https://www.blogger.com/blog/post/edit/2133355681582705445/3536767121786570295
Philip N. Diehl
President, U.S. Money Reserve
35th Director, U.S. Mint (1994-2000)
Chief of Staff, U.S. Treasury Department
Staff Director, U.S. Senate Finance Committee
Co-Author of 31 U.S. Code § 5112(k)
Stephanie Kelton
Professor of Economics & Public Policy, Stony Brook University
Chief Economist, Senate Budget Committe (Dems) (2015)
Senior Economic Advisor, Bernie Sanders (2016-2020)
Author, 'The Deficit Myth' (2020)
Rohan Grey
Assistant Professor, Willamette Law
Director, Public Money Action
Joe Weisenthal
Co-Host, Odd Lots Podcast
Mint The Coin!
Or:
How to Stop Worrying and
Love the Trillion Dollar Coin
Public Seminar[1]
January 23, 2023
Transcript
Everybody. I'm daniel.
I'm one alley here at Columbia. Me and Michael put the event together.
Today with a lot of help from our co sponsors, who we want to thank the Columbia Law and Political Economy.
Society, the Laminate Law and Political Economy Society, as well as the Modern Money Network and Public Money Action. And we also want to thank the.
AV and It team for getting us.
Set up to this event today on.
Gold Coast as well as our caterers at Dig.
Folks, feel free to keep filing in.
We've got a lot of exciting things.
To talk about today, so we're going to get started. And with that, I'll turn it over.
To Professor Kate Judge.
All right, I want to keep my opening topic incredibly brief because we have a wonderful panel and an incredibly important and timely topic. I want to start really briefly by really thanking the student organizers along with all of our panelists for being here, part of this important conversation and really also to situate why it is so important and valuable that the law and political economy student organizations are the ones who are supporting this overall conversation today and part of this broader movement. So for those outside of Luvania, for hopefully a good amount, the people who are currently so those are outside of law political economy. I didn't know that I drove all the people crazy during teaching therapy. I can't stand still know that actually one of the most valuable contributions to the LTE movement has made economic policy making, not just a specific idea for those that are going to be speaking today and others who have helped to do things like reinvigorate the conversation or on competition policy, but to really change the paradigm over who it is that ought to be engaging in this conversation and what it ought to look like.
For far too long, economic policy speaking had really been delegated to the domain of tenant rats with the idea that there were going to be expert answers to difficult questions over how best to structure the economy and the types of solutions that ought to be on the table. And the biggest contribution of the LPA movement has been not just expertise. Everybody who's going to be speaking today is experts on the topic that we are going to be covering. But instead, to really broaden the field of the type of experts that we need understanding that these are not matters. Of just democratic expertise but instead there's going to be incredible range of ramifications and simultaneously opening the door for experience, of lived experience play a meaningful role shaping these basis. So suddenly economic policy making is not going to be something that is signed where we are delegating or handing off experts, but instead is part and parcel of the democratic enterprise and trying to figure out what to state, what are the various values that we care about. And quite importantly, as today's conversation reflects, how can we be creative about thinking about the options before us?
And let's look a little more critically, a lot of what we view as constraints, as potentially self imposed constraints as opposed to constraints that actually need to be binding. And it's against that backdrop that we are going to have a really exciting conversation today. And it's a conversation not only about whether we opt to limit the trillion dollar coaling, but about the debt ceiling. Like why is this thing actually what are the functions playing? What are the functions potentially not playing? In some ways it's an incredibly depressing conversation about everything that songs will be is broken, about how politics is certainly happening. I would actually view it as an incredibly hopeful conversation because we're having this conversation because the Treasury Secretary actually feels obliged to weigh in as major publications are weighing in on whether or not this is the right path forward. And the question for me is not just is this the right path forward, but is this a conversation we need to be having? And part of what we're seeing is.
This is now a conversation that we're having.
So with that I'm really excited to turn it over to four people who have been so critical to helping tour. This is a conversation that we ought to be having in the order that they will be speaking. We're going to start off going to the West Coast where we have Phil Peel, president of the US monetary Reserve and previously 35th Director of the US. Nick, Chief of Staff, the US treasury Department and Majority Staff Director of the Senate Finance Committee in addition to all of the faults in the case of business perspective, his conversation. Stephen Kellen joining us right here. Professor of Public Policy at Stony Bird University, formerly Chief economist, the US. Budget Committee senior economic advisors for standards campaigns in 2016 and 2020 and overall, incredibly influential in expanding the policy window when it comes to thinking about what we want to achieve through monetary policy, but more importantly, also through how we got to be thinking about the deficit. Joe Weisenthal, Executive Editor for Bloomberg Digital, co host of Oblab and again, somebody has been incredibly in trying to figure out how we broaden the engagement around these issues and of course, our moderator and one of our key organizers, rob Grey, professor at Limit University and head of the Modern Monetary Network.
So it's an incredibly wonderful lineup and hopefully full on your questions because we also want to try to structure it in a way that really did really robust conversation. So with that, I will turn it over to Philip.
Let me just pull it up for us.
All right.
Well, I'm first of all, I'm delighted to be here. I think the expertise I bring to the table is, number one, I wrote the bill that created the trillion dollar coin. Sometimes the question is brought up about, well, how did you do that? You weren't a member of Congress. The fact of the matter is, members of Congress don't write bills. Bills are delivered to their office and sometimes by lobbyists, sometimes by agencies, sometimes by committee staff. They go through the process of being formalized by the Legislative Council. I happen to be the head of the agency. The United States meant at the time. That, by the way, is a presidential.
Appointment with Senate confirmation.
