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$1,000,000,000,000? Keep the change.

#1 Jan 09 2013 at 6:54 PM Rating: Default
35,253 posts
Smasharoo wrote:
Yes. And the moment the Fed issues the T-bills, it increases the very debt that they're trying to avoid hitting. That's what I was talking about. The moment you actually try to use it, you incur an increase in debt equal to the value of the coin you minted. And that is legally bound by the debt ceiling legislation.

Nope. The Fed loans against assets on it's balance sheet *all the time*. It's not considered debt then. I'm not sure where you get your idea of what is "legally bound" by statute. Matlock? There are (weak) arguments against minting a high value coin for this purpose, *none of them* involve debt sold against the asset as "counting" towards the debt ceiling legislation. *All of them* have to do with the intent of the original minting statue wording. There's no argument at all that borrowing against assets deposited at the Fed ever count as debt.

You're missing the key step "deposited at the Fed", and also missing the key point I wrote. The federal debt is the total dollar value of all outstanding treasury bills. How they come to be outstanding is irrelevant. We've had discussions in the past about intergovernmental debt and whether/how-much it counts as "real debt", but for purposes of the debt ceiling it does not matter. Your earlier post mentioned the use of t-bills as part of how the coin(s) would be used. All I'm saying is that once t-bills are issued, it adds to the debt which is limited by the debt ceiling.

I've already said that if said coin could be used in a way that didn't involve additional T-bills, you could avoid increasing the debt and thus the need to increase the debt ceiling. However, I don't think it's possible, not because of legality, but because all other methods would require that some third party accept the coin as actually being worth $1T all by itself. No one's going to do that. The Fed wont do it. China wont do it. The issue is less about the legal ability of the US to mint the coin, and how a monetary source obtains value. The US government could also just declare it has a Trillion dollars in the treasury. And the Fed's response will be the same: "We'll let you borrow against it just like we normally let you borrow against the faith/credit of the US economy". The claimed value of something is irrelevant. As I said earlier, dollars have value because they are borrowed, cycle through the economy, and return to the original lender. It's not about the physical coins and paper.
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