Brodsky's Thompsonesque Trip Into The World Of Monetary Idiots Vs Krugman's Barbarians

Tyler Durden's picture

Submitted by Paul Brodsky of QBAMCO,

Speaking of monetary abstractionism, there has been recent talk of a fiscal gimmick called “The Trillion Dollar Coin,” in which a platinum coin valued at $1 trillion would be created by the U.S. Mint for the Treasury Department. Treasury would then rid itself of its pesky fiscal deficit in one fell swoop by simply keeping the coin on deposit at the Fed.

The TDC idea is a marvel of political imagination and public ignorance (and so it seems to have legs!). As with most clever illusions, the TDC is based on sound logical footing, one in fact we have argued in favor of: asset monetization. But there is a fundamental difference separating the Fed monetizing Treasury’s gold to devalue the dollar, followed by a re-pegging of dollars to gold at the higher fixed exchange rate (our idea), and assigning an arbitrary value to an asset no one else is allowed to own.

After declaring the coin to be worth $1 trillion there would be no market-based discipline. In its aftermath, twice or half the amount of global platinum could not be exchanged in the marketplace for double or half the amount of dollars. (It is reminiscent of the Weimar Germany scheme to back Papiermarks with agricultural land. Brilliant! Er, but how do its users exchange the money for the land?) Not only would it be difficult to value extant platinum, it would be almost impossible to value anything in the world (at least in dollars).

Once the coin were struck, it would become obvious to the global marketplace – producers, consumers, savers, investors and trade partners – that future global purchasing power would be left exclusively in the hands of the US Treasury. Treasury would be able to simply outbid everyone on the planet for everything.

We suspect the Japanese Ministry of Finance would soon mint a ¥100 trillion pair of chopsticks and put them on deposit with the BoJ. They could then purchase most if not all of the oil on the market today for future consumption! We are confident oil exporters would not raise their prices because they would have the magic chopsticks as collateral. And why wouldn’t all the world’s treasury ministries simply create priceless flux capacitors and use them to create all the taxes needed to self-fund their governments? (To do so Ben Bernanke would have to hand over its proprietary technology – the Fed “has a technology called a printing press…”)

Obviously, the TDC idea is a political ploy with a targeted mission: to rid the US Treasury of its debt ceiling, which is an increasingly frequent and embarrassing public reminder of government ineptitude. Everyone knows government-led de-levering is not a serious threat. However, the irony of the scheme and its MMT (Modern Money Theory, is espoused by imaginative economists technically proficient in double-entry bookkeeping and deficient in confidence that free marketplaces can provide accurate valuations) / liberal Keynesian promoters could not be more delicious. The scheme exposes the forty year-old charade, otherwise known as the global monetary system, better than any mind-exercise we have been able to come up with.

As we considered the plan, Hunter S. Thompson’s observation sprang to mind: “in a world of thieves, the only final sin is stupidity.” Though the TDC idea would work from an accounting standpoint, it seems awfully unlikely Americans and the rest of the world would let the US Treasury enjoy a very visible monopoly on fraudulent monetary accounting.

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A Lunatic's picture

You'll be needing the extra time to bag rice, bury PM's , and clean your guns. Good call.

Michaelwiseguy's picture

To piss off Dr Sandi;

I've been researching the 14th Amendment;

I don't think anybody is questioning the validity of the national debt however, I am questioning how and in what manner payment of the debt will be made.

We can make payment to the Federal Reserve for the portion of US Treasury Bonds they hold with a $1 Trillion Platinum coin/coins. That doesn't mean the platinum coin is redeemable in physical platinum either.

Section 4.

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Snakeeyes's picture

Is Paul Krugman really Dr. Evil? "One trillion dollars!"

We are now Zimbabwe with (soon to be) trillion dollar collars and a President that disarms the population, but arms Mexican drug dealers and Islamicists.

