Bank Of America On The "Trillion Dollar Tooth Fairy" Straight "From The Land Of Fiscal Make Believe"

Tyler Durden's picture

A year ago, out of nowhere, the grotesque suggestion to "resolve" the US debt ceiling with a platinum dollar coin came, and like a bad dream, mercifully disappeared even as the debt ceiling negotiations dragged until the last minute, without this idea being remotely considered for implementation, for one simple reason: it is sheer political, monetary and financial lunacy. And yet there are those, supposedly intelligent people, who one year later, continue dragging this ridiculous farce, as a cheap parlor trick which is nothing but a transparent attempt for media trolling and exposure, which only distracts from America's unsustainable spending problem and does nothing to address the real crisis the US welfare state finds itself in. And while numerous respected people have taken the time to explain the stupidity of the trillion dollar coin, few have done so as an integral part of the statist mainstream for one simple reason - it might provide a loophole opportunity, however tiny, to perpetuate the broken American model even for a day or two, if "everyone is in on it." Luckily, that is no longer the case and as even Ethan Harris from Bank of America (a firm that would be significantly impaired if America was forced to suddenly live within its means), the whole idea is nothing more than "the latest bad idea" straight "from the land of fiscal make believe." We can only hope that this finally puts this whole farce to bed.

From Bank of America:

The trillion dollar tooth fairy

From the land of fiscal make-believe

The budget skirmishes over the past few years have spawned a lot of bad ideas. The latest is that the US Treasury issue a trillion dollar coin to get around the debt ceiling. We see several problems with this plan. First, its legality is open to question. Second, it would worsen the coming battle over spending cuts. Moreover, it would further deepen the distrust between the two political parties. Finally, it risks being the first step down a slippery slope of debt  monetization.

Finding change in the Treasury’s sofa

A hot idea for resolving the fiscal crisis is for the US Treasury to issue a trillion dollar platinum coin in order to avoid the looming debt ceiling. The idea  comes from a broad interpretation of law that gives the Treasury secretary the ability to mint and issue commemorative platinum coins “in such quantity and of such variety as the secretary determines to be appropriate.”

The trillion dollar coin plan work as follows: the Treasury would deposit this coin at the Fed, which acts as the Treasury’s banker. The Treasury then could draw upon its account to pay for outlays. This action would allow funding for an additional trillion dollars of spending without having to worry about raising the debt ceiling, buying another year of breathing room. If the debt ceiling isn’t raised a year from now, then presumably the Treasury could mint another coin.

Wouldn’t this action be massively inflationary? Proponents argue no. With the economy operating below potential, allowing this already-authorized spending to occur would prevent a further collapse in aggregate demand. Were the Fed concerned about possible inflation, it could “sterilize” the impact by selling from its existing stock of bonds. In the limit, the Fed could sell a trillion dollars worth of bonds — that should squelch any inflationary impetus and remove any hint of outright debt monetization, according to supporters.

More debt limit desperation

This plan is just the latest in a string of “solutions” to the debt crisis. In the summer of 2011, several ideas were floated to get around the debt ceiling altogether. One proposal was for the Treasury to sell gold holdings to the Fed in exchange for cash. A second was for the Fed to simply extinguish some portion of its Treasury debt holdings. With one stroke of the pen, it would wipe out a big chunk of the debt and allow the Treasury to issue more. A third idea — which is making a bit of a comeback among some commentators — is to invoke the 14th amendment and declare the debt ceiling unconstitutional, as “the validity of the public debt of the United States … shall not be questioned.” Others took a different tack, and argued the US should just default to force a compromise. Thankfully, none of these options were seriously pursued at the time.

A wooden nickel

If this trillion dollar idea sounds a bit too good to be true, it is.

First and foremost, it may not be legal. The idea effectively rests on a loophole in a law that allows platinum coins to be issued by the Treasury — but for
commemorative, not fiscal, purposes. Opponents suggest that the courts would strike down this plan since it is not the intent of the original bill. Others have questioned its constitutionality: they argue that Congress cannot (and did not intend to) delegate fiscal decisions to the Treasury. That is, the Treasury must implement the spending and tax — and debt limit — decisions of the Congress, not override them. However, opinions are mixed as to whether these criticisms would be enough to invalidate the trillion dollar coin idea in a court of law.

