The one thing that jumps out at you when reading the mainstream posts of the past week-and-a-half bringing Platinum Coin Seigniorage (PCS)
into the forefront of attention again, for the first time since last
year's debt ceiling crisis, is that every mainstream blogger or
commentator is telling a story about minting a Trillion Dollar Coin
(TDC), or a few trillion dollar coins as an option the President can
either use or not to get around the debt ceiling. But no one is telling
us the much bigger story of the enormously increased authority to cause
the creation of fiat money, delegated to the Executive Branch by the
Congress in the 1996 legislation enabling PCS. And no one is telling us
what the possible implications of this change are for our political and
economic systems.
Background: Moving off the Gold Standard
This is reminiscent of the situation with the system of fiat currency itself in 1971, when President Nixon, took us off the gold standard for purposes of international trade. After Nixon's action there were no good treatments in the Press, or by economists, about how the move to a non-convertible fiat currency with a floating exchange rate ,and no international debts denominated in any other currency, had changed the financial system by removing the possibility that the Government could become involuntarily insolvent (“run out of money” except through its own choice not to create more).
Before Nixon's big change, the amount of US currency and reserves was limited by the amount of our gold reserves, because it was possible for other nations to demand payment in gold in return for the dollars they held in their accounts at the Federal Reserve. In fact, Nixon closed the gold convertibility window, because France had started what looked like might be a multinational run on the gold reserves of the United States, jeopardizing the stability of the dollar in international trade, and threatening its role as the reserve currency in the middle of the Vietnam War.
After the window was closed however, other nations followed the United States in leaving the gold standard, with the result that now we have a world of nations with fiat currencies, though many nations aren't “sovereign” in their own currencies because they've incurred debts in other currencies, or have pegged their currencies to the dollar, or, in the case of the Eurozone nations have, like the American States, given up their power to issue currency, and become currency users of the Euro (or the dollar, as the case may be).
Nixon's ending of the gold standard was enormously significant because it removed the gold supply solvency constraint on the United States. And it restored the powers of the Government given it by the Constitution to issue money as needed to provide for the common defense and the general welfare (today we might say fulfill the public purpose).
The Gold Standard Hangover and Progressive Fiscal Policy
But the full significance of this event wasn't understood by most government officials or the public, both here and in other nations. Constraints on spending that were appropriate for a gold standard-based financial system were never repealed. They persist to this very day in our institutions, in our minds, in our economic systems, and in our politics.
These included:
Read Full Article>>>
Follow up:
I've reviewed these posts, as well
as a cable segment, in the four earlier installments of this series.
The installments, beginning with this one, are here. The posts and the cable segment are by: Pethokoukis, Wiesenthal, Carney, Drum, Yglesias, Yglesias, Harry Bradford, Brad Plumer. and Chris Hayes.Background: Moving off the Gold Standard
This is reminiscent of the situation with the system of fiat currency itself in 1971, when President Nixon, took us off the gold standard for purposes of international trade. After Nixon's action there were no good treatments in the Press, or by economists, about how the move to a non-convertible fiat currency with a floating exchange rate ,and no international debts denominated in any other currency, had changed the financial system by removing the possibility that the Government could become involuntarily insolvent (“run out of money” except through its own choice not to create more).
Before Nixon's big change, the amount of US currency and reserves was limited by the amount of our gold reserves, because it was possible for other nations to demand payment in gold in return for the dollars they held in their accounts at the Federal Reserve. In fact, Nixon closed the gold convertibility window, because France had started what looked like might be a multinational run on the gold reserves of the United States, jeopardizing the stability of the dollar in international trade, and threatening its role as the reserve currency in the middle of the Vietnam War.
After the window was closed however, other nations followed the United States in leaving the gold standard, with the result that now we have a world of nations with fiat currencies, though many nations aren't “sovereign” in their own currencies because they've incurred debts in other currencies, or have pegged their currencies to the dollar, or, in the case of the Eurozone nations have, like the American States, given up their power to issue currency, and become currency users of the Euro (or the dollar, as the case may be).
Nixon's ending of the gold standard was enormously significant because it removed the gold supply solvency constraint on the United States. And it restored the powers of the Government given it by the Constitution to issue money as needed to provide for the common defense and the general welfare (today we might say fulfill the public purpose).
The Gold Standard Hangover and Progressive Fiscal Policy
But the full significance of this event wasn't understood by most government officials or the public, both here and in other nations. Constraints on spending that were appropriate for a gold standard-based financial system were never repealed. They persist to this very day in our institutions, in our minds, in our economic systems, and in our politics.
These included:
- Congress dividing the financial functions of the Government between the Federal Reserve and the Treasury;
- Congress prohibiting the Fed from directly buying Treasury-issued debt;
- Congress's ceiling on debt subject to the limit;
- Congress's prohibiting the Fed from issuing credits directly to the Treasury to implement deficit spending, forcing it to issue debt and making the terms deficit and debt close to synonymous in the public's mind;
- Congress's delegating its currency power primarily to the Fed; while leaving its delegation of the power to coin money with the Treasury; and
- Congress leaving the Fed, the Central Bank, independent of the Executive Branch and the Treasury, but, at the same time closely associated with the Banking and Wall Street interests that own the regional banks, and sit on the Federal Open Market Committee (FOMC).
Read Full Article>>>