Big Slick's picture

Brodsky gives some SPECTACULAR interview podcasts on Chris Martenson's site.  Among his observations is the disparity between bank assets and currency in circulation and the need for massive printing to reconcile.  He also estimates a value of $8-$10,000 per ounce of gold for the re-peg he mentions above.  Note that this would NOT be a gold standard in a dollar-backing sense, but instead the creation of a bid/offer of gold for dollars by the US Treasury, say $8000 x $8020.  If too many sellers emerged, the UST would drop the price.  I think this would be an attempt to regain control following some massive loss of public confidence in the dollar itself.

Big Slick's picture

I want to make a comment and introduce my own theory that relates to Brodsky’s prediction of (1) monetization of Treasury’s gold to devalue the dollar, followed by (2) a re-pegging of dollars to gold at the higher fixed exchange rate.  Brodsky's is a highly consequential proposition that bears examination.  In previous interviews he theorizes event #2 as a sudden creation (following, say, a long weekend) of a bid/offer market of gold for US dollars by the US Treasury (e.g., $8000 x $8020 per ounce).  Thus, ‘pseudo-pegging’ the fiat US dollar back to something of material value, and perhaps a resumption of confidence following a significant negative confidence event.


Brodsky’s idea has always struck me as a good one, especially if there were a tipping point in negative sentiment or public confidence in the US dollar.  Something that has bothered me though has been the lack of a broad base of participants in such a market due to the relatively small base of gold owners (ZH’ers excluded).  Such a broad base is not inherently necessary for the market to work mechanically, but might be necessary for the resumption of widespread confidence.


Over the past few days ZH has reported on the recent record selling of gold and silver by the US Mint.  One thing that has bothered me has been the discontinuity between the seeming tremendous demand, and relative invariant PM prices.


At the local gun show last week, pre-ban Colt AR-15's were going for $3-4,000 or about TWO TIMES their price a month ago.  Prices rose with demand.  A key question I (and I’m sure MANY ZH’ers) have is this: Why are PM prices are not currently rising in a similar fashion with seeming tremendous demand – especially over the past 2 months?


Is it possible that the US Mint is content to sell gold cheap as a method of wider dispersal so that there is a broader base when/if Brodsky’s event #2 occurs?


Going back to my AR-15 model, imagine a hypothetical scenario in which the US (the largest owner of M-16s in the world) suddenly saw the need for every American to own an M-16 to prevent some foreign attack it foresaw as likely sometime in the future (this is my model, so stay with me for a minute)...


...As demand for M-16’s increased because the public became more aware of this attack, the US government would NOT raise prices to take advantage of demand (in an Economics 101 sense) but instead may prefer to maintain an invariant price of the M-16 to promote broader public ownership and increased national security.


In this manner, is it feasible to imagine the US government content to meet unprecedented demand for Treasury gold by selling PM at a relatively low and stable price?  All in an effort to encourage wider ownership?


I’m normally not a conspiracy theory-type guy, but I wondered if this is a possibility.


Flaws in my theory would include questions as to why gold dealers (the middleman) are not marking prices up themselves to meet demand.  Also the uncertainty and lack of control of PM & PM prices by paper contracts/leasing/commodities trading/etc.


Additional support would come from the systemic suppression of gold prices over the years buy someone with enough firepower to do this (there may be only one entity big enough).  Martenson and others have submitted great evidence and analysis supporting such price suppression.  Again, the US government is a prime suspect.


Bohm Squad's picture

I think a good argument is that the paper markets are delivering...paper.  If you look at the physical market (say ebay), you'll note a premium in the neighborhood of 10% or more to paper prices.  One could look at this one of two ways...either a premium for physical or a discount for paper.


For example, what is the promise of an AR worth today compared to an actual AR?


The problem with the paper market is that no one seems to actually want the physical...the exchanges know (and count on) this.  However, in the physical market, product must be delivered and that product DOES have finite supply, and its prices reflect that limitation.


Edit to answer your last part:  Anyone selling at prices lower than ebay (Mint/Apmex/Whoever) will quickly lose their inventory to arbitrage.  It's not sustainable.



Big Slick's picture

"in the physical market, product must be delivered and that product DOES have finite supply, and its prices reflect that limitation."

But they seem to not be.  That's my point.  ZH is reporting record demand/delivery of physical bullion from the US Mint (a finite supply, as you correctly point out).  If so, and the delivery of physical has greater effect on price (your premium on physical/discount on paper model), where is the increase in price these days with physical moving out the door of the Mint to meet record demand?

