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<nettime> Platinum jokesters
Brian Holmes on Wed, 16 Jan 2013 19:23:05 +0100 (CET)

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<nettime> Platinum jokesters

[From the we're-much-closer-to-socialism-than-you-think department.]

"Seriously, what's so funny about a trillion dollar coin?"

by Dan Hind

Mohandas Gandhi once gave a useful summary of the political process: 
"First they ignore you. Then they laugh at you. Then they fight you. 
Then you win." Each tactic will be used for as long as it remains 
effective. After all, why would your opponents pay you the compliment of 
acknowledging your arguments unless they absolutely have to? The 
appearance of jokes, then, is often a significant moment. It marks the 
point where the first line of defence has collapsed.

Before the financial and economic crisis, there weren't many people 
interested in talking about the mechanics of money creation and hardly 
anyone paid them much attention. Since then, the world's central banks 
have bailed out the financial sector with money whose origins were 
mysterious to most people, the Federal Reserve has launched three rounds 
of quantitative easing and the Bank of England has apparently thrown 
caution to the wind in its efforts to fend off a deflationary spiral.

The recent flurry of interest in the trillion dollar coin is a sign of 
how far we've come. In the summer of 2011, Jack Balkin came up with an 
apparently wacky idea. He suggested that the American government could 
circumvent the debt ceiling by issuing a trillion dollar coin and 
depositing it at the Treasury's account at the Federal Reserve. The 
money could be used to meet the government's outgoings without any 
increase in borrowing. This last debt ceiling crisis has put the issue 
back on the table.

A new discussion

Imperious silence about the mechanics of money creation no longer cuts 
it. Too many people have begun to ask questions about where money comes 
from, and why exactly some banks are too big to fail. Still, we are some 
way off the moment when a serious discussion of money will become 
possible. The present arrangements can only survive for as long as they 
remain undisturbed by general comprehension. Once we can think clearly 
about money, the game will be up for everyone who benefits from the 
current distribution of risks and rewards. This is something that the 
powerful have good reason to prevent, if they can.

So here come the jokes. Jon Stewart on the Daily Show hooted at the very 
idea of a trillion dollar coin: "I am not an economist, but if we are 
just going to make s--- up, I say go big or go home - how about a twenty 
trillion dollar coin?" Stephen Colbert came up with "we should have 
known a coin was Obama's solution to everything. It was right there in 
his slogan: 'Change'." Last week America's big league satirists were 
serving up the next best thing to silence - the sound of high status 

The journalists were at it, too. Heidi Moore over at the Guardian called 
it "an elegant solution - if you are a cartoon villain given to sitting 
in a vast underground bunker and innovating plans for world domination 
while petting a white cat". Paul Vigna finished his blog at the Wall 
Street Journal with the warning that "if printing, or minting, money was 
a real solution to a nation's problems, Zimbabwe would be an economic 
superpower". Hilarious stuff.

Moore also made what she thought was a serious objection to the idea of 
a trillion dollar coin: "The US mint probably doesn't have the capacity 
to create one out of real bullion". This was one of those illuminating 
moments when the Guardian and right-wing cable news were of one mind. 
Last week, Fox News told its viewers that a trillion dollar coin would 
weigh as much as 89 blue whales. And how silly would that be! Except 
coins don't have to be made of precious metal to be worth money, any 
more than dollar bills needs to be made from pixies' petticoats.

Moore had the sense to acknowledge that, yes, "the mint could, on the 
direction of Treasury, just make a platinum-finished coin that bears the 
face value of $1tn". But, she insisted, that "would just create a 
nonsensical level of inflation in the value of the US dollar". Funnily 
enough, both she and Vigna were wrong about that. Paul Krugman points 
out that "printing money isn't at all inflationary under current 
conditions - that is, with the economy depressed and interest rates up 
against the zero lower bound".

There are more problems with the idea that increasing the money supply 
is inflationary than Krugman wants to admit. Banks effectively print 
money when they issue loans. In other words, the financial sector is 
responsible for the creation of most of the money in circulation. To put 
it in terms familiar to Jon Stewart, banks make money up as they go 
along - trillions of dollars of the stuff. As the level of debt 
increases, so does the money supply. This can happen for long periods 
without any noticeable impact on the price of goods. The credit bubbles 
in the United States and the United Kingdom inflated at a time of 
persistently low inflation.

Onto a different model

So why do we let banks lend our money into existence and charge interest 
into the bargain? In theory, the profit motive makes bankers think 
carefully about who they lend money to and why. Productive enterprises 
and canny entrepreneurs will get the funds they need and the economy 
will grow. It's a lovely idea. In the real world banks prefer to lend 
money against real estate and other speculative assets. As long as the 
supply of credit increases, prices rise, interest payments are met and 
bonuses are paid. Everyone is a genius. When confidence collapses the 
government steps in to prevent a disaster. In the confusion the bankers 
run off with the loot and, after a brief pause, start calling for 
governments to take action to reduce their unsustainable debts. Hence 
cuts in government expenditure.

The record shows that banks aren't terribly good at managing the money 
supply. Perhaps it's time to think about an alternative model, where 
those ultimately responsible for liabilities in the financial system 
determine where credit is allocated. That is to say, the citizen body as 
a whole decides what kinds of activities it wants to fund through the 
creation of debt and hence new money. After all, both the overall level 
of debt and the uses to which it is put are matters of pressing public 
interest. They are not particularly complex. In fact, as Galbraith says, 
they are repellently simple.

But don't expect a rational discussion just yet. The US Treasury has now 
announced that it has no intention of minting a trillion dollar coin. 
For a while money creation will vanish from the news. The next time it 
appears we'll have to wade through some more gags about how silly it 
would be if the monetary system operated *as it in fact operates*. We 
are gregarious creatures and it is easy persuade us to stay away from 
subjects that those in authority insist are absurd. But ridicule will 
not obscure so simple a truth forever. Eventually the jokes will wear 
thin and we will have a fight - or a debate - about who controls the 
economy, a secretive state in cahoots with shifty and disreputable 
private banks, or a sovereign people.

And then, if Gandhi was right, we'll win.


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