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.