the Federal Reserve said it would not accept the Treasury's legal tender. And the White House again acquiesced, evidently embarrassed to have entertained this "ludicrous" alternative.
Somehow we have come to accept that it is less silly for the central bank to create money out of thin air and lend it at near zero interest to private commercial banks, to be re-lent to the public and the government at market interest rates, than for the government to simply create the money itself, debt- and interest-free.
The banks obviously have the upper hand in this game; and they've had it for the last 2-1/2 centuries, making us forget that any other option exists. We have forgotten our historical roots. The American colonists did not think it was silly when they escaped a grinding debt to British bankers and a chronically short money supply by printing their own paper scrip, an innovative solution that allowed the colonies to thrive.
In fact, the trillion-dollar coin represents one of the most important principles of popular prosperity ever conceived: national debt-free money creation. Some of our greatest leaders, including Benjamin Franklin, Thomas Jefferson, and Abraham Lincoln, promoted the essential strategy behind it: that debt-free money offers a way to break the shackles of debt and free the nation to realize its full potential.
We have lost not only the power to create our own money but the memory that we once had that power. With the help of such campaigns as Occupy Wall Street, Strike Debt, and the Free University, however, we are starting to re-learn the great secret of money: that how it gets created determines who has the power in society -- we the people, or they the bankers.
It is no secret who has that power today. In the great bailout of 2008, banks were rewarded for making irresponsible and fraudulent gambles in the subprime mortgage scandal, with no one serving time in jail. Then there was the robosigning scandal, in which banks committed criminal fraud and came away with a slap on the wrist. ow we are seeing the LIBOR scandal unfold. While a commoner might get 10-20 years for robbing a bank, bank executives get huge bonuses for robbing us.
We may rail against the banks and demand change, but nothing will change until we grasp their fundamental secret, the foundation of their power: that those who create the nation's money control the nation. By mechanisms explained elsewhere, nearly the entire money supply today is created by banks.
Remembering Our Roots: A Refresher Course
Benjamin Franklin was called called "the Father of Paper Money." He argued before the British Parliament that government-issued money had allowed the colonies to escape the yoke of debt, to thrive and grow. The king, urged by the Bank of England, responded by forbidding all new issues of paper scrip. The colonial economy then sank into a depression, and the colonists rebelled. They won the revolution, but the power to create money was lost to a private banking oligarchy modeled on the one dominated by the Bank of England.
Fourscore and six years later, President Abraham Lincoln boldly took back the money power during the Civil War. To avoid exorbitant interest rates of 24 percent to 36 percent, he decided to print money directly from the US Treasury as US Notes or "greenbacks." The issuance of $450 million in greenbacks was key to funding not only the North's victory in the war but an array of pivotal infrastructure projects, including a transcontinental railway system.
Lincoln was assassinated, however and,the greenback program was quickly discontinued. Repeated popular attempts to revive it failed. In 1872, according to Lynn Wheeler in Triumphant Plutocracy: The Story of American Public Life from 1870 to 1920, New York bankers sent a letter to every bank in the United States, urging them to fund newspapers that opposed government-issued money. The letter read in part:
"Dear Sir: It is advisable to do all in your power to sustain such prominent daily and weekly newspapers... as will oppose the issuing of greenback paper money, and that you also withhold patronage or favors from all applicants who are not willing to oppose the Government issue of money. Let the Government issue the coin and the banks issue the paper money of the country... [T]o restore to circulation the Government issue of money, will be to provide the people with money, and will therefore seriously affect your individual profit as bankers and lenders."
Bank-created money (which now includes electronic money) could be rented at a profit to the people. The "people's money" was limited to coin, which today composes less than one ten-thousandth of M3, the broadest measure of the money supply.
Lincoln's assassination and the abandonment of debt-free greenbacks effectively marked the exchange of one type of slavery (race-based) for another (wage- and debt-based). As a result, the American government and American people are so heavily mired in debt today that only a radical overhaul of the monetary system can free us.
Gimmick or Game-Changer?
That is the real context and backstory of the trillion-dollar coin. The stakes are much higher today than just fending off the debt ceiling. We the people need to take back the power to issue our own money, and coins are the only means left to us to do it.