I have stories about the confirmation process. I can tell. But I'm not going to get into here. But as the head of the agency, I conceived of the trillion dollar coin. I had very specific objectives in mind.
I am a Democrat.
I was appointed by a Democratic president, Bill Clinton. I worked for the Republican Committee.
Chair.
So this was a bipartisan effort, and together we passed that bill. And the fact that it can have.
A trillion dollar denomination on it was absolutely part of the intent. We did not foresee putting that kind of face value on the coin, but it was very explicit. And in fact, it was the first time, to my knowledge, in American history in which Congress had not mandated the face value of a coin, but had left it to the discretion of the Secretary of the treasury. I think the other expertise that I bring to the table is that as a chief of staff at the Treasury Department, to the secretary at the beginning of the administration, I have insight into how decision making is made. And the political and policy aspects of decision making inside at the highest levels of the Treasury Department, including its interaction with the White House. I was the Treasury Department's liaison with the White House in my position and also with the Federal Reserve. And then I also spent time at very senior levels of Congress as legislative director to Lloyd Benson, democratic Senator from Texas, and as the staff director of the Senate Finance Committee. So I think those are the perspectives and the expertise that I bring to the table.
And like I said, I'm delighted to be here and address some of the myths that have been spun around the trillion dollar coin and answer any questions.
Going to jump over to Joe is that next?
Sure.
What are you doing?
Okay. I don't know if I'm supposed to pick this number. If this sound is all right, talking like that. Is that okay? Is that working for you, rowan over there?
Yeah.
Thank you, really, to Rowan for organizing this and for all the people who do the work on the back end. This is my first psychosal event, so this is pretty cool. And I am impressed already that the technology has gone off without a hitch, and we're all here together having this, I think, really important conversation. I'm not an expert on the platinum point. I'm not a legal expert. So my background and I guess expertise is I'm in a different lane. I'm an economist and a macro economist, and I teach finance and budgeting. And as you heard, I work in the Senate, so I have a little bit of experience dealing with the sort of budget fights and the kind of stuff that we're being treated to once again today around the debt fights and so forth. For anyone who isn't entirely clear about the debt ceiling, I'm still getting questions about what it is from people. I've been writing a little bit about this recently, and it is crazy that we in the United States have this thing called the debt ceiling limit that only one other country in the world has, and they don't weaponize it the way that we do here.
10:30
But if you imagine most of you are law students, am I right here in this room? Okay, so you understand what it means to make a contractual commitment, right? So I think of this, and I think, like, imagine you go into a restaurant, and you sit down with a group of people, and everybody orders their meal, and the waiter takes the order off to the kitchen, and the chefs get to work the fairy meal. You're on the hook, right? You placed an order. You have an obligation to pay for the food that you order. How many times does the waiter come back to the table while the food is being prepared to say, are you sure you want the snapper? Do you really want the scallops that you deserve? It would never happen. Nobody comes back to you and asks you to reaffirm your order once you place it. But that's what the debt ceiling is effectively asking Congress to do, like reaffirm the spending that has already been committed through the budgeting process with the executive branch. And so it's a crazy thing that we allow this to periodically impede what should be a fairly normal process by which the spending has been authorized by Congress is undertaken by treasurer.
But now we have a situation where two different sort of sets of instructions are being sent. On the one hand, this is what we want the executive branch to send. And on the other hand, oh, by the way, we don't want any more treasuries outstanding that are currently out there, right? So don't issue any more. And so here we are today with Philip Deal. Man who had played a big part, had a hand in drafting legislation that allows, it would seem, Congress to abide by treasury, to abide by everything that it's been instructed to do, right? Don't issue any more treasures and spend what we told you to spend. And by the way, it was Congress who created that avenue through which treasure can do it all. And that's what we're here to talk about today, I guess, is exploiting what many are calling a loophole. And and I'm sure we're going to hear more about sort of the original intent in that legislation and so forth. But the reality is the alternatives are it seems to be pretty unthinkable whether you violate the Constitution in one form or another, or you do this thing that on the surface, people say that seems a little weird, right?
But I think Joseph made a really good point about how the coin is like, the least weird thing that we do when it comes to creating money and spending. And historically, it's probably the most normal way to go about making expenditures.
13:20
Yeah, I'll pick it up. So thank you for that. I'm Jill Wisenthal. I co host, been a journalist for a long time, always up, like finance and economics and markets. I currently co host the Hot Lots podcast. And Bloomberg. And I've been interested in the coin really since the very first of the multiple debt ceiling fights.
I've seen it in 2011.
And as soon as I heard about it again, I think I've been pretty convinced that that's a legal option. And as a journalist, what's interesting about it for me is the sort of opportunities that this discussion is in terms of understanding how our sort of monetary and fiscal system there are so many, like, embedded lessons in it just from this one topic that are, you know, really interesting. Stephanie talked about the sort of absurdity debt ceiling and how contrived it is, but also why? How does inflation happen? Because, of course, intuitively, a lot of people say, not a problem, welcome to Zimbabwe, this is inflation. Why is that or is that not the case? There's like a really interesting lesson. How is it fundamentally or not fundamentally different from issuing treasury from an economic perspective? What does it mean to add, like, another trillion to, like, an asset that the Fed holds? These are all really sort of interesting questions. Even in the absence of ever missing a trillion dollar coin, by having these conversations, I think we can learn more about the system as it is. And so from a journalistic perspective, that is my main interest in it.
