patrick.net

20 days now....and still the back-and-forth. Just more theater.

That said, what if they shoot past August 2nd? So what? the US will still pay its bills... in dollars.

terriDeaner says

20 days now....and still the back-and-forth. Just more theater.

That said, what if they shoot past August 2nd? So what? the US will still pay its bills... in dollars.

August is the month of two events in the world: Vacation/Holiday and War.

8/2 is Geithner's made up deadline. It's phony.

http://www.bloomberg.com/news/2011-07-13/u-s-rating-placed-on-review-for-downgrade-by-moody-s-as-debt-talks-stall.html

The republicans are going to raise the debt ceiling very shortly. Wall Street demands it. There will also be QE3 and probably another stimulus. I guarantee it.

thunderlips11 says

There will also be QE3 and probably another stimulus. I guarantee it.

QE3 is a strong possibility. But how would Obama get another stimulus package through the house?

terriDeaner says

But how would Obama get another stimulus package through the house?

Not sure. I think it will be a republican initiative (!!!). They will probably spend a few hundred billion on highways to nowhere and unwanted naval vessels in purple states for the 2012 election year.

I think those republicans are great at talking fiscal conservatism, but not actually towing the line on it.

Presidents who prefer to issue money directly, rather than by selling treasuries to the Fed and then the big banks who decide who to disburse the new money to, end up with bullets in their flesh. Jackson narrowly avoided the fates of JFK and Lincoln by caning his assassin after he misfired his pistols. They don't make men like they used to, like that tough hickory son-of-a-bitch. :)

Why we can't just print money and mail checks is beyond me. It is simple and direct; tens of millions receive direct checks from the federal government each and every month for a multitude of programs from the VA to the SSA.

But the power to decide whom to distribute money to at interest is both lucrative and intoxicating.

thunderlips11 says

Why we can't just print money and mail checks is beyond me. It is simple and direct; tens of millions receive direct checks from the federal government each and every month for a multitude of programs from the VA to the SSA.

I broke my 4000 cherry to agree with this.

I do wonder if Bennie can just give Timmy money w/o having Timmy print a t-bill in return.

thunderlips11 says

The government could just print

coin, actually. Geithner could send $500 coins to everyone every month. Genius!

The government can and has directly printed and distributed paper money, most notably during the Civil War, without going through any banking entity.

I didn't see anything in the Constitution about setting up a National Bank, and certainly not a public-private partnership cartel. The only mention of issuing money in the Constitution is that minting coins is reserved exclusively to Congress.

However, such things are the way they are. Not a problem:

Since the Fed is the creation of Congress, and the Creator delegated currency printing to it's Fed Reserve creation, therefore Congress can simply issue paper money itself without regard to the Fed. If Congress doesn't have the power to issue paper money, how then can they delegate an authority they never had to an organization of their own creation?

thunderlips11 says

If Congress doesn't have the power to issue paper money, how then can they delegate an authority they never had to an organization of their own creation?

There are two things here. First is that AFAIK current law surviving from the 20th century, authorizes the Treasury to emit something like $400M of greenbacks, tops:

http://en.wikipedia.org/wiki/United_States_Note

Secondly, Congress has delegated to the Treasury an unlimited power to create "bullion" coinage. I think bullion here means actual coins and not any form of paper currency.

At any rate, Congress has plenipotentiary power to regulate money in all its forms.

Article I, Section 8: "The Congress shall have Power . . . To coin Money, regulate the Value thereof"

The explicit power to regulate the *value* of money gave Congress the power to move to fiat money entirely and the power to "coin" money gives Congress the power to regulate what and what is not legal tender in the US.

The question remains what powers the Fed has to "print" Federal Reserve Notes to the Treasury, member banks, or the public.

That, I do not know.

We can ship all those irksome Golden Dollars to every household! As stated on another thread, the US Mint is swimming in the things to the point they're adding more storage since they keep getting returned.

People will spend them real quick to get rid of them. Talk about the velocity of money :)

Just a quick note about Obama vs. Congress on the budget -

President Barack Obama abruptly walked out of a stormy debt-limit meeting with congressional leaders Wednesday, a dramatic setback to the already shaky negotiations.

“He shoved back and said ‘I’ll see you tomorrow’ and walked out,” House Majority Leader Eric Cantor (R-Va.) told reporters in the Capitol after the meeting.

Looks like he gets it. He should squeeze this for all it's worth.

Read more: http://www.politico.com/news/stories/0711/58937.html#ixzz1S7L34J7i

The Republicans completely control the House, where revenue bills originate.

If they were serious about the national debt they could stop passing these spending bills, and/or vote to "reform" the tax system to bring in more revenue.

