darkestside (@darkestside)

With the looming debt ceiling crisis ahead of us, I thought it would be fun to discuss the reoccurrence of the platinum coin gambit. #MinttheCoin So it goes like this in short: The Treasury mints a platinum coin for a face value of $1T. It then deposits this coin at the Federal Reserve, in exchange for $1T worth of Treasury Bills that the Fed has purchased from the market. The Treasury then retires these liabilities, and the national debt falls by that same amount, thus kicking the can again. The big brains of the usual suspects assure us that this is both a good idea, and non-inflationary. This is a perfect example of the ability of very smart people to talk themselves into anything. First, we must understand how the US monetary system works (or doesn't). The Fed does not actually print money, but rather Liabilities in the accounting sense. The Federal Reserve actually has a balance sheet, on which it holds the Notes (Dollars/Liabilities) and on the other side Assets in the form of Treasury Bonds and gold. The Fed controls the money supply by either buying or selling assets into the market. If it wants to add liquidity (money), it prints it and buys Treasury bonds. To remove liquidity, it sells those bonds back into the market, and retires the Liabilities (Dollars). These big brains say that since the Treasury is just trading one asset (the Coin) for another (Treasury Bonds), and therefore not increasing the money supply, it will not be inflationary. This is technically correct. However, once this is done, the Fed now has $1T dollars worth of Liabilities floating around the economy, and on the Asset side, a 1oz platinum coin. It is now impossible for the Fed to remove that money from the economy, because 1oz of platinum is only worth about $1k at the market price. So it IS inflationary in the sense that it removes the Fed's ability to REDUCE the money supply. This does not even touch on how this Banana Republic gambit would look to our Creditors. @JohnRivers @TheZBlog