Like all these other things that we can learn by having this discussion. Somebody was saying we were talking earlier, it really does seem to me on some level, like governments have been issuing coinage for over 2000 years, 2500 years or 600 BC, something like that. It's not weird in my mind. It's like legal questions saying, what's the thing going to say if they try to deposit? I'm like a coin. This is like something really crazy innovation that's uncomfortable. Like, yeah, the denomination would be a bit higher than normal, I think everyone would acknowledge that. But on the other hand, look at any coins you have in your pocket or piggy banks. No connection between the phenomenal face value and the metallic content or anything like that. And so to me, it's just like a very interesting way of learning about our system. And I think I'm not supposed to have opinions as a journalist, but I think a default would be probably very bad for the economy. And so avoiding default seems like a very good thing. And to the extent that is legal, and I think it's extraordinary, it's so cool to be on a panel alongside former Director Deal.
The legal issues are all the legal background is.
Thanks. 1 second. All right, well, thanks so much for all being here. Thank you to the students to organize this. Thank you to the It team, the caterers, everybody else. It's an absolute pleasure to be on a panel with such great people. I'll try and keep my remarks brief, which is never a guarantee, it's not a trillion minutes in a day. But my goal, I think, with this is to try and convince you all now that we've got you here, with the big splashy headline, now that we've managed to break through in the popular media discourse with the numbers so big that it breaks people's sense of norms, to try and make a reasonable case. Not the crazy person case that I get associated with, but the other one, the case that I want to make today, and hopefully we can kind of tease it out with everybody else with their respective expertise, is that default is the worst possible case scenario. Default is the actual extreme thing that we're talking about here. Of all the ways that this could end anybody being responsible for allowing the United States to default, not just on its existing treasury debt, but on the obligations to pensioners, to employees, to people who've got contracts with the US government that would hurt, hurt real people, cause pain, cause suffering, cause economic devastation.
We can joke about accounting gimmicks, we can joke about political hardball, but there are real people that are going to suffer if we don't actually resolve this problem. That's the first point that I want to make as a lawyer, as a law professor, I want to make the point also that there is no actual constitutional basis for defaulting. Not the treasury, not the President, not the Supreme Court, and not the Federal Reserve, the 14th Amendment that says the debt shall not be questioned. Article Two that says the President shall take care to honor laws passed by Congress. We are talking about bills that have already been sent out, as Stephanie said, and the question is, does anybody have the right to second guess those bills and put people in economic pain as a result? And I'm very, very grateful that Eric foner, the historian of the civil war, had an article in the new york times today talking about the 14th amendment, where the point that he makes is the 14th amendment was instigated. To ensure not only that individuals would somehow try to prevent Civil War debts from being paid, but actually that Congress itself couldn't retroactively undermine the debts that were already incurred.
A future white supremacist Congress that managed to take back over the United States could not retroactively declare the debts incurred during the Civil War invalid. This was a constitutional provision higher than any individual branch of government to the extent that we believe in constitutional governance at all. The constitution said neither the president nor the judiciary nor the legislature itself can undermine the debts that have already been incurred. So when we are talking about extreme catastrophic scenarios, when we are talking about who is exercising an extreme acquisition of power that they do not have anybody that tells you that they can cause default, that it's their right to say options to avoid default are being taken off the table, are being the constitutional extremists in this conversation. And I hope that we can get to the point where people feel convinced by that by the end of this conversation. So I think this is a stupid made up rule. I've gone into a lot of legislative history about what its actual purpose was. The debt ceiling's job was to make it easier for the executive branch to spend what Congress had told them to spend, not harder to take 100 different individual spending authorities and combine them together.
And ultimately that happened at the same time, as Congress tightened the screws on how much to spend, they said, you can't spend more than we tell you. You can't spend less than we tell you. Like goldilocks. You have to spend just right. But when we tell you how much to spend, you don't have a reason not to do it. You have the discretion to use whatever tools at your availability, but you cannot say no. And that is not only in the Constitution. That is not only in the basic sort of 6th grade social studies separation of powers. It's also 180 years of Supreme Court precedent going back to 1838 with Kendall v. Stokes, where the court said that once Congress has determined that certain spending be made, the executive branch has no constitutional power not to spend. Note. There the executive branch, not the president and the treasury, but the fed gets to do what they want. But the entire executive branch, every single entity that stands between the coin being minted and default. Who obstructs the coin being minted? Sorry, in the wafer, default is violating supreme court precedent, and that includes the contemporary supreme court, if they were to go that far.
The good news is I don't think the Federal Reserve or the Supreme Court is politically suicidal. I disagree with a lot of what they both do, but I don't think they are that suicidal that they would want to be responsible to put their hand up to cause a default. So the question I think to ask ourselves is, is there a world in which every other possible outcome gets exhausted and that the choice is really default augmenting the client? I am not here to tell you that it has to to be your favorite option or that it even should be the option that you think is the most sensible. I have reasons pedagogically while I like it, but you don't have to share them in the slides. But what I do want to try to make the case is that when you're faced between a cliff and pressing a button, that sounds a bit unusual. It's the button that we should be talking about, not the cliff. And when we are looking at this moment, what we are hearing from the Democratic White House and the Treasury Secretary not the Republicans who are so nihilistic that I don't think they even deserve to be taken seriously in this conversation, but the people that are claiming to be adults in the room, what they are saying is that if we don't resolve this through the political process in Congress, we will barrel off a cliff and hit default once we exhaust every other extraordinary measure.
