Editorial
The Trillion Dollar Trick
The birth, and the apparent death, of the trillion dollar platinum coin idea may one day be recalled as a mere footnote in the current debt crisis drama. The ultimate rejection of the idea (which was to use a loophole in commemorative coinage law to mint a platinum coin of any denomination) by both the President and the Federal Reserve seems to offer some relief that our economic policy is not being run by out-of-touch academics and irresponsible congressmen. In reality, our government has been creating more than one trillion dollars out of thin air every year for the past five. The only difference is that the blatant dishonesty of a trillion-dollar platinum coin is so easy to understand that the public simply couldn't be expected to swallow it. The American people are more than willing to be fooled, but they won't tolerate so simple a ruse.
People have a long and intimate history with coins. Some of us collected them as kids, and we all touch and see them every day. Unlike currency bills, we know intuitively that a coin's value is supposed to come from its metal content. That's why quarters are bigger than dimes. As a result, most people have viscerally rejected the platinum coin idea. To assign an arbitrary, sky high, valuation to a small piece of metal strikes most people as a deceitful, desperate act. They are right.
However, the same people have no problem with images of thousands of crisp paper notes flying off the printing presses. The acceptance is not impacted by how many zeroes the bills contain. People simply believe that paper money derives value from the numbers, not the paper. This was not always so. Paper money originally entered the public awareness as promissory notes to pay different amounts of gold. Once people got used to the paper, few really cared when the gold backing was finally removed. As a result, the public would likely have been much more accepting of the Fed printing a trillion dollar bill than the government minting a trillion dollar coin. But there was no legal pathway for the Fed to simply give that money to the government.
The government, not the Fed, mints coins, so they did not have to rely on the Fed to create value out of thin air. That is why the platinum coin idea was so seductive, if ultimately unsellable.
But the Fed does the exact same thing all the time using sophisticated accounting and state of the art computing. The Fed "expands its balance sheet" by buying government bonds from private banks. In exchange for these securities, the Fed credits the banks with funds it creates out of thin air. The banks then pass the funds to the general public through loans. But it's important to realize that the Fed does not have any money to actually buy the bonds in the first place. The funds are "created" by a Fed computer. The process is easier (and equally duplicitous) than minting a trillion dollar coin (which at least requires the production of something other than computer code). The only difference is the lack of window dressing. It's a shame that the platinum coin episode did not result in a wider recognition of this brutal truth.
A similarly silly and meaningless distinction is being made with respect to raising the debt ceiling. In his press conference yesterday, President Obama said the Republican reluctance to raise the debt limit was the equivalent of a diner who had ordered and enjoyed a meal who then decides to leave the restaurant without paying the bill. The President is actually arguing that if the diner had no cash on hand, it would be much more responsible to simply use a credit card. In taking this moral high ground, the President ignores the fact that the diner (who has indebted himself through habitual restaurant meals) intends to pay his credit card bill with another card, and then repeat the process until he runs out of cards. So in the end, it's not the restaurateur who gets stiffed, but the issuer of the last card the diner is able to acquire. As with the platinum coin, this is a distinction without a difference.
Currently the Federal Government counts more than $16 trillion in funded obligations. Over the next 10 years we are expected to add another $10 trillion or more. At no point in the foreseeable future are we expected to approach balance in our annual budget. All of our future bills are expected to be paid by future borrowing on a massive scale. Anyone with an ounce of integrity would have to plan for the possibility that an ever-increasing debt rollover is a limited prospect. Such an understanding will mean that eventually someone will get stuck with the bill. How is this any more responsible than dining and ditching?
In truth, a failure to raise the debt ceiling is not a commitment to renege on obligations. It is simply a decision to stop borrowing. The government could still meet obligations by cutting spending, raising taxes, or making reforms to entitlements. But it chooses not to take this difficult step.
More important than that is the message America is sending its creditors. By informing them that the United States will not use its taxing power to repay its debts, but will only rely on its ability to borrow more (ironically from the same creditors), it signals its refusal to tackle our fiscal deficiencies through responsible means. It's a shame that more people can't seem to grasp these very simple truths.
Peter Schiff is CEO and Chief Global Strategist of Euro Pacific Metals.
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Posted by Harry on 01/17/13 08:55 AM
Raising taxes would probably not be a good idea. Liquidating a large part of the governement however would be very advisable.
The same goes for the Euro countries, massive governements and not to forget a welfare destroying welfare state are killing the economies.
Raising taxes is an option but for what??? Governements are not particularly famous for spending money wisely, money derived from the economy by governments through taxation is nothing more then wasting money that could be used for good and for strenghtening an economy were it not taken out by the government who uses most of that money for goals that do not support anybody other then themselves and their supporters. Most of it is wasted anyway
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Posted by TerryWriterFromPortCredit on 01/17/13 06:25 AM
To me, fool that I am - it is all so simple. Wneh you marry the essence of two articles, the above by Shiff (an outsider) and Roberts (an insider - a type of whistle blower of the money power) what you get is this in my humbles opinion: real estate. The Chinese could not give a rats ass about the USA paying them their debt. In the year of the rat if you want to call 2012 that - it became obvious that money power married people power (Chi-coms - controllers of 1.2 billion consumers - the new Walmart crowd).