Whether legal or not, it would almost certainly provoke a bitter court battle. And at least one Republican representative, Greg Walden of Oregon, has said he would propose legislation to preclude the trillion dollar coin plan. While the Obama administration so far has not commented on the idea, in 2011 it rejected on legal grounds the idea of invoking the 14th amendment to avoid a debt limit battle. However, in early January House Minority Leader Nancy Pelosi said she would be willing to invoke the amendment “in a second.”

Platinum-gilded problems

Taking these sorts of actions would almost certainly worsen, not ease, the coming battles over the spending — a second reason to be skeptical of the idea of the trillion dollar coin. As we have noted before, the debt ceiling is just one of three brinkmanship moments looming in the next few months. The across-the-board spending cuts that constitute the sequester have only been delayed for two months, and absent new legislation, will start in March. Even more troubling, on March 27 the latest continuing resolution ends and, absent new legislation, all nonessential government programs would have to shut down for lack of funding.

Third, throwing the trillion dollar coin into this mix would not only intensify these two other fights, it would likely poison the well even further in future budget negotiations. With split government, fiscal policy making requires bipartisan agreement. The cliff compromise earned support from both parties, marking a welcome — if brief — respite from partisan politics. The last thing Washington needs is a further escalation in gamesmanship.

Finally, there is a slippery slope from avoiding the debt limit to outright debt monetization. Although proponents see it as a technical fix to a problem that, in their view, never should occur, it means the Treasury would have established a precedent to thwart Congressional limitations on spending and the debt ceiling.

Outside of the legal questions, nothing precludes the Treasury from issuing a coin to pay down the full $16.4 trillion in debt in one fell swoop: true monetization. A trillion dollar coin also would subvert the whole budget process, undermining already fragile public confidence and spooking financial markets. And based on the criteria put forth by the rating agencies, it would represent a stunning failure to devise credible political processes to resolve the longer-term budget issues for the US. A downgrade would very likely follow, in our view.

Besides, imagine the battles over whose portrait belongs on the face.

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ShortTheUS's picture

Why mint a $1T coin when an executive order is all BHO needs?

Cheesy Bastard's picture

This idea was originally tried with a trillion dollar bill.  The money was stolen by a ruthless communist dictator.  (Sound familiar?)

 https://www.youtube.com/watch?v=X2KXzoXhhZE

Tijuana Donkey Show's picture

And if it's a crime to bribe a jury, then I guess I'm guilty of that as well. 

Monty Berns

Vampyroteuthis infernalis's picture

 "Others took a different tack, and argued the US should just default to force a compromise."  

Best idea yet. They are never going to pay their bills. Suck up and go bankrupt.

Bicycle Repairman's picture

I favor a platinum coated tungsten slug.  There's no law against that.

Zer0head's picture

 

Well, on Bloomberg yesterday their new regular with Tom Keene is none other than Joe Weisenthal from Business Insider (yes Joe W s now a Bloomberg contributor and freqeuent co-host)

He talks up the platinum thing with a serious(ly senile) Tom Keene

http://www.youtube.com/watch?v=mvOL6JysNwk#t=1m40s

pathetic (Mike are you watching your own piece of sht TV channel?)

and Joe take the marbles out of your mouth so that viewers don't jump to the conclusion that you're a douche before listening to what you have to say

 

TruthInSunshine's picture

I'm actually loving the more frequent discussion of the idiotic trillion platinum coin concept in/on more mainstream/lamestream channels/publications/outlets, as even the dumbest of sheep will instinctively realize upon hearing this concept that we're bankrupt & the so-called "elected leaders" are running the nation, now known as the U.S.S. Republica De Banana, directly into a massive Iceberg.

A trillion dollar coin, assuming it weren't a simplistic & juvenile ruse (which it certainly is), wouldn't even dent the mountain of actual debt the United States (nor many other large, developed, fractional reserve fiat infected nations) have accrued.

The sooner the sheeple understand this basic fact, the better.

In fact, even National Propaganda Radio (NPR), no doubt a likely favorite outlet of proxy propaganda of one Paul Krugman, is allowing the reality to seep out:

A National Debt Of $14 Trillion? Try $211 Trillion : NPR August 06, 2011 4:06 PM Listen to the Story

When Standard & Poor's reduced the nation's credit rating from AAA to AA-plus, the United States suffered the first downgrade to its credit rating ever. S&P took this action despite the plan Congress passed this past week to raise the debt limit.