And the answer the question I think that has to be posed to them is the coin has to be the alternative. Why are you not willing to consider the Coin when the alternative is so catastrophic? Is such a constitutional crisis the Federal Reserve might not accept it is what Treasury Secretary Yellen said over the weekend. Well, last I checked, the Federal Reserve is not a constitutional law scholar, and it's certainly not a higher power than the Constitution itself. So where is the Federal Reserve in the constitution? I can't find it. Where is the Federal Reserve's power to supersede the 14th amendment? I can't find that either. And most importantly, where does the Treasury Secretary get off in saying that it's not her job to fulfill her constitutional responsibilities? So take a moment and think about that. I'm happy to defer back to the other experts and we can get into some of the questions. But thank you very much for being here. Maybe we can hand it back over to professor judge, do you have any initial questions you'd like to ask?
Well, I was specifically told I wasn't allowed to moderate. Let me, if you'd like, come in, though. I'll come in the ability to ask questions even when I haven't been spending on it.
The trick is to know that you.
Know in advance.
And I'm told you shall not moderate, I'll come back up to where you ended. One of the things that exciting about the conversation around Kauai, it is for other proposals for unusual bonds and other options, interesting questions over if we actually get to that point, what are the range of options that might exist? And one of the interesting ones for me is do you want to create a solution that just does away with this bullshit coin is trying to get at or you want to kind of say, like, you're going to engage with parts of politics or we so let's get this administration to where they need to be. If the Republicans want to make decisions that might not be optimal for that in the future, let them make those decisions in a public and politically accountable way. How does it start to think about that when we get back to the point of, like, do we want to go forward with the coin or do we want to go forward with one of the other alternatives that's now emerging?
Do you want to maybe respond, okay.
So invoking the 14th amendment is, I think, along with a trillion dollar coin, sort of the two best options at the last moment. And I think the politics of this confrontation sort of drive toward a cliffhanger.
In which a decision would be made at the very last minute.
And the reason for that is that it looks increasingly likely that the Republicans in the House in particular are in a position where they're committed to a.
Confrontation to the end.
Now, you never know about this until.
You get to the end.
And also the White House has laid out that it's not willing to make compromises and make major cuts in Social Security, Medicare and other programs that Republicans in the House are calling for. And we're unlikely to see a loosening of those positions because both sides believe they can win in that confrontation and not just prevail in their policy preferences, but politically. The Democrats on the one hand believe they can demonstrate once again what they think are the is the irresponsibility in governance of Republican House in particular. I think Republicans, on the other hand, who are driving this confrontation believe they are playing to the base and that they can benefit by playing to the base. So I think we need to understand that both sides are in a position where politically they do not want to they believe they can gain from the confrontation right to the end or they could lose politically by appearing to be the one that backs down in this game of chicken. So in that situation, you want to have some solutions in your back pocket. And I think when you look at the 14th amendment and you look at trillion dollar coin, certainly the 14th amendment invoking the 14th amendment is more decorous.
It seems more dignified to rely upon the constitution, and I think there are some real advantages to that. But I think in terms of the politics and the public relations, it has some significant downsides. One thing is you want to get this confrontation. Once you make a decision that you're going to invoke the 14th or mint the coin, you want to get this confrontation behind you as quickly as possible. It's going to create a firestorm. You want that firestorm to be over and out as quickly as possible invoking the 14th amendment is likely to lead to, I think, a protracted series of court challenges that continue for months and feed this story over and over again. Certainly mining the coin will create controversy, but it appears to me that the law and precedent is so clear about the secretary's discretion to mint the coin and the fact that in principle, there is nothing new in the trillion dollar coin. There's a couple of new zeros on, but that's it. And in that circumstance, that I think a court challenge will be. And it's hard to predict how courts deal with issues today, but I think this is more of an open and shut case, and we'd be able to get the controversy behind us rapidly and we could deal with the entire debt limit once and for all.
Mining the coin will defang the debt limit. I'll stop at that point.
Yeah, I think there are two points. One is the political brinksmanship point that director deal was just talking about, right? You have two sides who are blaming the other side for not coming to the table. But the thing about a game of chicken is that it requires two people to play. You're both going down a highway at 100 miles an hour going, can you.
Believe that guy not getting off the road.
That's crazy. While you're pressing the accelerator and driving directly into that, the President and the White House have the opportunity to get off this road and to stop risking a car crash that hurts everybody right now. They had the opportunity two years ago. They had the opportunity in 2011. We are still here because it was better politics for them to do it this way. And I understand the need to win elections, but I also understand the need to have an informed electorate and to respect the constitution. And that what we are seeing right now is an incredibly dangerous game of chicken where the actual hostage in question is everybody else. The people who lose when the government shuts down, the people who lose when checks don't go out are the people actually being treated as chips in this game of Russian roulette. And I think it's completely unacceptable that not only does the White House mislead the public while simultaneously denouncing the other side for fake news and for misleading the public, but also they're doing so in a way that isn't actually winning. We're still having this problem. Every year we're back. It's getting worse.
The enemy is getting smarter. It is evolving to become less reasonable every time. So what is the choices? The choices are to stop playing this game. My father was a federal bureaucrat. He used to say there's never time to do it right, but always time to do it again while time is running out. The other part of this is about the gimmickiness of it all. And what we are hearing today is that people would be more interested in considering extreme gimmicks, like issuing a bond that has almost no face value but an extremely high interest rate because the national debt only counts the face value. If that's not an accounting gimmick, I don't know what is. They're talking about things like they've been doing since the 1980s, moving money around, the Social Security, trust funds, things like that. Stuff that the Government Accountability Office once upon a time said was so out there that it was illegal at the time, and they had to pass a law saying these are the forms of accounting gimmicks you are allowed to do rather than the ones that you aren't next time we get to this moment. So we are talking about accounting gimmicks all the way down.