The real estate of the USA is being bought up cheap (all its resources including Mexico and Canada) as well as the tax cows for labour (us shmucks too naive to get the game [I dare say look out for a rude awakening for the eye-opening has begun {a seething anger is underpinning a reluctance to act and you have underestimated how deep you think the slumber of a potential 7 billion of us due to The Internet Reformation) - so, to re-iterate: they have been buying for pennies on the fiat dollar. It's how they work - front run the whole operation like that son of the House of the Red Shield (German rot and schild)did when he conned Britain by lying about Napolean winning the war - pure con. Pure frontrunning. Pure buy low?/sell high in the simplest way.
The Western powers that be (most likely lead by the trditional banking families of which one was suggested above [more marriages along the way in a Borgia-type view towards allegiance and loyalty - have sold the idea to the East on how to front run using Central Banking (BIS at the top - do not doubt it) - the games afoot. Is it about to fall, this house? Does the rot in shield mean - rotting?
I would suggest that the Am-frees (Click to view linkee-thinkng Americans) watch Donald Trumps show (yes, the Donald) and realize how much they are worth. A real eye-opener. Then dump the fiat derivative bulls--t frontrunning and take your land back - the real asset. You, the people, don't owe a thing - you own! The Donald (love him or hate him) has given you a great gift - realize what you are worth and stop giving it away. The world needs you - from a concerned Brother North American - The Canadian Curator.
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Posted by amanfromMars on 01/17/13 12:12 AM
Many thanks for those clear and honest observations and explanation of a criminal ponzi, Peter ... ... which would appear to be the modus operandi/vivendi of the global terror banking/fiat capital system?
And is it inevitable as intelligence grows and information is freely globally shared, unless there is a radical fundamental change in that system, that bank owners/executives will become the live targets for those whom they have dispossessed and forced into a world of unnecessary pain and despair?
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Posted by The Federal Farmer on 01/16/13 10:32 PM
"Over the next 10 years we are expected to add another $10 trillion or more. At no point in the foreseeable future are we expected to approach balance in our annual budget."
Who the hell is this "we" you speak of?
I didn't borrow myself into this quagmire. And I don't owe this debt.
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Posted by Libertarian Jerry on 01/16/13 09:40 PM
The collapse of the monetary system heralds the collapse of socialism in America. The idea that government can solve social/economic problems has bankrupted America. The politicians,over the decades,have over promised the American people to the point of absurdity. The governemnt can't tax anymore or borrow anymore and if they print more currency it will create out of control inflation. Mr.Schiff in his essay is correct. Paper money 80 years ago was the reciept for real money which is gold and silver. The problem is that after about 3 generations people believe that the reciepts for the gold and silver is now the real money. Most people have no clue as to what's causing America's economic malaise. We have a system where paper bonds(promises to pay)are used to back paper money that buys real goods and services. The government,through the Federal Reserve, is creating psedo wealth out of thin air. This historically has always led to disaster. As long as the Welfare/Warfare State stays in place and is not dismantled,root and branch, America is doomed to collapse. Will America reform? I doubt it.
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Posted by GWBramhall on 01/16/13 04:39 PM
It seems to me there is no borrower that we must pay
back or at least not for the most significant portion
of the debt. The real problem is in the confidence
in the dollar to continue to be a means of exchange.
First there will be inflation, the requiring of more
cash for the same good or service. Then a failure in
confidence that the paper is worthless and then all is
lost. If there is not at least an attempt to keep the
debt at some reasonable percentage of the whole economy,
we run the risk of this loss in confidence at some point.
That shoe dropping is not going to come with a warning
and it will be brutal.
I know this is a site that favors the gold standard, but how
is that any different from the trillion dollar coin? The
value of the exchange is arbitrary and has no basis in utility.
Gold or platinum have no real use other that the few industrial
uses or when carved into jewelry, hardly enough to make it a means
of exchange any better that the fiat money we are using now. It
will be subject to the same confidence conundrum we have going
now. The only answer is to treat the dollar like it is worth
something, even if it isn't, and to stop printing it like it was
some credit card with no limit.
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Posted by dkmeller1 on 01/16/13 01:05 PM
Regarding the lies, fraud, and monetary disinformation intrinsic to central banking...
WE have to spread the word! WE have to inform the public about how we are all being fleeced and screwed by these people! If we don't, nobody else will. Bernanke, Obama, Geithner, et al. certainly won't do it, their goofy "trillion dollar coin" notwithstanding. Advocates of sound money must continue to do what we have been doing, through books and articles, through the internet and 'social media', and perhaps other techniques as they become feasible.
Profiteers off this unspeakably corrupt and destructive system certainly never will 'kill the goose that has been laying so many golden (OK fools gold) eggs for them!
Fortunately, for the first time, we seem to have real chances at opposition here!
PEACE AND FREEDOM!!
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Posted by Hapa on 01/16/13 11:00 AM
The American public doesn't want to know about it. We all want business as usual. We can't imagine it otherwise, so why does anyone think that rational heads will prevail?
The system will not change until it collapses under its own weight. We are the titanic heading for the iceberg out there in the fog. Have you got a lifeboat?
