Pluralistic: 19 Oct 2021

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A $1 trillion coin; it is especially thick and is stamped with an image of the Statue of Liberty and the legend '$1T.'

The true, Terry Pratchett-esque origins of the trillion-dollar coin (permalink)

The debt ceiling debate is genuinely absurd: Congress authorized the spending of new dollars, so the Treasury has to create them. For Congress to turn around and force the Treasury not to create the dollars it ordered the Treasury to create is an obvious political gimmick.

Hence the trillion dollar coin – a proposal to use a 2000 amendment to 31USC§5112k ("Denominations, specifications, and design of coins") that permits the Treasury Secretary to "mint and issue platinum bullion coins and proof platinum coin [at] the Secretary’s discretion."

The big idea behind "mint the coin" is that this allows the Treasury Secretary to bypass Congress's terrifying, high-stakes debt ceiling kabuki and just strike a coin that says "$1T" and helicopter it over to the Federal Reserve, where it will be deposited in Congress's account.

Then, once Congress does the inevitable and authorizes the Treasury to make money the usual way (by typing zeroes into a spreadsheet), the coin can be melted down, or put up for display at the Smithsonian, or whatever. It's not merely a gimmick – it's an anti-gimmick gimmick.

The proposal originated with Rohan Grey, a law professor and MMT proponent, during the first of these debt ceiling showdowns. Democrats caved to Republicans to end the crisis, so the GOP did it again…and again.

It turns out that even the Democratic Congressional Congress will eventually figure out that it's being played by the GOP, and so we're talking about the trillion dollar coin again.

The coin's opponents argue the proposal is both silly and illegal, a perversion of the statutory intent of 31USC§5112k. It may be "silly" – but it's far less silly than playing debt ceiling Russian roulette every couple years whenever Mitch McConnell's donors get a wild hair.

Meanwhile the question of the coin's legality has a far more interesting and even wild history that goes back to that 2000 amendment and the US Mint Director who wrote it – Philip Diehl, a Clinton appointee.

Diehl and Grey went deep into that history on the latest episode of the Monthly Review podcast, which is available in both audio and transcript form:

It starts with Diehl's elevation to the head of the Mint: he wasn't a lifer who got promoted, he was a Hill guy who'd gone from being a Congressman's legislative director to Majority Staff Director of the Senate Finance Committee to the Mint.

When he got to the Mint, it was a mess. It had just failed an audit, and it was being treated as an off-the-books political influence machine by Congress, with Members ordering it to produce "commemorative coins" that raised funds for their pet causes.

The Mint had flooded the world with these junky trinkets and burned its credibility with its core audience – the "white, male, over fifty, conservative, Republican" collectors who bought coins and bullion.

Diehl had the task of cleaning up the mint, and he used his years as a Hill player to figure out how to get Congress to surrender its authority over the Mint to its director, who would be charged with developing collectibles and circulating coinage in response to demand.

This is actually a neat parallel to the debt ceiling story itself – originally, Congress had to approve every new bond issue, which grew so unwieldy and politicized that they turned the job over to the Treasury, merely setting a ceiling on how much the Treasury could issue.

The coin may sound weird, but it's just a version of how the Mint already operates. It strikes, say, a quarter that costs it 8¢ to make. It sends those quarters to the Treasury, which pays it 25¢ each for them, creating a profit of 17¢/coin (this is called "seigniorage").

At the end of the year, it sends the profit from those coins (which came from the Treasury in the first place!) to the Treasury as its contribution to the general operating fund. The same principle that underpins all the Mint's minting is behind the trillion dollar coin.

The people who argue that the coin goes against 31USC§5112k are wrong, says Diehl – and he should know, because he wrote 31USC§5112k. As Diehl says in the interview, "it’s a feature, not a bug."

The other objection to the coin is that it is inflationary, because it increases the monetary supply, but that's just factually wrong. Congress increased the monetary supply by authorizing the spending the coin allows. The coin is just a way of breaking the deadlock.

Unlike other measures, like quantitative easing, the coin puts no new money into circulation – it goes from the Mint to a Reserve vault to the Smithsonian. No one ever spends the coin.

The inflation question is important and real, but (as the panic over the coin demonstrates) badly misunderstood. As Stephanie Kelton reminds us, the Fed has admitted it "has no reliable theory of inflation."

But Kelton does! "What matters is the economy’s capacity to safely absorb those dollars as they begin to flow into people’s pockets…The real challenge is ‘How will you resource it?’" That is, can the US produce the things Congress wants to buy?

In many cases, it's inarguable that the US has resources for Congress to buy – every unemployed person's labor is not being procured by the private sector and is thus for sale to Congress to do the work in the Build Back Better agenda.

Build Back Better's policies are wildly popular, including among Republicans. The US wants to allocate resources to it, but here in the Manchin Sinematic Universe (the stupidest of all timelines), two sociopaths have sold their votes to block it.

Minting the coin could bypass these two ghouls – and, as Diehl and Grey discuss, just the THREAT of the coin would kill debt ceiling shenanigans: "to say, 'you know, the coin is an option' releases the negotiating pressure, to get the outcome they really wanted."

The story of Diehl's history with the Mint and the way that Congress had used it as a literal piggybank to raid to curry favor with donors is strongly reminiscent of Making Money, Terry Pratchett's 2007 novel in the brilliant Discworld series.

In that novel, outsider (actually, reformed con artist, but that's not the part that's parallel to Diehl's story!) Moist von Lipwig is made Governor of the Royal Mint and discovers that a powerful family has been raiding the bank's cash reserves to finance their lifestyle.

That family – the Lavishes (!) – are as corrupt and nasty and infighting a lot as Congress itself, and Moist's realization that artificial constraint on the money supply was hamstringing the city-state of Ankh-Morpork propels the story's resolution.

Pratchett's 41 Discworld novels were a gift to the world; this isn't the only one of his novels with strong parallels to contemporary mishegas, and his humor, empathy and kindness make for a uniquely humane frame for thinking about today's issues.

The coin may be a silly solution, but – as is so often the case with Pratchettesque scenarios – it's a silly solution to a problem that's flat-out ridiculous.

(Image: Donkey Hotey, CC BY)

This day in history (permalink)

#20yrsago Clay Shirky on what web services are(n't)

#20yrsago Patrick Nielsen Hayden interviews John M Ford

#15yrsago Publishing isn’t bestseller-driven

#15yrsago Vista licence: Microsoft’s abusive relationship with you

#10yrsago Belarusian central bank auctions off its sugar bowls

#5yrsago Public universities and even the US Navy have sold hundreds of patents to America’s most notorious troll

#5yrsago Harry Shearer sues studio over Spinal Tap, says he’s received $98 in royalties over 30 years

#5yrsago Crafting with Feminism: 25 Girl-Powered Projects to Smash the Patriarchy

#1yrago Kids reason, adults rationalize

Colophon (permalink)

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