The question is, is it an accounting gimmick that empowers the public or is an accounting gimmick that empowers bankers who understands bond markets and nobody else? Is it an accounting gimmick that obscures the fact that there's a big infinity sign in the sky next to the public fisc? Or is it one that allows that to be something that we can teach to every person in the country, including the five year olds learning social studies who might have something to think about here when it comes to the separation of powers and I don't know, the money in the economy, it's kind of important, right? Understanding how it works for an informed electorate. Kind of important not to be misleading everybody. So the question of is this political hardball? I think the answer is yes, it's better political hardball than they've been playing. And the answer is, is it a gimmick? Yes, but it's a better gimmick than the ones we've been using. It creates a better cost of informed electric.
All right, well, with that, let's go ahead and move it back to the East Coast for a second. We seriously were just hearing from Professor Gray about some of the similarities for the dynamics that we're seeing right now, the dynamics we've seen in the recurrent fights that we've had regarding hitting the debt ceiling, including 2011. So you wrote this morning about the fact that it's actually very different in a whole variety of ways. And I would say, actually, Professor Alman, your work has helped to shift those things. So I wonder if you could even speak to the differences that complement the.
Similarities or just sure, yeah.
I mean, it really is striking, like, superficially some similarities between 2023 and 20, 2011 or 2011. And this idea is like, oh, it's going to come down to the last second. If you read, like, Wall Street research reports on what's going to happen, that's going to be brinkmanship. And then they always like the debt scale to get the last second, maybe there'll be a little market volatility. And I don't think that's necessarily, like, a terrible guess as to how it's going to happen. That strikes me as very plausible. But the interesting thing to me in 2023 is how different it is, is like, okay, when the Tea Party had their big victory in 2010, and I think, like, the mainstream was like, always, like, pretty, like, skeptical of the Tea Party, et cetera. That being said, there was a climate of like, yeah, but they do kind.
Of have a point.
It really is too high. We really do have to, like, bring in our spending. Really is scary. By 2011, somewhere in 2011, Greece was already like a year and a half into the crisis, which started in late 2009. For them, there was no Reinhardt Rogoff 90% debt to GDP that was very popular. Before that statistic was basically bunked. There was Simpson Bowls, which Obama unilaterally set up that commission about reforming entitlements. There was no pay for it. So Obama unilaterally froze federal pay for two years, basically citing us. We need to get the deficit under control.
It just is gone.
And again, as you mentioned, I think Stephanie's Work and others are part of the reason for that. But there are still people who are concerned about spending, long term spending, et cetera, whatever, but the climate is just, like, so changed in terms of twelve years, in terms of this political salience of spending. This most recent election was not about spending, which is weird because we are in a period of high inflation. And so you think, okay, wait, shouldn't now be the time we have an actual conversation about spending or not? And so my guess is like, well, maybe it's not going to play out like 2011. Maybe we'll go over the dead center, maybe it'll get resolved next week, but the environment is very different 2011. And so just like, think about how this plays out. I would not be so sure that that's the playbook to look at.
34:50
Yeah, I remember those fights, right? The physical cliff drama and the way that that unfolded. And for those who don't, when Barack Obama was president and we were in a similar sort of place with respect to fights over the raising debt ceiling limit and so forth, and there was this bipartisan deficit reduction commission, alan Simpson, or skin Bowls, the Simpson Bowls Commission, and recommendations were made. This is how we should bring about. It was $2.4 trillion in deficit reduction. Here's our proposal. We needed a certain number of members of the commission to vote for it so that they fast track and move forward. They came up short, I think, two votes. And so we didn't get that. But what we did end up with was the sequester, which was Democrats and Republicans basically saying, if we don't come together with some sort of agreement around deficit reduction,
we're just going to hold hands the lease style[Thelma and Louise style], go over this fiscal cliff, and then a series of across the board cuts to spending will automatically take place. Discretionary and nondiscretionary. So the thinking was this would so hurt everyone because it would hit defense spending and non defense discretionary.
35:46
Thelma and Louise style ?
They would do anything to avoid this. Well, it turns out they didn't. And we went over the cliff and the cuts went into effect. And this is part of the reason that the recovery from the financial crisis was so underwhelming anemic is because we got austerity in the form of these spending cuts that just fed on themselves year after year until finally the Trump administration was like, we're lifting. We're going back to spending money again. So I'm going to confess something rather strange, which is that on the drive in this morning, I reread a book that I remember hearing as a child, which was the Brear Rabbit story. And I sort of had it in.
My head for maybe I would write.
36:30
Something harkening back to this rare rabbit, right, says, don't throw me in the briar patch. Does anybody remember this? Don't throw me in the briar patch. Don't throw me in the briar patch. Rare rabbit gets himself in a bit of trouble and the fox gets a hold of him and the rabbit tells the fox, just do anything, but whatever you do, don't throw me in the briar patch. Briar patch where he wanted to be. So the fox throws the rabbit in the briar patch. And that's precise trick, right? This is the way I'm sort of thinking about how things could play out with Democrats and Republicans in this ice stakes game of chicken that Rowan was just describing, where you don't actually know.
How Committed Democrats are to avoiding certain outcomes with respect to spending cuts and so forth. I don't know that I'm as confident that they would hold the line and say, we're not going to see what you're saying.
38:00
I just want to add one point to the game of chicken analogy that I think is important. This dead seal, it does look like a game of chicken. Interestingly. The only entity that's really expressing alarm about the possibility of not raising the dead sealing is the White House. And so only the White House is actually claiming to be in a game of chicken. You have others on the side that doesn't want to raise the dental. The House Republicans who are reluctant to. They're not saying we're going to cause the death. There's not some payment prioritization or it wouldn't be that bad. And I'm even open to the idea, like I'm kind of skeptical that maybe like an actual default, like this coupon payment, maybe it will be the end of the world. People usually buy Treasuries in case of a market panic, et cetera. The only entity that's really saying that this would be a calamity is the White House. Which is why it is interesting that.