The idea of minting large denomination coins to solve economic problems was evidently first suggested by a chairman of the Coinage Subcommittee of the U.S. House of Representatives in the early 1980s. He pointed out that the government could pay off its entire debt with some billion-dollar coins. The Constitution gives Congress the power to coin money and regulate its value, and no limit is put on the value of the coins it creates. In Web of Debt (2007), I suggested that to solve the government's debt problems today these would need to be trillion dollar coins.
In legislation initiated in 1982, however, Congress chose to impose limits on the amounts and denominations of most coins. The one exception was the platinum coin, which a special provision allowed to be minted in any amount for commemorative purposes.
An attorney named Carlos Mucha, blogging under the pseudonym Beowulf, proposed issuing a platinum coin to capitalize on this loophole, after hearing me mention the trillion-dollar coin in a Thom Hartmann interview. At first it was just an amusing exercise. But with the endless gridlock in Congress over the debt ceiling, it got picked up by serious economists as a way to checkmate the deficit hawks.
Philip Diehl, former head of the U.S. Mint and co-author of the platinum coin law, confirmed that the coin would be legal tender: "In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years... under power expressly granted to Congress in the Constitution (Article 1, Section 8)."
Warren Mosler, one of the founders of Modern Monetary Theory, reviewed the idea and concluded it would work operationally. The funds would simply be new reserve balances at the Fed rather than new Treasury securities.
Joe Firestone pointed out that the trillion-dollar coin could solve the government's debt problems once and for all, putting was in its grasp the power to replace austerity with the abundance enjoyed by our forefathers.
The trillion-dollar coin can raise cries of "hyperinflation!" It evokes images of million-mark notes filling wheelbarrows. But as economist Michael Hudson observes: "Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending."
Prof. Randall Wray explains that the coin would not circulate but would be deposited in the government's account at the Fed, so it could not inflate the circulating money supply. The budget would still need Congressional approval. To keep a lid on spending, Congress would just need to abide by some basic rules of economics. It could spend on goods and services up to full employment without creating price inflation (since supply an d demand would rise together). After that, it would need to tax -- not to fund the budget, but to shrink the circulating money supply and avoid driving up prices with excess demand.
Time to Take Back the Money Power
The current economic crisis cannot be solved with the thinking that created it. There is simply not enough money in the system to fund the services we desperately need, pay down the debt, and keep taxes affordable. The money supply has shrunk by $4 trillion since 2008, according to the Fed's own website. The only solution is to add more money to the real, producing economy; And that means some congressionally-mandated entity needs to create it, either the Fed or the Treasury.
The Fed has declined. In flatly rejecting the Treasury's legal tender, the Fed as representative of the banks is asserting itself as outranking the elected representatives of the people. If the Fed won't acknowledge the coins created by the government, perhaps the government needs to charter a publicly-owned bank that will.
We have a chance today to end the charade of big money gridlock politics, as well as the reign of the big banks. We have the power to choose prosperity over austerity. But to do it, we must first restore the power to create money to the people.
Follow Ellen Brown on Twitter: www.twitter.com/ellenhbrown
If the growth rate is wise, rigidly enforced and transparent, the economic system would adjust to the reality of debt free issuance and minimal constant monetary growth.
Interesting, is it not, that Lincoln's assassination can be linked to stopping Government money issuance? So can President Kennedy's. Who might have been behind both assassinations, I wonder?
Imagine if you can, a World of debt -free money without the system being sucked dry by parasitic bankers.
New money could be spent into existence by governments and the remaining small percentage should be deposited in a no-interest credit card account for each individual citizen, to be spent fractionally into the economy as regulated by the appropriate government authority.
Economic stimulus could in this way be applied to the grass-roots economy for a measured instant response but on a scale which would not be inflationary, just as we are told would be the case for a gold standard.
In this proposed system, money would only attract interest after it has appeared in bank deposits having been generated for deposit by natural economic activity, not on origination by banks.
That Banks have captured the system as they have is astonishing, but then, history should lead us to expect corruption more often than not.
