Instead of the usual fifteen minutes of fame, the trillion-dollar coin got the whole week of Jan. 5-12, 2013. Within days of its arrival, the trillion-dollar coin was disparaged and mocked as a silly solution to circumvent the debt ceiling, and done away with by officials at the Treasury Department, who announced that no trillion-dollar coin will be minted. To understand what took place last week, it helps to distinguish between five categories of people who weighed in on the trillion-dollar coin.
First, there are the people who don't know anything about monetary policy and what little they do know is probably wrong. That's pretty much everyone, including some of the major players in economic and political decision making on this, and also most of the media. Their initial reactions were that the trillion-dollar coin was a joke, it only had to do with the debt ceiling, and as soon as the Treasury said no thanks, their hope was that the status quo would resume, culminating in a showdown/compromise over the debt ceiling resulting in federal budget or entitlement cuts fulfilling President Obama's wish for a Grand Bargain/Great Betrayal.
The second group is comprised of supporters of the trillion-dollar coin, mainly followers of Modern Monetary Theory (MMT): These folks may not have a favorite economist or a well-known spokesperson yet, although Paul Krugman showed himself to be a valiant warrior on their behalf. MMTers are mostly bloggers and academics, some with published books. Their political affiliation is unknown, but possibly progressive.
Opposing the coin are the people who profit from the current monetary system: Wall Street, the financial industry, bond holders, the Federal Reserve and its member banks. Their favorite economist is whoever will preserve and increase profits for them. Their spokesperson is Jamie Dimon. Their political affiliation can be determined by where their Super PACs donate in each election cycle.
The political establishment pits what I'll call "austerity-ans" on the right against "yes-we-can-sians" on the left.
The "austerity-ans" refers to the "Austrian" school of economics, which decries government spending as pretty much the root of all evil. The most radical of these folks recently voted against relief for victims of Hurricane Sandy. Their favorite economist is Friedrich Hayek, author of The Road to Serfdom. For spokespeople, Paul Ryan would love to be called a leader of this group. Ron Paul and his "End the Fed" movement are in this camp, and the most scathing critiques of the trillion-dollar coin often came from these folks. This camp also includes many Tea Partiers who see conspiracy in everything, and oppose the coin for the same reason they want "the government's hands off their Medicare." Their political affiliation is mostly Republican, but quite a few Democrats such as former Treasury Secretaries with ties to Wall Street, fiscal conservatives, and "deficit hawks" cross party lines to advocate for economic austerity.
The "Keynesians" or "yes-we-can-sians" describes a broad category that supports government spending to stimulate the economy during an economic downturn -- favorite economist: John Maynard Keynes; spokesperson: Paul Krugman; political affiliation: New Deal Democrats.
Over the past week the rhetoric between these camps flew fast and furiously. Krugman seemed to be the bridge between the Keynesians and the MMTers. For the MMTers, this represented a real breakthrough to mainstream dialogue.
People were beginning to ask troubling questions like:
- Is it necessary for a monetary system to be backed by and produce escalating debt? (Answer provided by the coin: no)
- Is austerity the only future for the federal government's budget? (Inside the Beltway the answer was always yes... before the coin)
- If the Treasury has the ability to mint a $1 trillion coin, what would happen if it minted a $60 trillion coin, and promised a debt-free budget for the next twenty years?
- Isn't it absurd for a ratings agency to threaten to downgrade a whole country? Maybe the country should downgrade the ratings agency instead!
Perhaps the Treasury Department and the Federal Reserve saw danger ahead. If too many people became educated about the current system, they might start demanding monetary reform! So they shut down the discussion with a pre-emptive announcement that the coin was off the table. No doubt Wall Street and the beneficiaries of the current financial and monetary system breathed a sigh of relief, in hopes that no one paid too much attention to the man behind the curtain.
In the now coinless scenario, Congress and the president can resume their austerity politics, negotiating over cutting the social safety net for the poorest people "because they had no other choice." Forget about creating new and important government programs (hello, climate change?). They will claim there is no money and the debt is overwhelming. Cue the cut-cut-cut negotiations.
It is ironic that the political establishment would choose economic scarcity over abundance, when the entire election season this past year was devoted to spurring economic growth. In the end, a debt-austerity financial system that pays trillions of dollars in interest to the world's richest people (Wall Street) could not be undone in a single week by a strange idea (the trillion dollar coin) with a catchy Twitter hashtag (#mintthecoin).
Is the coin forever vanquished? Don't be so sure.
The trillion-dollar coin is a powerful meme because it is grounded in an understanding of how the monetary system actually works. Even coin detractors were often forced to recognize the validity of the coin's premise, if not its broader promise. So watch out: As the Vatican learned with Galileo, the truth has a way of resurfacing. Be on the lookout for debt-free, interest-free money, coming soon to a country-needlessly-plunged-into-recession-by-austerity near you.
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