Also the White House is saying there's no other option.
I think to Ronan's point, if it's a choice between falling over a cliff and pressing a funny button, you would hope that that's a really obvious choice. Interestingly, like the only entity that saying that we are facing a cliff which ends a disaster, a car, the entire economy going over and going into flames is also the entity that says there's no other options here.
It's a little bit of it is strange.
Like the treasury sector has said, I think her word was cataclysmic or catastrophic. Whatever it is right there is the recognition, at least in her mind, that for global financial markets, such a move would have extremely serious consequences, so that they are not making it clear from the outset, under no circumstances will we.
Let it get to that point.
We'll do whatever it takes. Just a little jog we hear, right? We'll do whatever it takes.
From the ECB back in the day. For those of you who don't report it, you referred earlier.
It's always funny, but you lived earlier.
Teaching to realize how much others have not seen it all first hand. I have a lot more questions, but I might jump in. But first, let me try to open it up for the audience a little bit. I don't know if I'm with monitoring too, but I'll start off with anybody who's in the room, and then hopefully we have a microphone that's available to go around.
Yeah. Does anyone here have any questions they'd like to bring up? No, I want to be first on the record.
Can I ask you a question to Ms. Director? I'm just really interested. You say, like, from the very beginning, I mean, you helped wrote the law and you said, well, this possibility is always conceivable, but when I think of the mint and when I think about the language, it does look like collectors, collectibles, et cetera. Can you talk a little bit more about why you think or how you would argue that at the time of writing, such an unusual and unexpected usage of Section K of 5112 would be used for that purpose? This purpose you muted.
Sorry.
When I wrote the language of this bill and worked with Congressman Mike Castle, who is the committee chair, my intent we did this in the context of a big strategy. The United States meant I was performing a turnaround of the agency, and I wanted to demonstrate that we had the capacity to be very entrepreneurial, develop a new product, and enter into a market and quickly had market success. And I was laying the foundation for a couple of other concepts we had, including the 50 state quarters program. And the 50 state quarters program ended up being the most successful collectible in the history of all collectibles, not just coins in terms of unit sales and in terms of profits that were produced. So I was laying the foundation for that, looking ahead a couple of years. And the area where we had the most flexibility was in platinum coinage. It was a blank slate. We had never struck platinum coin before, and I specifically had my eye on the Japanese market. Japanese market and the US market were the two primary markets in the world for platinum coinage. And Japan was especially interesting to me because there was a senior member of a family who distributed the coins, platinum coins, who I knew was sort of the focal point for that market.
And if I could get him to commit to distributing our coin instead of the Canadian maple leaf platinum coin, I could displace them and in quick order demonstrate that we had this very entrepreneurial strategic capability. So what I wanted to do was walk in the door. And I knew personal relationships are so crucial for doing business in Japan. I wanted to walk in the door and consult with him about the design of the coin, in particular the image on the coin. And I had an idea, the statute of Liberty. And I knew that he would consider this a mere formality and an act of graciousness on my part, and that he wasn't going to determine what the design of the coin was. And we did that, and we wrote the legislation to give us that kind of flexibility. At the time, we didn't know what denomination to put on the coin, so we wrote it as a blank slate. And after I had that conversation and we went back, we selected the design, we put the $100 denomination on it, which was above that of the golden Eagle of William coin, and brought it to market.
And within a matter of six months, we controlled about 60% to 70% of the world market for platinum bullion coins. So it accomplished its purpose of demonstrating what our capabilities were.
Can I add on this? One of the things I love about getting to meet direct a deal and in fact, there's a whole nother issue, which is not the point of this seminar. But I'm always plugging, always be selling, is the idea of a digital cash instrument issued by the government that respects people's privacy and anonymity that can be used in the way the paper cash can be, that is to say, peer to peer without any third party who can surveil or censor your transactions. And when I was looking into that right now, which is another thing that the central bank doesn't really want to openly consider as though it's their decision whether or not individuals have monetary privacy or not. Was that I Actually found a hearing from 1996 was it 1997? Called the future of money where there was testimony in Congress. And one of the testimonials was from the former Mint director Deal, whose name looked a little familiar to me from others at work. And he was saying that we should probably look into creating some sort of prepaid debit card that would function with all the characteristics of coins. Because the Mint was the one entity in the US government thinking about privacy respecting instruments even more than, for example, the paper money in your pocket, which has a barcode.
Coins don't have a barcode at all. It's the most private money we have. And he was saying we should care about bringing that vision of monetary privacy that the Mint is in charge of to the digital world. So I saw this person who is a visionary in multiple different parts of the government. And maybe it takes being a Texas businessman to not have the self constraints of thinking the government can't do anything. Maybe you need that kind of ambition. But my kind of joke is, imagine that if mid Director Deal was asked to have another ten years at the Mint and every year he's increasing the amount of profits that the Mint is earning and sending back to the treasury. Do we think that the Republicans in Congress would be upset about the amount of money that was being sent back to meant that we didn't have to issue more debt or issue raised taxes to fund the same level of government spending? Or would they be happy to see the government being running in an entrepreneurial way? I think the answer is pretty obvious to me. And of course, Representative Castle, part of the reason he liked this proposal in the first place was that it was generating what they call sign your ridge revenue, which is the difference between the face value of the money you create and the cost to produce it.