There seems to be a far better way as outlined above.
Why would this not work far better than parasitic Bank exploitation?
For your enlightenment - a CDO is a Colaterised Debt Obligation , and it is a portfolio of debt that may only be partly packaged mortgages. And yes it Was a big bank crisis , centred on housing and real estate .
The main problem in Spain and the Eurozone is that the big private banks ( Spanish and foreign ) supply all the money/Euros ( at Interest ) in Spain in accord with the ECB . The national govs Cannot Create New Money.....to save the day. Hence constant debt and attrition /austerity .
You say - """"The meaningless of the 600 trillion dollar notional total value of derivatives is explained elsewhere in this thread.""""
No , it isn't meaningless because it isn't made up just of foreign exchange hedging - as you think . It mainly includes far more dangerous derivatives that really can cause collapses , and nearly did collapse the world money system in the GFC .
Also , you rely on Wikipedia . Easy , but it's often written by vested interests and wrong.
You say - """Derivatives are not money. A derivative is a contract where one party agrees to pay the other party a certain amount if a pre-agreed event occurs - say the US dollar increased by 10% against the French franc by a specific date. .......... Obviously, both events cannot happen simultaneously since they are opposites. Therefore, adding up all the total potential payouts to get a sum like $600trillion is meaningless. That would be like adding up the total potential payouts at a racetrack if every horse came in first. To put $600trillion in perspective, America’s entire annual GDP is only $14trillion - the annual GDP of the entire world is only $60 trillion."""
So you clearly think "derivatives" just means foreign exchange bets/insurance ( puts and calls ) which are handled by banks and Forex exchanges.
That is only one form of derivative , and not important in the GFC . They don't add up to the 600 trillion world Derivative total , as you say.
CDS -credit default swaps ( unregulated insurance on LOANS ) are way bigger and far more likely to cause defaults and crashes ( as would defaulted MBS's , CDO's etc .) CDS's - paid out - sank AIG .
Usually the crafty chief bankers don't reveal their hand to the public , but this is a slip up . There was a remarkable public statement in the 1830's when chief of the private central US national bank, Biddle, wanted the 20 year licence to be renewed - despite opposition - and he threatened to create a depression if he didn't get his way . Well , he did create the depression . The banks called their loans and largely refused to issue more.......much like in 1929 .
The defining moment though was 1913 when the bankers snuck through the Fed Reserve Act , under false pretences . in the Christmas break , with many politicians bribed . Suddenly, a private bank cartel - chiefly European banks - could issue and control USA money/debt . 2 years later you're at war and racking up the debt. Then in 1933 they confiscated all US private gold.......to set up the 1944 gold standard. That's forward thinking !
Everyone must get out of this diabolic mess , and Govs start issuing /controlling their own new money - in a productive , transparent way .
The banks do the opposite . They deliberately create debt - then extract it - while the real economy implodes.......as in the USA's Debt Deflation condition since the GFC . [ That's where the money supply contracts /shrinks/deflates too far because folks are paying off debt .....then prices fall below a sustainable level and businesses fall over ]
There is now not enough money in circulation to support the US economy - a 4 Trillion $ dollar hole now (!) , as Miss Brown points out . So things start falling over like Dominoes, as in 1929-1933 .
But the bankers' myth prevails - that paper money and debt is more important than the Real economy.
Solution is that Gov's keep sufficient money - often new stuff - passing through the right hands , to keep up circulation, and the economy humming . Not dying .
Spend it in on Infrastrucure - then it circulates well . That's ideal now , with the USA's run-down infrastructure . Note- money helps folks produce more , if monitored properly . Simply throwing huge amounts at people may not achieve much - gotta be done right . Value for value ( work or goods ). And infrastructure helps the productivity , and quality of life.
Many economies have been ruined when irresponsible governments have utilized the printing press to pay debts. Its the same as having credit cards and constantly using one to pay off another until you are maxed out. The US Government has been doing this for years and they are already maxed out but instead of doing the right thing they are always looking for another Band-Aid to delay the problem further.