The economics don't add up to me and I'm wondering what other suppression forces are at play.  Thus my theory that weaves itself into Brodsky's envisioned scenario.  I'm just kicking these ideas around and I appreciate the input Bohm Squad :)

TheCanadianAustrian's picture

Increased sales and increased demand are not the same thing. When the number of willing buyers increases and the number of willing sellers increases by a greater amount, aggregate demand is actually lower. Therefore, in a relatively fixed-supply market such as gold, prices will fall, even though sales are increasing.

This illustrates the important distinction between "demand" and "aggregate demand". What we're seeing right now is rising demand for gold, but with falling aggregate demand.

Big Slick's picture

A very important distinction that I failed to make, CanAus, thank you.  So it remains interesting to me that # of willing sellers (or sales by a large seller) seems to be rising with demand.  Like sellers ready on the sideline to meet demand.  Why would they not be interested in testing higher prices and making more profit?  Even if the offer went too far up, it could retrench back down.  Maybe this IS happening and I just don't see it.

Sockeye's picture

What IF the TDC went missing, or got stolen? I'm sure Tom cruise is working out a scenario right now.

andrewp111's picture

Krugman didn't come up with the idea. That clown is 2 years late to the party. The plan originated on in 2011. But Krugman has an important role to play. He is the official voice of the MSM with regards to economics, and no Democratic President can do something so radical without getting Krugman's approval first.  Krugman is giving Obama the MSM's official clearance to mint the TDC. This tells me that Obama will actually mint the TDC if the GOP tries to use the debt ceiling for leverage.

nmewn's picture

Ok, enough of this shit.

Why a coin? They're doing the same thing with paper now aren't they? Have they lost "full faith & credit" in their paper to use a coin?

You thinking because they make something "legal" it has some merit or value? Couldn't they just spray paint a trillion dollars on a Yugo, park it at the Federal Reserve and say its WORTH a trillion dollars?

What part of this are you not getting?

Michaelwiseguy's picture

You're right nmewn. We understand Austrian economics here. But weather it's a fiat paper dollar or a fiat metal coin, it's still worthless fiat. But if that's what they want to use?

nmewn's picture

Its not worthless when backed by proportionate value. We live (globally) in societies where peoples mouths/wants/desires/expectations have written checks that future generations can't cash.

This disregards all their needs.

It can never be my is a complete narcissistic falsehood.

Matt's picture

The idea is probably derived from the $1 million gold coin that Australia minted:

Except the Australians are inept at financial chicanery, and put a face value lower than the smelt value by a factor of 55:1 at the time of minting.

Landrew's picture

Only Congress can mint coin as per the Constitution. The treasury would then place the coin on deposit with the fed to then issue more bills, notes or bonds.

andrewp111's picture

Congress has only given the Treasury Secy full discretion with platinum coins. So platinum it must be.

A Nanny Moose's picture

Indeed. I maintain that they should just print a Trillion Dollar Bill. Worked out well in Germany, and Zimbabwe.

booboo's picture

"but neither the United States nor any state shall assume or pay any debt or obligation incurred in aid insurrection or rebellion against the United States"

Well, there you have it, if congress and the Dipshit President would just admit the truth, that they have been incurring debt to over throw our republic we could declare it null and void and get on with hanging their ass. In fact, let me be the one to declare it null and void. Well! God damn, if they can declare a round of platinum worth a trillion I sure the fuck can declare them legally batshit loopy full on refuckingtarded and an enemy of the state.


Michaelwiseguy's picture

That angle makes a lot of sense. What they are doing to our Republic racking up that much debt is treason.

tbone654's picture

It's the easiest way to bring down our capitalist society and install the godless liberal party communism as his (obama) father advocated...  Next step, take away the guns... easy

sitenine's picture

@knukles - Same here. Fuck it! Let them print the damn thing! The whole fucking financial system is crashing down around us anyway - the sooner we accept it, the sooner we can get through the inevitable and start living our lives again.