So not only is the coin only a few more zeros, but the idea that the mint is a place to generate money that the treasury can then spend without having to raise taxes or debt is, in fact, the point is, in fact, the goal was, in fact the goal of the bill itself and was the goal of his entire vision as a Mint director that transformed the Mint that got its budgetary independence away from the treasury. So it doesn't rely on appropriated funds like the federal reserve. And if we're asking whether this is an extreme expansion of a law in a time of crisis, I would again suggest we look back to the Federal Reserve and what they call Section 13 three is emergency lending powers. Because if we really think that the Supreme Court would say that this is an extreme unconstitutional delegation of authority, or invoke one of their made up doctrines like the major Questions doctrine to strike this down, then the next question is, well, what is the Fed's limits? What is the authority of the Federal Reserve? Because as far as I can tell, the statutory authority there is at least as broad as it is here and has been twisted in at least as unprecedented ways as it is here.
So not only do I think the Supreme Court is not going to be interested, but I think the Federal Reserve isn't going to be interested in really drawing a spotlight too much to the delegation of monetary power either, because they're currently benefiting as much as the Mint would be under this regime.
Let me address another issue that Joe brought up in this question.
Coins are purely respectable. I mean, they are legal tender coins. But the reality is this coin, the platinum coin, was not created as a collectible coin. It was created as an investment quality coin to compete in international markets, very different from a collectible in the way it's marketed, in the way it's minted, and in the way it's priced. So that's simply not the case. But in any circumstance, the senior rich produced by a bullying coin or collectible coin or a circulating coin is treated exactly the same by the Federal Reserve and by the Treasury Department. That money goes into the general fund of the treasury, passes through the Mint's books into the general fund of the treasury. A small portion of it is kept by the Mint based on supervision by the Office of Management and Budget to fund its own operations. That's one of the things we did at the US. Mint when I was there. We took it as Rowan said, we took it off of appropriations and allowed ourselves to operate much more like a business by taking a portion of the profits. And the potential of scenario was really demonstrated later with the 50 State Quarters program I went in.
That was a big idea that was opposed at the highest level of the Treasury Department. And quietly, I worked to get it passed anyway in my partnership with Mike Castle, and that took about a year and a half. One of the sales points was that we expected the seniorage profits to be produced over the ten year history of that program to approach $2.6 million. We had models that showed as high as 3.4 million. But I was afraid when I went into Treasury I was going to get laughed out with those kinds of numbers. So I came in at the lowest level, and I was still laughed out.
Did you want to tell who it is? I don't want to make you name names. We don't want you.
There were a number of people who expressed skepticism about it, but the person who had real authority was Deputy Secretary of the Treasury Larry Summers.
You can't make this up. For those watching at home, you can't make this up.
And sort of some of the backstory on this is that because he opposed it, and Michael Castle was pushing on it. With my encouragement, larry Summers called Mike Castle and said, well, we'll do a study on it. We'll have a special study. We'll name a committee, and we'll do a study on it. Well, in Washington, DC. Like a lot of other places, that's a death threat. You send it to a study, and then it goes away. And I recommended to Representative Castle that he say yes, that he accept the study, because I suspected that in the end, treasury Department would have to come to the United States Mint because they didn't know anything about seniorage in the whole process, and we had the evidence and the data to support. And so, sure enough, a committee that was opposed to staff, that was opposed to the quarter program was appointed, and we ended up convincing them that this was real and the $2.6 billion forecast was reasonable. And so that meeting in which I sat next to the deputy secretary and his own committee, handpicked committee explained their conclusions. There was a lot of tension in the room at that point, and ultimately, the Treasury Department said, well, we're not going to endorse the program, but if you pass it, we're not going to oppose it.
And so after about a year and a half, the program got passed and was extremely successful.
And just so you know, I don't have the specific numbers. I'm not the tax law scholar. I encourage you to speak to your own professors about this. But there are a number of taxes out there for which 2.6 billion in anticipated revenue is not a trivial sum that we spend a lot of political energy fighting over. Has anybody heard of this before? Has anybody heard of the amount of money that we could be raising for this? I used to be a music teacher, and the annual budget for the nationally endowment of the arts is about $150,000,000. So we could times that by ten and just fund that from the Mint, but nothing else. I'd probably prefer ten times as much arts funding in this country without anybody even noticing. I don't know about you. Maybe the Mint could just buy some nice artwork for the building or something.
This has been a beautiful conversation to look at. The historical innovation that has happened at the Mint has been incredibly underappreciated. You've made numerous references to the Fed as well, and I was wondering, for those who haven't been as deeply involved in these conversations, if you could just walk them through the logistics so that way everybody understands the institutional dynamics of who are the key actors, what's the role that they need to play, and why. Something that some might argue is the attention within the executive branch that could be resolved within the executive branch has been so central to these conversations.
Okay, well, typically with circulating coinage, when I came into the Mint. The Mint waited for orders for coins from the Federal Reserve, and the Federal Reserve had their own models for forecasting what coin demand would be. And pointed demand is a cyclical business. When the economy gets hot, demand for coins go up. When the economy gets cold, demand for coins goes down. Not only does it go down, but a lot of coinage that is in circulation is no longer needed, flows back to the Federal Reserve. Well, that creates a huge boom and bus cycle in the United States. Meant to the point where not only would the vaults of the Federal Reserve fill up when the economy slowed down, but then coins would begin to mount up in the hallways of the United States. Men just enormous amount of coins blowing back, but also still being produced because us meant was producing to demand that had predated the turn of the economy. So when I got in, I said, this is crazy. Why don't we come up with our own models? I suspect we can do better than the Federal Reserve is doing in its modeling of coin demand, and we can respond more rapidly.