The downgrade, S&P said, "reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."

It's those medium- and long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan's Council of Economic Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.

"We have all these unofficial debts that are massive compared to the official debt," Kotlikoff tells David Greene, guest host of weekends on All Things Considered. "We're focused just on the official debt, so we're trying to balance the wrong books."

Kotlikoff explains that America's "unofficial" payment obligations — like Social Security, Medicare and Medicaid benefits — jack up the debt figure substantially.

"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap," he says. "That's our true indebtedness."

We don't hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.

"Why are these guys thinking about balancing the budget?" he says. "They should try and think about our long-term fiscal problems."

According to Kotlikoff, one of the biggest fiscal problems Congress should focus on is America's obligation to make Social Security payments to future generations of the elderly.

"We've got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you're talking about more than $3 trillion a year just to give to a portion of the population," he says. "That's an enormous bill that's overhanging our heads, and Congress isn't focused on it."

"We've consistently done too little too late, looked too short-term, said the future would take care of itself, we'll deal with that tomorrow," he says. "Well, guess what? You can't keep putting off these problems."

To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what's being negotiated right now in Washington.

"What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office's] numbers say we have an absolutely enormous problem facing us."

Race Car Driver's picture

If they can make a magic $1 trillion coin - why stop there? Why not a magic infinity coin and just say 'charge it' forever? Indeed... why can't .gov just mint the coin and then immediately buy the entire fucking planet and then control everything from 1600 PA Ave? No more wars, no more hunger... plenty for everyone forever.

Why didn't someone think of this coin thing sooner ... like a thousand years ago? Because it's bullshit - that's why.

mademesmile's picture

The idea made it to National NBC news - http://video.msnbc.msn.com/nightly-news/50403664/#50403605

So, yeah, I think they will do it. Kinda testing the water right now.

Edit: Krugman is for it, what could go wrong?

TruthInSunshine's picture

They won't do it, but I wish they would (see my post above this one as to why).

Even a lowly, 4th tier blogger like Joe Weasenthal was essentially laughed off the air on cnBSc, a joke of a cable "financial network," during a tremendously non-compelling endorsement of crazy town:  http://video.cnbc.com/gallery/?video=3000139364

 

nmewn's picture

Has anyone run the numbers on how many ounces of platinum equals a trillion? ;-)

nmewn's picture

lol...exactly.

While I enjoy the fact they are still somewhat tied to the realities of the world, why don't they just propose a trillion dollar paper bond...they luuuve their paper so much?

But I suppose issuing more paper against paper would be redundant ;-)

Tursas's picture

This paper must be easy to recycle too!

StychoKiller's picture

Unlike Zimbabwe munny, this Trillion is one troy pound of Ag!

Boxed Merlot's picture

This idea was originally tried...  in the first century when Jerusalem was under Roman rule.

 

Then the chief priests and the Pharisees called a meeting of the Sanhedrin.  “What are we accomplishing?” they asked. “Here is this man performing many signs. If we let him go on like this, everyone will believe in him, and then the Romans will come and take away both our temple and our nation.”   Then one of them, named Caiaphas, who was high priest that year, spoke up, “You know nothing at all!  You do not realize that it is better for you that one man die for the people than that the whole nation perish.”  He did not say this on his own, but as high priest that year he prophesied..."   Jn 11:47-51a

 

That's how the jubilee was initiated back then.  Will history repeat, rhyme or do something new?

asteroids's picture

Once the coin is minted. How hard would it be to make your own eh?

TerminalDebt's picture

where will you spend it? I don't tthink the vending machines will make change for that

nmewn's picture

District of Zimbabwe, for a bag of chips.

ball-and-chain's picture

The true solution isn't austerity.

It's growth.

But it's hard to grow when all the manufacturing jobs are overseas.

However, those good capitalists needed every last nickel of profit.

Wow.  Talk about great patriots.

Greedy bastards.

http://www.angrysinner.blogspot.kr/2013/01/tuesday.html

treasurefish's picture

I do not claim to be a smart man, but Obama does not have a choice at this point.  He literally has zero options.  No executive order can restore the full faith and confidence. There is only one solution that'll alleviate this whole situation for awhile longer, and that's when The Bernanke rips up all the MBS he's been buying.  Maybe, the thing that erupted the FED's mess in 2008 will be the thing that saves the FED for a little while longer?  Who would complain (other than Wall Street) when their note is free and clear, and the US restores the Rule of Common Law afterwards?  Maybe, I'm just dreaming.

