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This recently hit the news. And while I'm no US citizen I'm very interested in this story as it may affect the euro as well and the overall credibility of fiat money itself.

In order to raise the debt ceiling and avoid passing through congress, US president Barack Obama may aprove the mintage of a new 1.000.000.000.000 coin (1 trillion). The coin would be backed by fiat money and it would be basically the same than printing 1 trillion new dollar bills.

Here's the full story with a friendly FAQ on Gaweker... although with a positive spin I don't agree with:
http://gawker.com/5973717/your-guide-to-the-trillion+dollar-platinum-coin-that-obama-can-mint-to-save-the-world

What do you think?
What would the effects be on the dollar? And on the euro?

The world would loose confidence in the Dollar. Even non economics interested Americans would consider this cheating.

It won't decrease US debt as the debt is to be paied in foreign currencies I presume.

So he won't do it. This is just stupidity.

Um.......

I laughed. The article contradicts itself right here:

I hope he mints 16 of these coins to pay back the Treasury notes. This would be a boss move like Andrew Jackson. We could then re-issue new money and restart American manufacturing without needing our lame Congress to pass protectionist laws. They can continue sitting on their arses.

Um guys the fed has "printed" ~$2T out of thin air in the last five years (Fed's balance sheet increased from ~$800B to $2.9T).  If we include the Fed's off balance sheet (magical money they print out of nowhere and lend to foreign central banks so for some reason it doesn't count on the "official" books) it is closer to a ~$4T expansion.

This is the part where D&T fails reading comprehension. 

Now the stupid ~$1T coin will never be made but not for the reason the Senator thinks.   The FED isn't in the business of giving away money.  The FED LOANS money.  If the FED produced a ~$1T coin and loaned it to the treasury it would be no different than the Fed buying $1T in govt bonds.   Either way it is a loan = debt = included in the debt ceiling.   Hell if the FED just wanted to give away money well they could simply buy some government debt and "vanish it".  Tada govt has $1T, $2T, $10T, $15T less debt.  It's magic.  No need for stupid coins to do that.

Where did you get that the FED would mint the coin?

The USD monetary base went from less than 1T$ to 3T$ or I misunderstood what you wrote? Why the prices didn't bumped 3 times?

hahaha, Krugman makes fun of himself alone, we don't need to say anything. I don't know which is worse, this or the alien invasion to boost the economy thing.
The sad part is seeing people still taking this moron seriously.


As a matter of fact, that's kind of how it works out:  https://mises.org/daily/4029

Yes, and for the second question: http://research.stlouisfed.org/fred2/series/EXCRESNS

Mostly because banks are holding most of the extra money as excess reserves. Also, prices are not such a direct/immediate linear function of money supply, although they're strongly related.

Because at the same time velocity fall off a cliff.  Monetary velocity is (simple version) how many times a single unit of currency is exchanged annually.  So if customer pays your employer $100, and your employer pays you $100, and you pay the grocery store $100 and the grocery store pays a farmer $100 even though it is the same "$100" you have a velocity of 4.  The effective money supply is roughly 4x higher.  So while the FED is rapidly expanding the monetary base the velocity is also falling.  Kinda like trying to fill the bathtub with the drain open.

As someone above pointed out the FED isn't actually putting money into the hands of the people.  It is putting money in the hands of the banks, who in theory should lend it out and increase the effective money supply however due to the FED other actions it is very profitable for the banks to simply borrow money from the FED use it to buy govt debt and mortgage backed securities.  Kinda hard to not make money if you can borrow a (nearly) unlimited amount at ~0% and collect interest at 2% to 4%.  :)  Ironically simply having a free "lottery" where the winner gets $x dollars on a VISA gift card which must be spent within 365 days would be far more effective then handing ever increasing quantities of money to the banks to do "nothing" with it.


So money supply has exploded but no price inflation because the money is being circulated less.  However if the economy did finally pick up and velocity jumped to normal rates before the FED could soak up that excess money supply you would see massive inflation.  Probably not hyperinflation but price inflation in the high teens like the early 80s are certainly possible.

http://upload.wikimedia.org/wikipedia/commons/thumb/4/47/M2VelocityEMratioUS052009.png/800px-M2VelocityEMratioUS052009.png

To use an analogy imagine if people are cold so the FED solution is to soak them with gasoline.  They still aren't warm so the  FED keeps dumping more and more and more gasoline.  Weeks, months go by and nope people aren't warm yet so the gasoline soaking continues, entire neighborhoods soaked with gasoline, businesses soaked with gasoline.  Tanker trucks of gasoline are brought in and 24/7 spraying of gasoline everywhere continues.   When the people complain "hey we are still cold", Ben Bernake's answer is "eventually there will be a spark and everyone will be warm".

DOH.  Too early and not enough coffee.  The first part is still applicable though.

 :)

Your analogy would amuse me if it weren't so true.

http://upload.wikimedia.org/wikipedia/en/5/58/MB%2C_M1_and_M2_aggregates_from_1981_to_2012.png

Based on M2, dumping $1T into the money supply would make every dollar worth ~10% less?  And the author just said it wouldn't cause inflation?  1% may be small enough to argue it's negligible, but 10% is a pretty hefty tax increase especially considering it mostly affects the poor/middle class since a majority of their wealth is in cash instead of stocks/real estate.

So can we steal the coin lol  ;D

Hah wow! now try making change for that!

I agree, instead of all these bank bailouts if they just gave people the money most would get spent.  Giving it to the banks yeah they just sit on it and buy government bonds.