RockyRacoon's picture

I'll agree with you.  Here's why from the article: " seems awfully unlikely Americans and the rest of the world would let the US Treasury enjoy a very visible monopoly on fraudulent monetary accounting."

Well, don't look now but that "invisible monopoly" has been in the making for 40 years and there has been nary a whimper from "Americans and the rest of the world."    Coining the zillion dollar coin would just be taking the exercise to the absurd.  After all, I have a piece of paper in my pocket that cost about 3.5 cents to produce that says "One Dollar" on it.  How absurd is that?

Cognitive Dissonance's picture

We are all greater fools.....only this greater fool likes to think you are the problem Rocky. Since you are not me you must be one of them. And we all know them over there (officially known as 'they') are the problem and not us.

<Now, about that bridge I was talking about.> :)

Totentänzerlied's picture

"" seems awfully unlikely Americans and the rest of the world would let the US Treasury enjoy a very visible monopoly on fraudulent monetary accounting."

Well, don't look now but that "invisible monopoly" has been in the making for 40 years"

Dammit you beat me to it. Author is a shill.

andrewp111's picture

That is why Nixon's face should be on the Trillion Dollar Coin. He is the one who ditched the last vestiges of a gold standard and went to pure fiat.

km4's picture

RT  The trillion dollar coin should be a peep show token with my face on one side and the first 9" of my dong on the other.

ball-and-chain's picture

We're in a depression.

But we've been through depressions before.

It'll be painful.

But we'll survive.

Yen Cross's picture

 KNUCKLES,  you're ahead.

gimli's picture

I bet that coin will turn out to be platinum plated tungsten --- just out of force of habit

palmereldritch's picture

...yes, that rarest of metals from the Treasury...Ponzium

Ignatius's picture

Note it's a platinum coin... anything to keep from saying "gold" in public.

palmereldritch's picture

Good point.  That would be like garlic to the vampire.  I guess, being the fraud artists that they are, their preferred medium is counterfeit

Tall Tom's picture

Yes Ponzium is of the same family of metals as Imaginarium. Just imagine a value that it has and lo and behold it has that value.


But why stop at $1 Trillion. We can mint one for $1 Quadrillion, pay off the debt, and make everyone Trillionaires overnight. Of course your portion will be given to you after a substantial handling fee has been charged. That is, of course, you are not one of the chosen elite.


Then we can praise Zimbabwe for showing us the wisdom of the Fiscal Policy.

spanish inquisition's picture

Can't print too much, that would be financially unsound.

Enough needs to be printed so the banks heads are above water and you need a straw to breath (that is owned by the banks)

Freddie's picture

I want to sell all my gold and silver for a magic platinum coin.  Sadly I had a boat accident but I got to get a EBT/SNAP card and a magic platinum Oba/Krugman coin.

nmewn's picture

Me too...and I saved my ObamaFawn by holding it over my head and swimming with one arm!

James-Morrison's picture

This will ultimately end in a way that no one expects.

wildstylechef's picture

That's ingenious, I'll just take my monopoly money to the bank and pay off my mortgage !

All Out Of Bubblegum's picture

Tyler, this needs a repost on the front page in honor of Krugsy's Keynsian barbecue relish fetish:

joego1's picture

Why not just create a trillion dollars worth of ones and zeros on a magic disk drive at the fed. The only difference is who claims to be behind the green curtain.

andrewp111's picture

They have to follow the laws as written. Procedures must be obeyed. Even if he same effect could be done by other means, it does not matter. Rules are rules.

James-Morrison's picture

I stand by my previous call:

(1) US Treasury issues a $1 Trillion coin per household.

(2) Put it under your pillow at night and let the Fiat Ferry remove all your debt.



Tsar Pointless's picture

Sure. I quit drinking, then they pull this shit.

Curiously_Crazy's picture

That's ok. Do what most of us who quit drinking do. Switch to something else. Then take up drinking again.

drink or die's picture

Krugman is mentioning Joe W. in his blog.  Besides Joe obviously jizzing his pants, it also means the world is about to end.

otto skorzeny's picture

those fucking hebes stick together

Joe moneybags's picture

you sound like you have the heebie jeebies.