Thing was, I had said nearly everything I wanted to say. My positions on the markets were clear and nothing changed, and what I didn't say here I tweeted. So, follow me on twitter if you miss my insights. This blog is an extension of my twitter account, not the other way around. I'm here now to rip this "mint the coin" nonsense to shreds. It inspired to to write after it went viral..
Okay, so if you haven't heard, the #mintthecoin campaign was started by somebody, I don't know who, and I don't care. But the gist of it is to mint a trillion dollar coin and they say it would just got to the Fed, not out into the economy, but the government actually has to borrow money, real money to pay it's bills.
It has borrowed a lot of money in the form of short term T-Bills and 2 and 5 year treasuries that it has to borrow even more money just to pay back. Meaning the gov. has already spent the money it needs the debt ceiling raised in order to borrow. Where does that money come from? This won't even work to get us back under the debt ceiling because I repeat, the government has already spent the money it needs to borrow. So a fake coin won't work, they need some real ones. And if your worried about the inflationary aspects, the treasury can sell some of it's bonds to offset that pesky inflation. It sounds simple right? That's because it's some of the simplest shit you've probably ever heard.
First, if you say sell bonds to offset inflation, bonds are debts. What? We mint another coin to pay those debts down? And then another coin, and another? Because, no matter who bought the bonds first, when they come due they have to be paid back.
Let's look at how a country in the same form as ours is supposed to sustain it's self.
A country has citizens, it's citizens start businesses and hire other citizens. These businesses produce and sell enough products to pay it's workers enough to live off and save up for a rainy day. If the businesses are producing good enough products that are in demand it shouldn't rain too much.
The citizens want a government, so they can have streets, bridges, or what they call infrastructure. Also, police and laws and provisions to protect all they work for. Since the government isn't a business; it doesn't make anything to sell, so, it get's it's money from taxing it's citizens.
When the government needs more than it can tax from it's citizens; without cutting into the money it's citizens live off, it asks it's citizens to borrow money from them that they have saved. It offers them interest for the privilege of borrowing the citizens hard earned money.
Ideally, governments would only need to borrow money for things that are temporary, like wars, or to rebuild infrastructure that unexpectedly decays or were built wrong. Anything temporary so that after it's paid for, the government's expenses go back down to where it can pay back the money it borrowed and some interest without a problem.
The best place for a government to borrow from is it's own citizens.
Those citizens work, produce, and save.... and lend. If they do the first three well enough they'll have enough to lend to the government and each other.
That's how a country like ours sustains itself, normally, or ideally.
Us on the other hand, we let our government get too big. We have bureaucracies out the wazoo! We have defenses on top of defenses on top of defenses.
The department of Homeland Security for instance. I thought that's what the armed forces were for. It's like buying a storm door for your storm door's storm door. (plus, who says "Homeland?" we have a country, not a "Homeland", but that's a subject for another post.)
We have departments on top of departments. Some are necessary but not all. And in the most technologically advanced civilization in the world; when it comes to government that technology isn't doing us much good. Auto companies produce more with less, how come our government can't? Technology should allow one government employee to do the job of at least two by now, right?
No, that's not what we're seeing. We see more and more government employees. Even if you could sell bonds to offset inflationary pressure from minting a trillion dollar coin; the government would have to break that coin and pay it's employees. The employees need to buy clothes, pay for food and shelter, and whatever else they need to buy. So the money would get spent into the economy and create inflation.
This is why it's so alarming that anyone would even suggest this shit with a straight face, and that it would go viral with people actually backing it. Some are skeptical, but no skepticism is even needed. This is flat out idiotic.
Money doesn't come from a mint or a printing press, it comes from people working for it, or trading something of value for it!
The paper and coins we use to buy things is just a representation of money. If you can't pay your tab at a restaurant they don't take you in the back and have you print some money, or mint a coin, they have you wash the dishes. Your labor is value, therefore it can be traded for another value... food & drink.
Even if the coin is platinum, unless it's a trillion dollars worth of platinum (in which case why go through the trouble of digging up or buying a trillion dollars worth of platinum? Just pay the debt with the money.) You still wouldn't be coming close to matching the value you were lent for the value you paid the debts back with.
Why not just collect some rocks and use them to pay the debt back with?
Because it's all but worthless. That's why they used platinum, and said let's mint it, so it would "seem" to have value. But if it's worth less than you were lent it's a default.
Look, yes, if done correctly, the monetary laws can be bent, but not broken! And like anything else they can't be bent for long or they'll break.
This is why we have the sharpest thing we have alive at the time to administer monetary policy. Ben Bernanke would never in a million years even entertain some shit like that. The scary part is some idiots in Congress just might, and ultimately it's up to them.
If they did that, no, if they even think about doing that our bond market would disintegrate. People work, or trade something of value to get money and then buy our bonds with it; they expect to be paid back with something of greater, equal, or a little less value, if it can't be helped. But not something of a whole hell of a lot less value.
We are getting into La-La land with national debates now folks. It's scaring me. We watch too many movies. This shit sounds like the plot of a really really bad movie. Like Steven Seagal in "Above the Law" we want to talk about doing shit that can't be done in reality. Like being an invincible Akido black belt that was trained in the special forces, that has family in the mafia, and is a cop.......... with an attitude.
As a child I loved that movie. But when I watch the trailer now I can't believe I watched it so many times and loved it every time. I hope after reading this post #mintthecoin seems just as absurd. Check out the trailer below and have a laugh, and then let's all have a laugh about the time we talked about printing a got damned coin to pay our national debt.