Nothing new here, it's the same as the trillions that have been printed in the last 5 years.. QE stuff with a disguise.. They changed the "Pr" for a "M"  Printing / Minting

And about hyperinflation, since 2010 I'm sad for those pilling cash for their old days, if those old days are in 10 years or more, they will regret.  

This campbell soup can price chart shows only a part of the effect of printing x trillion more dollars in the last 5 years...

IMO, the inflation caused by the printing of so much cash has just start to kick in !  

Watch out for a can of soup priced at 2+$ within few/several years.. No 401k plan can beat this, if there still money in those 401k (I think they replaced the money by an IOU note few years ago).

https://i.imgur.com/Np4FS.png

https://bitcointalk.org/index.php?topic=112269.0;all (https://bitcointalk.org/index.php?topic=112269.0;all)

+1

That's very true, quite a good analogy :)

Sad but soooo true !

The debt ceiling will be raised, and we will create a bunch of bonds that the Fed will pay for by creating money out of thin air.  The only difference in practice between the trillion dollar coin and raising the debt ceiling is that with the coin the government gets the money interest free.

This has been thrown around for a while now.  Basically it's just a way to circumvent the stupid debt ceiling, which is irrelevant since the US has raised the debt ceiling something like 76 times already and will do so again.  This is not hyperinflation, maybe if they were printing thousands of these coins like Zimbabwe but they're not.

I'd like to see them do that. The dollar would certainly collapse. It won't happen, though. The debt ceiling will be raised.

If the trillion dollar coin had come out as a surprise, it might have caused a bit of a panic.  Not that I think it even remotely likely to happen, but you know, if.

On the other hand, now that the story has made the rounds, everyone knows that raising the debt limit and striking the coin are effectively the same thing.  At worst, we'd all give a chuckle at them replacing one silly gimmick with another while the blogs that have been predicting armageddon since 1972 will continue to do so either way.

The truth is that these guys aren't idiots.  They know exactly what they are doing.  There was a crash coming, and they are trying to make it as soft of a crash as possible.  And the rest of the world is helping.  There is no panic dollar dumping, as bad as it is, because everything that you could dump your dollars for is worse.

Gold? Silver? Other precious metals or resources? BTC? :)

(paper)Gold and (paper)Silver are even worse than dollars.  You want physical, but you want to pay paper prices for it, or your books won't come out right.  Good luck doing that in enough volume for people to notice.

In about 10 years, we'll all have those coins.  Three will probably get you a BigMac.  Remember, these were out not very long ago....


http://ichef.bbci.co.uk/images/ic/512xn/legacy/supporting/e5f264e97ce605673796c76e7553e3c43bcf1068.jpg?nodefault=true

http://ichef.bbci.co.uk/images/ic/512xn/legacy/supporting/5347c198269025fb5714d31ca8c86362860cfbd2.jpg?nodefault=true

And that series of Zim$ (third Zimbabwean dollar, ZWR) was issued in denominations up to 100 trillion dollars! Where 1 ZWR = 1 septillion ZWD? :o

That might actually solve everything, platinum out of thin air would be a neat trick.

But seriously this is nothing new whatsoever. They've been saying that a pile of paper/db entries is worth trillions of dollars for a very long time.

I think the $1 Trillion coin is more of a bargaining chip at this point. Or, perhaps more accurately, a threat. "Work with me or I swear to God I'll mint this coin!"

Because inflation can take generations to trickle down. 

No one seems to recall that LIBERTARIAN Bill Still has been recommending this same course of action for years (though with Trillions of regular coinage), and even says we should pay off the National Debt with it.  He points out that Lincoln did exactly the same thing to pay for the Civil War.

http://www.youtube.com/watch?v=73vkHOPNZ8k&feature=channel_video_title

Could be a bluff you're right.  It could also represent a behind the scenes power battle. 

Remember creating money from nothing is not a new idea, indeed every dollar on the planet was created that way.  1T$ created from nothing is not in any way new.  The new thing here is that members of the United States corporation are trying to have the power to issue this new money through some kind of "commemorative coin" loophole.  For the last 100 years it appears that this power has been closely guarded by a private group of banks commonly referred to the as "The Fed", whatever the fuck that means.  They don't need to make commemorative coinage to issue this money but simply add zeros to accounts on certain ledgers. 

If congress tries to go through with this, one would expect some heads to roll.  However we can be sure there is a lot more going on behind the scenes that we have no clue about, so discussion here is of little or no value if we don't know the players involved, their bullshit fraternities, or their psychotic incentives.

   

A can of soup is already $2 in Australia.

How is this soup scale going now it's 2013, can the new image include the missing decade data point as well.

I think it's more desperation, they're basically running out of ideas, I'm looking forward to this year for sure, there will be only one thing they can do soon enough.

I think the coin is more of an intervention in a suicide attempt by a Congress with a 9% approval rating. I say let them jump.

Bill Still is fine with fiat currency, but wants it to be controlled by the government instead of private banks, and wants to get rid of fractional reserve lending.  He thinks that the ability of the banks to expand then contract the money supply at will causes economic problems. He wants to start off with a fixed amount of money, and then have the supply grow annually with a predictable rate determined by the population growth.

He does not want to randomly print money so the government can spend whatever it wants.

I dont think they would ever do this, but if they do it will be great for BITCOIN!

Kinda like "Hey World, the Euro means a bunch of smaller countries can play the same currency manipulation games as the big countries." In fact, all central bank backed currencies play these games without frontiers.

The coin isn't going to increase the money supply though, as it will never get spent. It's like writing yourself a slip saying "This slip is worth $1000000000000" so you remain solvent. I don't see how inflation can result from this. If anything, it will decrease inflation in the long run as the Fed's powers dwindle.