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The $1tn coin: a silly idea to resolve the US debt ceiling wrangles

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Written by FT Contributing Editor

For 10 years, I have covered debates in the US Congress over the debt ceiling. In a slightly shorter time, I have taken up the proposal to the White House to end these debates by directing the U.S. Mint to issue her $1 trillion platinum coin.They are conversation Since they started, I have lost one dog and have two more children, one of whom is already old enough to play ice hockey. Ceilings and coins are as familiar to me as his five-year conversation with his wife about whether to share to-do lists on apps.

i miss my dog The hockey field is cold. I prefer sharing to-do lists. The debt ceiling is a dangerous waste of time for everyone. And I’m still worried about coins, for the most minor conservative reasons.This is a fundamental departure from how we have manufactured money in the past.

I went through what can be thought of as the stage of giving up on coins. The first stage is legal suspicion. can they even do this? they can. The Treasurer may direct the Mint to issue high-quality sample platinum her-proof her coins in denominations entirely chosen by the Treasurer. The Mint bought platinum, created beautiful platinum coins, and deposited them with the Federal Reserve for huge profits. Profits, called seigniorage, are the sovereign’s power to demand the Mint’s return.

The second stage is that the coin is ridiculous. Ridiculous. But many things about the Treasury Department and the Federal Reserve are ridiculous. After the financial crisis, the Federal Reserve (Fed) bought so many U.S. Treasuries that it had to build new policy tools to maintain its influence over interest rates. The Federal Reserve now uses some of these Treasuries as collateral to borrow cash from banks.this surgery It’s called a reverse repo. It sets a floor on interest rates, but it’s needed because the Fed is convinced that the only apolitical stimulus option is to buy Treasuries and hope something good happens. am. Reverse repo is ridiculous. They are also policies.

The third stage is where I am stuck. I don’t know what will happen. The Federal Reserve may not cooperate. Litigation and a period of uncertainty are likely as the coin moves through courts. And the coin is in no way comparable to how we made money before. However, we should not pretend that the coin is not new.

Platinum coin issuers claim that coin issuance is an age-old right. am. But not as large as the coin needs. Last year, the US Mint’s margin on collectible coins was 19%. Most years are in the low single digits. For coins in circulation, the Mint lost on pennies and nickels and made profits on 4-cent and 10-cent coins, giving an overall seigniorage of 37%.

With excellent historical data on mints dating back to the late Middle Ages, even among the most ambitious sovereigns, it is difficult to find a seigniorage precedent that comes close to what the platinum coin brings. Coin is a seigniorage in the same way that a tiger is just a house cat. Both are cats, but their size difference presents some challenges.

The coiners also argue that the Treasury already prints what it needs, but in an unnecessarily complicated way. Investors and citizens hold dollars as deposits backed by financial assets in commercial banks. They transfer bank dollars to his Fed general account. He has two reasons. Paying taxes and buying treasury. These treasuries have value because investors believe they have dollars in their general accounts to pay interest and redeem them on time. The federal government then spends from that account.

Ok, they’re right: it’s complicated. The US doesn’t just say, “Hey, this account’s dollars are really worth it.” Hundreds of years of trial and error processes have yielded this method. There may be better ways to manufacture money. There are arguably fairer ways. But this is what we came up with and it sits at the bottom of almost every financial asset in the world.

My reservation issue, of course, is that there are no good options in the debt ceiling battle. These battles are never about reform. They always say the same thing: Republicans in Congress want to force Democrats in the White House to accept austerity, humiliation, or both. , because it is probably America’s most important export. The proposal to mint coins is a response with uncertain consequences to a threat with known catastrophic consequences.

Do not know. Come back with me the next time you go through this pointless and infuriating battle. Maybe my wife and I would agree on a To Do app. Maybe hockey will grow on me. You might get over your worries about coins because everything is ridiculous and dangerous. I definitely miss that dog.

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