 

HOWEVER, when the same banksters that are unlawfully freezing and seizing the account of a gun manufacturer actually take time out of their busy thieving fractional reserve banking schedule to profess genuine FEAR over any idea, then I AM ALL FOR IT - even IF it was the idiot at the BI that opened his pie-hole to regurgitate this idiocracy.  The economy is not going to get any better anyway, will it?  The USD is the WORLD RESERVE CURRENCY.  Let the rest of the world suffer while we win the race to the catfish.  Let them eat....The Bernanke's ass.  It is probably very flavorful.

 

I really don't even care what they do, because a Country Boy can survive.

http://www.youtube.com/watch?v=6gKlBGjDbfI

thadoctrizin's picture

This trillion dollar coin meme is just a clever viral marketing campaign for the upcoming sequel "The Italian Job 2"

FL_Conservative's picture

The budget skirmishes over the past few years have spawned a lot of bad ideas. The latest is that the US Treasury issue a trillion dollar coin to get around the debt ceiling. We see several problems with this plan. First, its legality is open to question. Second, it would worsen the coming battle over spending cuts. Moreover, it would further deepen the distrust between the two political parties. Finally, it risks being the first step down a slippery slope of debt  monetization.

Are they fucking serious????   HELLO!!!!  The U.S. debt is ALREADY being monetized!!!!!!!!!   What fucking planet are these douches on??????


StychoKiller's picture

Yeah, but the $1Trillion coin would make it blatantly obvious, even to the Ignorati!

Tursas's picture

We give FED $1Trillion coin and then we pay some interest to FED for it! What is the point in giving this coin to FED?  

aminorex's picture

The point is that it pays down debt, to keep below the legal ceiling.  The fact that it is a useless artifact keeps the fed from spending it.  they make change for it.  we spend the change.  they're stuck with it.  it's a screw the fed strategy.  as such i'm for it.

SheepDog-One's picture

Oh NOW BofA calls 'fiscal shananigans' on a $1 trillion coin idea....yet bailing out with trillions out of thin air was fine for them!

Big Corked Boots's picture

Given the trustworthyness of the US government right now, I'd say the trillion-dollar platinum coin would have a tungsten center.

ziggy59's picture

Scary part of this nightmare waiting to manifest is that of late, the more weird and crazy an idea is presented by TITB(the Insane That Be), the more likely it is to be tried...

Desparate times ...yada yada yada

tickhound's picture

And just the fact BOA hates something this much naturally forces one to at least reconsider...

So I did.  Here's my findings.

The Treasury can create "funding it can draw upon" ...or basically borrow against the coin. 

Certainly not the WORST idea in the world.   

Naturally it is "deposited at the Fed, who acts as banker."

But still patently BAD.

 

The rest is paragraph after paragraph of BOA suddenly GIVING A SHIT...

"it risks being the first step down a slippery slope of debt  monetization."   LOL

"it means the Treasury would have established a precedent to thwart Congressional limitations on spending and the debt ceiling."  LOL, OMG new "precedents" to thwart Congress

"undermining already fragile public confidence and spooking financial markets."  Finally, some meat!   

"based on the criteria put forth by the rating agencies"  LOL, cuz they're suddenly relevant 

"it would represent a stunning failure to devise credible political processes to resolve the longer-term budget issues for theUS."   Stunning failure isn't to be consolidated and commemorated into a single coin.  It should be diluted and dispersed over a vague spectrum.

"A downgrade would very likely follow, in our view"  AS IF the coin is suddenly the tipping point.

Conclusion:  A thousand "Trillion Dollar Tooth Fairies" later and NOW boa is worried about 'legalities.'  What-EV, Linda Green.    

 

Element's picture

+1 Well thank god you said it, I thought every one had gone to sleep at the wheel reading the comments.

First step indeed! ... whiter than the driven snow we are! ... suuuurre.

fonzannoon's picture

the coin thing is too much work. the debt ceiling will be hiked by executive order and citizens will cheer, ratings agencies will remain quiet. The market will rise and thats all that matters.

centerline's picture

Coin thing is too Zimbabwe.  Pennies from heaven would go over much better.  Err... dollars from heaven.  Sorry.