Of course, the Democrats did the latter in 1990-93 and the voters handed their heads to them in 1994.

The Democrats were too chickenshit to make that same mistake in 2009-2010, but someday we're going to have to pay for Bush's $3T+ wars, one way or another.

Income tax revenue now is FIFTY BILLION LESS than 2000. Per GDP, it's fallen from 13% to 8%:

http://research.stlouisfed.org/fred2/graph/?g=17P

Spending is more than double from 2000, from IIRC $1.4T to $3T:

http://research.stlouisfed.org/fred2/graph/?g=17Q

(this graph includes SSI, which was $500B in 2000 and $750B this year IIRC)

We can't spend $3T/yr on $1.3T/yr in revenue forever. Obama already put $1000/yr of my SSI and two years of Medicare on the table in exchange for $130/week in extra taxation for people making $350,000/yr, but the Teatards turned that deal down

shrekgrinch says

And yet MORE bullshit masquarading as 'constitutional scholarship' blesses us on these forums! The Constitution does no such thing.

Let's see:

To borrow money on the credit of the United States;
...
To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States;

I said "mint coins" instead of "coin money". This actually helps the case that the Government can flat out print dollars without recourse to the Fed even stronger. Arguing that coining money restricts the government only to actual coins is like arguing that since the Constitution only says Army and Navy, that there is no authority to create an Air Force.

shrekgrinch says

Last time I checked, the Fed does not issue paper money.

Uh, Shrek, pull a dollar bill out of your pocket and on the Face side, read the top most text in the border. "Federal Reserve Note". It's a banknote, although it is printed by the Treasury Dept. It is printed when the Federal Reserve buys US Debt.

As you say, however, most money is in electronic format. No reason Congress can't credit everybody's account with $1000 dollars. Those without accounts can apply for a bankcard with $1000 on it, by showing their SS Card/Passport/Driver's License at the nearest SSA office.

Why let banks distribute new money?

Since the debt is everybody's equal responsibility, then when new money is printed it should be given to every person, equally. If new money is only given to the banks, then the banks alone should be responsible for satisfying the underlying debt behind it, no?

Given the fact the government writes tens of millions of checks directly to individuals, and mostly via direct deposit, in a multitude of programs, this should be no obstacle. It ain't 1850 anymore.

thunderlips11 says

If new money is only given to the banks, then the banks alone should be responsible for satisfying the underlying debt behind it, no?

Money is never "given" to banks.

edit: except through the current side-door of paying interest on reserve balances.

thunderlips11 says

This actually helps the case that the Government can flat out print dollars without recourse to the Fed even stronger. Arguing that coining money restricts the government only to actual coins is like arguing that since the Constitution only says Army and Navy, that there is no authority to create an Air Force.

pretty good rundown here:

http://www.economicstability.org/history/the-coinage-clause-in-the-constitution

Note that the Executive is limited by standing law what it is allowed to do by the Congress.

Same thing with the Fed. The Fed is a creature of Congress.

shrekgrinch says

They didn't print it, as you yourself just verified. Hullo, McFly! Hullo!

Uh, the bills were printed at the Treasury, but are ordered by the Federal Reserve. It is a BANKnote. "Federal Reserve Note". Not "US Dollar" like previous dollar notes contained.

shrekgrinch says

You do realize that you just contracted your second point by describing your ideal process in the first paragraph?

No, improve your reading skills. My ideal process and what really happens are obviously two different things. I want the Treasury to directly issue currency without reference to the Federal Reserve.

Current Process:
1. Treasury and only the Treasury mints only physical coins
2. Federal Reserve buys US debt from the Treasury.
3. The number of electronic and much smaller physical quantities Federal Reserve BANKnotes clearly titled "FEDERAL RESERVE NOTES", whose value is denominated in US Dollars are then tallied
4. Federal Reserve places order with Treasury to print some of the dollars bills physically on their behalf; and a much larger amount (95%+) is created as electronic money.
5. Both physical and electronic money is then distributed to Banks by the Federal Reserve.

6. The US Government is on the hook for the debt used to underpin the Federal Reserve Notes.

Thunderlips Ideal Process:
1. Treasury and only the Treasury mints physical coins.

2. Treasury, WITHOUT ISSUING DEBT, directly prints USD in electronic and physical format for distribution without any involvement by the Federal Reserve.

2b. To be clear: No Bonds must be sold to the Fed to create this money. It is literally created out of thin air without even promises to pay.

3. On the physical bills instead of "FEDERAL RESERVE NOTE" it would simply say "UNITED STATES DOLLAR"

4. No debt was created in this process that has to be paid back by the US Government.

Two entirely different processes.

