Great Leap Forward

Kelton with Chris Hayes; Crazies vs Trillion Dollar Coins

Just too much excitement in recent days.

Stephanie Kelton appears on UP with Chris Hayes

Stephanie Kelton will be appearing on UP with Chris Hayes on MSNBC this Saturday January 12, 2013 at 8:00 AM Eastern; you cannot miss that one (unless, like me, you are TV-less; let us hope they post up the video quickly).
And Paul Krugman makes a very nice argument against the Crazies who’d rather force default than coin platinum:

19 Responses to “Kelton with Chris Hayes; Crazies vs Trillion Dollar Coins”

olly100January 14th, 2013 at 11:15 am

I was hoping you could clarify a couple of points for me,

Does all government spending 'come out of' the Treasury's account at the Fed, or does some of it 'come out of' Treasury Tax and Loan accounts held at commercial banks?

When the Treasury receives payment to its account at the Fed, does it receive the full amount in base money?

i.e. if I owe $100 in tax, is $100 eventually transferred in full to the Treasury's account at the Fed, adding $100 to its balance, which is then debited at a later date when the Treasury spends?

Or does the Treasury just 'settle the difference'?

i.e. if the Treasury is owed $100 by a bank and owes $100 to the same bank, do they just call it quits, or does the money owed to the Treasury actually have to be payed in full into its account at the Fed?


L. Randall WrayJanuary 14th, 2013 at 5:37 pm

Real world is complex and there are usually some exceptions that don’t amt to much. But in GENERAL yes Treas receives taxes into T&L accts, moves to Fed, writes check only on its acct at Fed. Treas also issues coins on demand and these are treated as Equity, not debt, and are “spent” by Treas.

olly100January 15th, 2013 at 5:24 pm

another thing,

Do you know whether Federal Reserve deposits (reserve balances) are obligations of the government, like Federal Reserve notes?

(I emailed the Fed about this but they never got back!)

olly100January 15th, 2013 at 5:30 pm

also , is it possible to see the Treasury accounts in which coins are listed as 'equity' online?

Are US notes treated as liabilities or equity?

djoslynJanuary 15th, 2013 at 6:22 pm

a trillion dollar coin sounds totally useless. a series of platinum million dollar coins sounds like something that could be auctioned off, minumum bid $1M, to wealthy collectors. especially if the series was limited, and beautifully designed.

LRWrayJanuary 16th, 2013 at 2:16 pm

Olly on both:
1. Yes reserves are liabilities of Fed, a branch of govt
2. Yes you can see Treas balance sheets and coin issues are treated as equity.

LRWrayJanuary 16th, 2013 at 2:21 pm

yes–it is just a portfolio decision in private sector, giving up one asset (high powered money) for another (collector's coin). Imagine private banks buy them, using reserves, then sell their treasuries to Fed to cover loss of reserves. Banks hold coins rather than treasuries. Reduces measured debt. The only problem is that our wingnut hyperinflationists would see that as even more inflationary (altho would not be)

OldNerdGuyJanuary 16th, 2013 at 9:09 pm

According to the way I was raised, if I incur a debt, I pay it back. Apparently, there are those who see things a different way, that clever manipulations and creative financial engineering (like trillion dollar coins) are somehow a better alternative (and they actually think an ad hominem like "crazies" makes their argument sound more reasoned and credible).

I think the root cause of this phenomenon is that some people don't see the positive side of making an honest and good-faith repayment of what they promised to repay. Maybe they don't know that a good feeling can come from it, the feeling of knowing you fulfilled your responsibility. Or perhaps they don't know that evading such responsibility gives one the reputation of being a deadbeat.

As soon as we start saying, "we want to be deadbeats because…", the rest of the sentence doesn't really matter all that much, does it? Or have our esteemed economists finally invented the truly free lunch?

Therefore, at the risk of sounding like a nay-sayer to this brave new world of financial creativity, I suggest we deal with the debt the old-fashioned way: just pay it.

L. Randall WrayJanuary 17th, 2013 at 2:00 am

Sounds good if you are a household. Terrible idea for a sovereign govt. Whatever you think about households almost never can be applied to economies as a whole. That is first day economics.

OldNerdGuyJanuary 17th, 2013 at 5:11 am

The concept that a borrower, in the case where it is a sovereign, ought to or must become a deadbeat was not covered on the "first day" (or any day) of my economics studies at a reputable university. The question is not so much "sovereign or not" but "deadbeat or not". If we revise your statement to change "sovereign" to "deadbeat sovereign", then your position becomes clearer.

Therefore, I take your comments as less statement of fact and more promotion of an agenda. The question is, what to call that agenda? "Pro-deadbeat?" "Anti-integrity?" "U-PIIGS" (add the US to the PIIGS)?

I stand by my earlier comments.

L. Randall WrayJanuary 17th, 2013 at 2:45 pm

You no doubt overpaid for that reputable education. Demand your money back! I guess they did not teach you that there is a difference between sovereign currency ISSUER and the USER. USA will not become “deadbeat”–it will meet all commitments as they come due–unless the crazies among the Republicans force it.

olly100January 17th, 2013 at 4:30 pm

Notice that OldNerdGuys's comments are not based on any form of economic analysis, but rather on some sense of 'morality'. i.e. "I can't mint coins therefore it's not fair that the government can mint coins, even though the government is explictly given that power by the constitution, I don't like it cos it's not fair cos I can't do it".

By the way OldGrumpyGuy, no one is saying the government shouldn't pay what it owes. However if the government eliminates its debt it eliminates net financial assets/ net savings held by the population.

OldNerdGuyJanuary 17th, 2013 at 6:00 pm

I disagree with your insinuation about the quality of education I received. Furthermore, it may be worth considering that resorting to ad hominem isn't a persuasive form of argument.

No matter, you've stated your position and I've stated mine. It probably has no significant effect in any case… except to the extent that readers may be inspired to share their views with their elected representatives. If people want to tell them to mint trillion dollar coins, so be it. If people want to tell them to reduce the debt the old-fashioned way, by raising revenue and controlling spending, then I'm cool with that as well.

olly100January 18th, 2013 at 12:40 am

OldNerdGuy said:

"some people don't see the positive side of making an honest and good-faith repayment of what they promised to repay."

If the government owed you money, would you be happy if it paid you with Federal Reserve notes, or a cheque, or a credit to your bank account? Or coins?

L. Randall WrayJanuary 18th, 2013 at 2:05 am

Me? I would. But I’m not crazy. I’m glad to hold the IOUs of my sovereign govt. Some crazies prefer gold, etc. I’d only hold gold (or platinum) if it was coined with a nominal value stamped on it by my sovereign.

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PHåvard Halland is a natural resource economist at the World Bank, where he leads research and policy agendas in the fields of resource-backed infrastructure finance, sovereign wealth fund policy, extractive industries revenue management, and public financial management for the extractive industries sector. Prior to joining the World Bank, he was a delegate and program manager for the International Committee of the Red Cross (ICRC) in the Democratic Republic of the Congo and Colombia. He earned a PhD in economics from the University of Cambridge.