Paper money not backed by gold is unconstitutional. It is clearly stated in article 1, sections 8/10 of the constitution, “No state shall pay its debts with anything except gold & silver coins unless it is backed by gold or silver”. The reason for this is to avoid inflation. Those dollars are worthless, they reduce the value of all our dollars by diluting their value. The result is higher prices. This is just another way to tax the American public without calling it tax.
The Government needs to “man up” and deal with the debt problem instead of sweeping it under the carpet. See the video and read more about Printing Money To Pay Debts…
http://goldirasavings.com/printing-money-to-pay-debts
The issuing of fiat money directly BY the federal government has been found legal and Constitutionally grounded, and this remains the status today with regard to legal tender.
The federal government has the right to issue the money - no matter what form.
For he Money System Common.
It was Thomas Edison who said that any country that can issue interest-bearing bonds can just as easily issue interest-free money. A platinum coin is exactly such money. And it is no more inflationary than the debt it would displace. Inflation won't start till the economy is at full capacity, and we are a long way from that. Getting there is the problem the platinum coin would solve.
Amazing how many people, including John Stewart, believe something that just ain't so, that our "national debt" is real and that nothing can be done about it except to practice “austerity” by cutting services..
Fact is, we could very easily pay the national debt down to zero, retiring each bond as it matures with government-issued money, instead of rolling the debt over by issuing new bonds. We would thereby save ourselves the $500 billion per years we now pay for interest on the national debt. All with no inflation. And no “austerity”.
Thank you Ms. Brown :)
In its elegant, modern form as proposed by Dennis Kucinich -
http://www.monetary.org/wp-content/uploads/2011/11/HR-2990.pdf
the federal government's 'Greenback' money-creation power is shared directly with the states, in a way that allows them to determine their own best use involving their cities and municipalities. Twenty-five percent of all new Greenback money is granted directly to the states for use in solving the problems directly caused by their lack of money-issuance powers.
If we want a mechanism for dealing with the schools, health, police and all form of public service, we NEED something that goes beyond the problem-solving that the Trillion-Dollar-Coin can deliver, which is only an end, eventually, to government debt.
As Ellen says, its teaching-moment's real value can be opening the eyes of the masses to the money-issuing power of the government.
All money.
Greenbacks.
All the time.
For the Money System Common.
This was championed for many years by New York lawyer, banker, Senator and State Treasurer - turned Congressman Elbridge Spaulding who advised Lincoln on issuing paper money directly by the government to pay for government expenses.
The Greenbacks.
Bring em back.
Solve the problem that the Trillion Dollar Coin brings to the fore.
Why does the government need to borrow the nation's money?
For the Money System Common.
WHERE are our economists and academics (those who should know) on this issue?!?!?! Except for the few courageous and honorable folks, as those mentioned in your article, almost all economists, academics, journalists, government officials, etc., are either dupes or are complicit on this issue to keep our sovereign power of money creation from We the People and in the hands of the private bankers and the corporations they own.
We the People must RECLAIM the MONEY POWER with publicly-owned and operated monetary and banking systems. Nothing will change for the better until we do.
Here are the two very informative brochures from the Public Banking Institute, to inform people on the issues of public banking and our monetary system.
http://publicbanking.files.wordpress.com/2012/08/state-bank-trifold-color.pdf
http://publicbanking.files.wordpress.com/2012/06/occupy-banks-trifold-20120626.pdf
Plus , most politicians are actually followers rather than leaders and will go with a status quo - as brilliant Australian economist Steve Keen observes. Easier than re-thinking economic/financial/banking principles.......with limited understanding of how any of it really works.
In the USA the banks own the Government , but here in New Zealand it's the same problem......at least with the ruling National Party.
The vehicle to restore the money creation and issuance power to the people was introduced into the last two sessions of Congress by Congressman Dennis Kucinich as The National Emergency Employment Defense (NEED) Act of 2011.
http://www.govtrack.us/congress/bills/112/hr2990/text
The proposal ends the private bankers' power to create the nation's money as a debt, it nationalizes both the Federal Reserve and the nation's money system, and it empowers the government to issue permanent, non-debt based "Greenback" currency to benefit us all.
Shall we?