To reiterate for absolute clarity:

The Current process requires the creation of debt for the vast majority of new currency printed.
The Second process is the direct creation of US Dollars with no debt required at issuance.

shrekgrinch says

All you've done with that one is prove that you just know the buzzwords but not the underlying concepts. The debt is not 'everybody's responsibility' and the money created by the federal reserve system is not 'given to the banks'. The money is loaned to them, which they are expected to pay back -- which is how the system works already.

Why not distribute the money directly and knock out the payment to the Federal Reserve middleman, who simply isn't necessary.

If the only way to create large amounts of USD is by selling debt to the Federal Reserve (Banks), then the only way to create more money is to issue more debt.

The government distributes checks to tens of millions of people, and countless entities, every month, in the many tens - probably hundreds - of billions. It is more than capable of disbursing new money directly into the economy, to whomever it chooses.

My system would NOT entail the creation of any new debt to create new money. It would cause some badly needed inflation which makes the debt easier to pay off and life better for average American who is crushed under regular debt payments, most of which are fixed (Cars, Mortgages, Student Loans, etc.).

thunderlips11 says

This would entail the creation of any new debt. It would cause badly needed inflation which makes the debt easier to pay off and life better for average American

This is the central misapprehension that I see literally EVERYONE making, that cost inflation is going to magically lead to wage inflation this decade.

I think this is very debatable, what with U-6 at 15%+ and the wage level of China still an order of magnitude lower than ours.

Gasoline at $10/gallon isn't going to drive this economy out of recession!

It will certainly help Texas, Alaska, and other domestic suppliers, but that's just wealth transfer and not wealth creation.

shrekgrinch says

Let me ask you this: Are you one of those fools who thinks that banks create money too?

Banks do create money. It's called Fractional Reserve. I suggest you read up on it.

Troy says

This is the central misapprehension that I see literally EVERYONE making, that cost inflation is going to magically lead to wage inflation this decade.

I think this is very debatable, what with U-6 at 15%+ and the wage level of China still an order of magnitude lower than ours.

Troy, this is true. However, it is awfully hard for HR to explain that a "Noughties" Standard 2% raise after a year when inflation is running 12% isn't a 10% pay cut. Some businesses can't be outsourced, one might argue the majority of jobs now left in the US are now non-tradable services.

Another reason I wish the treasury to print non-debt backed currency and distribute it directly to people is that by the time people usually get inflation pay adjustments, inflation has already been "Baked In" for a while beforehand (Banks -> Big Business -> Smaller Business -> Payroll). Doing it the opposite way, by disbursing the cash first to People, will put Bigger Enterprises and Banks at the end of the line for a change.

Hopefully, people will spend the money before Big Biz and Banks adjust prices upwards accordingly, and get a little free dough, the reverse way it worked in the 70s.

In my mind, 2-3% inflation = stagnation, since historically moderate inflation and growth are linked. I prefer to believe that the system is stagnant, rather than that economic monetarist geniuses have given us low inflation with moderate growth like they claim.

thunderlips11 says

Banks do create money. It's called Fractional Reserve. I suggest you read up on it.

I was going to jump in on this but I think shrek is right here. Banks can't create checkbook money but they can add to money supply, or "bank money" by lending out people's savings to other people.

But Money in a CD is no longer money. It's savings. If you can't buy something with it, it's not money.

Interestingly, I read some time ago that there is no reserve requirement for much of the money the banks hold for us.

thunderlips11 says

2-3% inflation = stagnation, since historically moderate inflation and growth are linked.

3% growth doubles the economy after 20-odd years. I don't think we have another doubling ahead of us by 2033. Then again, with hedonic adjustments, maybe we will.

thunderlips11 says

On the physical bills instead of "FEDERAL RESERVE NOTE" it would simply say "UNITED STATES DOLLAR"

And I want to thank Honest Abe for going on about dollars some time ago, I never would have known these existed without that.

Troy says

I was going to jump in on this but I think shrek is right here. Banks can't create checkbook money but they can add to money supply, or "bank money" by lending out people's savings to other people.

Troy, respectfully checkbook money (commercial money) is the money banks multiply.

My system would NOT entail the creation of any new debt to create new money. It would cause some badly needed inflation which makes the debt easier to pay off and life better for average American
TL, They finally got things under control in Zimbabwe when they dropped the Zim dollar and went to the Greenback as their currency. Now you want us to go that route? Debt creation via the issuance of Treasuries give you some sort of market feedback mechanism. Even then, many folks are skeptical that the Fed will be able to drain the swamp in time (if and) when inflation takes hold. Helicopter Tim is an even more frightening concept, IMHO...

EBGuy says

Debt creation via the issuance of Treasuries give you some sort of market feedback mechanism.

How can you pay down the debt?