Dr. Sandi's picture

Ev'ry time it rains

It rains

Dollars from choppers.

(Sing along, you know the tune.)

NoDebt's picture

Not to mention it only works for 10 months.  When you hit month 11, time to issue another trillion dollar coin!

I absolutely LAUGHED at the idea the Fed selling $1 trillion of their TSY holdings to "sterilize" the issuance.  I mean seriously THINK ABOUT THAT FOR A MINUTE..... they would do REVERSE QE to support this???  In effect, FORCING treasury rates higher and making the other $16 trillion of outstanding debt cost MORE to service while instantly crushing every TBTF bank and pension fund in the universe who hold large amounts of Treasuries (or has derivative to exposure to them or anything linked to interest rates)???

If you think they would do anything that would force rates higher (lower TSY prices) at this point you're not paying close enough attention.

You don't need to go as far as questioning the legality of this idea.  It will NEVER get off the ground because it harms too many large, powerful vested interests in the system.

fonzannoon's picture

why is executive order "in the face of a national emergency" so hard to imagine? 

it's his 2nd term. Power grab time baby.

NoDebt's picture

Me?  I'm sorry were you talking to me?  I don't see anybody else here so you must be talking to me!  (Raging Bull)

OK, let's get one thing nailed down before I answer.  WHO IS REALLY HOLDING THE REINS OF POWER?  Is it Obama with his "emergency powers" and Presidential office or is it the bastard TBTF bankster elites?

Your response will dictate my answer.

 

fonzannoon's picture

what if it is the tbtf banksters who use Obummer as their puppet?

NoDebt's picture

Excellent question.  The answer is:  they already do (they're all part of the same paradigm, whether they recognize it or not, as discussed many times on ZH).  Executing this Trillion Dollar Coin idea would do incalcuable damage to the banking cabal on many fronts.  Therefore, they would never issue him the order to do it.  They would, in fact, work actively against him on all fronts if it looked like he was headed in that direction.  Gently at first, more stridently the closer he got to actually doing it.

For example, where did the above article originate?  B of A.  Don't get no more TBTF than B of A.

 

fonzannoon's picture

i hear you. when i say executive order, i don't mean for the coin. I just mean he comes out and says we are lifting/eliminating the ceiling. Congress can go scratch their ass.

NoDebt's picture

Ah, gotcha.  Yeah, that's a different kettle of fish.  I suspect a trip to the Supreme Court on that one.

centerline's picture

+1.  Politicians fingerprints needed on the printing press lever.  That is the play.  Even better is pain for the people so that they beg for it.  Blame rolls right down hill as planned.

Karlus's picture

Im also concerned that if Bam did it, and dared the Repubs, they would blink.

They would lose the TV MSM PR battle.

As a matter of fact, im not really what function congressional repubs serve...since they seem incapable of resisting...

Beam Me Up Scotty's picture

"why is executive order "in the face of a national emergency" so hard to imagine?

it's his 2nd term. Power grab time baby."

Fonzannoon, thats exactly what I can see happening too.  Republicans dig in and won't go along with debt ceiling increase.  Stawk market tanks hard.  Obama to the rescue, by executive order.  He'll do it, and doesn't care if there is a court battle over it.  Then it will be time to BTFD again, because the market will rebound hard.  But once the political lid is off of a spending cap, spending will go to the moon.  Obama doesn't believe we have a spending problem.  Thats when inflation will come, IMO, possibly even the hyper type.

centerline's picture

It's all about getting Washington squarely under the wheels of the bus.  So far... working perfectly.

Haole's picture

All this asinine BS is just blathering over how to hide the running U.S. default.  I'll be amazed if they aren't downgraded, actually I won't...

 

"I couldn't pull a rabbit out of my hat so I pulled a hair out of my ass" - Nestor Pistor

Cognitive Dissonance's picture

"Besides, imagine the battles over whose portrait belongs on the face."

Why Krugman of course. And on the reverse his bare ass will be displayed, mooning those space aliens and daring them to invade.

centerline's picture

Question is, what do I have to put under my pillow for the tooth fairy to deliver a trillion dollar coin?  hmmm...