When we create USD, we only create money from the amount on the issued debt. Where does the money to pay off the interest come from?

Only by issuing yet more debt, at interest... since it's the only mechanism to create more USD.

reading wikipedia I see you're right that bank money goes into M2 and is not just M1 and that banks are free to lend out checking account money at up to a 12% reserve requirement, which by any measure is money expansion since the same dollar can often be in multiple checking accounts at once!

EBGuy says

Helicopter Tim is an even more frightening concept, IMHO...

Back in 1912 the system had to choose between Helicopter Ben and Helicopter Tim.

Hey Troy, nice quote from that link you passed along:

To the modern speaker of English, the metallic meaning seems the more natural one,267 but this was less so in the eighteenth century. When speaking of matters other than the financial practices of the British government, eighteenth-century English speakers, like Shakespeare’s Falstaff before them,268 often used both the noun and verb form of “coin” in broader ways. This was true not only of rogues like Falstaff, but of quite respectable people. For example, in his celebrated Cyclopedia, Ephraim Chambers wrote, “The Hollanders, we know, coined great quantities of pasteboard in the year 1574.”269 This formulation was later adopted almost word-for-word by the Encyclopedia Britannica.270

What could be said of pasteboard and the Dutch could also be said of paper. In 1700, the anonymous author of a pamphlet on trade reflected on how other nations might compete with the English woolen trade by “Coining Paper Money.”271 In 1720, economist John Law proposed “Coining Notes of one Pound”272 and otherwise “coining” paper money.273 A few years later, Daniel Defoe related how tradesmen “coined bills payable from one to another.”274 When the American colonies declared their independence, John Shebbeare attacked them for “coining paper money.”275 The debates in the Irish Parliament of 1784 include a reference to “coining paper into money.”276 Thomas Paine argued that “[o]f all the various sorts of base coin, paper-money is the basest.”277 When Benjamin Franklin urged issuance of Pennsylvania paper money secured by land, he characterized it as “Coined Land.”278 In the 1742 case of Charitable Corporation v. Swfitm,279 Chancellor Hardwicke referred to “notes coined”280 by private parties, and to “coining notes.”281 These are not isolated examples.282 And although not everyone approved of applying the word “coin” to non-metallic media, the existence of a recorded protest testifies that the usage was common enough.283

So historically, paper money was indeed "coined".

"Actually, get this: It is a liability...credit...an IOU."

yes, I can read a balance sheet.

"They did not create the money being used, the Fed did and the bank has to scrounge it up just like you and I have to to make good on our financial obligations."

No, you're wrong here (as I was wrong about our savings). Fractional reserve lending does in fact create real checking account money. I put $100 into my checking and WFC can give you $88 of it as a loan that you deposit in your checking. Boom, there's $188 of M1 in the system, with no Fed input at all.

Boom, there's $188 of M1 in the system, with no Fed input at all.

Nope. The Fed still has input in their supervision and regulation operations of the member bank.

shrekgrinch says

And the greenbacks all said 'United States Note' not 'United States Dollar'. It would say on the obverse who many dollars it was in value. 'Dollar' is a measurement unit of value. The 'note' is the financial instrument that has legal tender qualifications as official United States currency as denominated in dollars.

Thanks! You're making my point. Greenbacks were "United States Notes" issued directly by the government, not "Federal Reserve Notes" that are created by the Fed from government debt. We did quite well economically after the civil war, for many years.

Old Abe avoided us going deep into debt with Europe to finance the War.
shrekgrinch says

Caught another of the ignorant.

No, they don't create money. They only create CREDIT. The federal reserve creates money if the bank needs it (and technically, only as last resort) in order to operate.

I suggest you learn how shit actually works, not the buzzwords like 'fractional reserve'.

Credit Money IS Money. What's the difference? A bank giving you a $900 credit line based on somebody else's $1000 deposit is $900 any which way you slice it. The vendor sees both USD and your credit as being the same. Now there is (at least) $1900 in the system, and even more will be created when the vendor deposits the $900 he got from you.

shrekgrinch says

No, that is not what you were talking about in reference to my quote, which was in reference to what you quoted: Basically bullshit about only Congress being allowed to coin money and Congress not allowed to print money. Nothing in there was about your 'ideal way things should be'. You may have mentioned it elsewhere, but not there.

I said it's claimed by those who don't want the USD directly printed by the Treasury that Congress can only "Coin Money" and therefore we need the Fed to print dollars, and I'm trying to explain why this ISN'T true, historically and by virtue of the language and spirit of the Constitution.

Troy has a great link above that provides evidence that the word "Coin" can and has referred to "coining" paper money during the timeframe when the Constitution was adopted, in both Holland and Britain.