And the same young economists who had helped me develop the estimates for the 56 quarters program, senior Ridge, helped me develop that model. And that model was really effective. It was spectac. And we broke it down to the regional areas. And it was so sensitive, it got to be so sensitive that when Coin Coinstar, the coin recycling company that has the store, had the machines in grocery stores all over the country, as we traced their penetration of different regional markets, we could see gradually the impact on coin demand. And we worked that into our models. So what had happened was the United States Mint became much more sensitive and began to exercise its own discretion, not just taking orders from the Federal Reserve. So when coins are produced by the United States men they are based on demand from the business sector through express, through banks to the Federal Reserve. We shipped those to the various regional Federal Reserve banks. When I was first at the Mint, the Senior edge was booked when the coins left the US. Mint loading dock. But when we passed the 50 stakeholders program, then there began to be concerned that before the success of this program had been demonstrated that we were going to be running up Senior edge that did not reflect true coin demand.
And so on an administrative basis, there was a change in the point at which Coin seniorage was booked. And that was it was booked not when it left the platform of the US. Mint, but when it arrived at the Federal Reserve. So that is kind of the heart of the scenario that's discussed about whether or not the Federal Reserve chairman would meet the Secretary of the treasury at the platform at the Federal Reserve Bank and say, no, we're not going to accept this coin. That is a virtually impossible scenario. The reality, the political and economic reality is there will be there would be a meeting of the minds between the President, Federal Reserve Chairman, secretary of treasury about how to deal with in the last moment deal with the financial implications and repercussions of a default and everybody would say we don't want to do this. We're against doing this. Everybody would go through that theater and play their roles but in the end they would do it. And even if the Federal Reserve were to refuse to accept the coin through a simple administrative operation the Treasury Department could change back to the original policy when I was Director of booking the senior edge when the coin left them in and thereby raise the trillion dollars necessary to avoid the crisis.
Yeah. So from my point of view central bank independence is a word that we hear a lot. This would violate central bank independence. What can we do about the Fed's independence? Well, you can look at the history of the 51 Treasury Fed accord that established central bank independence and what they're actually talking about is interest rates and monetary policy, the impact on inflation, the impact on macroeconomic conditions and whether or not the Fed should be forced to accommodate the Treasury's desire to keep interest rates at a certain level. Well we're not talking about interest rates. The Federal Reserve has complete control over interest rates on either side of this process. In fact it has since 2008 when it can pay interest on reserves it's not a problem for that. And when it comes to selling treasury bonds and things if the Fed wanted to neutralize a trillion dollar coin flushing the banking system with more reserves it could just simply sell some of the treasury securities that already existed on its balance sheet. If the market wakes up and hears a phone call saying the government wants to sell you some treasury securities it's not going to stop and say well which agency is selling them?
I only want to buy them from one and not the other. Cash registers don't discriminate as Stephanie likes to say and the bond markets don't discriminate which agency sells. So in that situation it would be functionally identical. But the other thing is that the Fed also has another responsibility entirely different from its monetary policy responsibilities and that's its legal obligation to be the fiscal agent of the United States of the treasury which essentially means being its bank taking money when it deposits it on behalf of the US government spending when it asks to. This is a deep power that the treasury has to compel and I put the laws up on the Mythecoin.org website for those who want to look it up. Courts have also established that this is a nondiscretionary responsibility of the Federal Reserve to honor what treasury says. You do not get to be the fiscal. Agent in the United States and play games with that power. So even in this situation, if the Fed was to try to refuse and remember going back to where I began, that would mean essentially being on the wrong side of the US constitution as well as, God forbid, the Civil War itself.
But the other part of it is that there are other fiscal agents as well. You could go to commercial banks, et cetera. But of course, we wouldn't actually need to get to that point because as Director Deal says, there's no world. Chairman Powell decides he wants to be the one responsible for causing a global default and that he wants to side with the Freedom Caucus over his former colleague and mentor, Secretary Yellen. It's just not going to happen. But central bank independence and the political theater that Director Deal is talking about is important. So there's going to be a lot of grasping at hair and gnashing at teeth, and there's going to be a lot of people feeling very disappointed that it came to this. A lot of people thinking that they're much more serious people than this clown circus, right? It's not them who made this clown circus. It's someone else out there. And they're just very disappointed that they have to be part of it. Fine. If the central bank needs the optical cover that they were not part of this process, then they can write a letter to the treasury saying, we intend to oppose this, and the treasury can say, thank you very much.
Your objection is noted. We'll be doing it anyway, and that's probably all they need. The Federal Reserve can then say for the annals of history that they oppose this. They can say when they go to the bank of International Settlements in Europe at the next meeting of the central bankers that all they were really mad, all they really tried, all they're really annoyed about this, and the world can keep on spinning and we don't have a default. And if that's what the treasury needs to do to play bad cop here, so be it. No constitutional crisis, no economic crisis. Just a bit of rumbling and then the Mint books, the coin, and we move on. So when I think we think about here what it actually means to attack central bank independence, we need to think about what that actually means historically and in terms of policy. And we need to understand that there's a very big difference between the theater we're hearing today and what will actually happen. And of course, right now the Federal Reserve gets to play bad cobb on behalf of the treasury. The treasury doesn't want to consider this for the reasons we talked about at the beginning.
It's good politics to make it seem like there's no option but to force the Republicans to the table. But it's certainly better for the White House to blame the Fed for that and to say that they're the ones taking it off the table. I'd love to do this, but the Fed won't let me. Well, when's the fed's Next election. If I could have a friend of mine be the one to be responsible for telling my friends that I didn't want to go out on a Friday night because I'm lazy and want to watch Netflix at home, oh, sorry, I'd like to go out, but I have to look after my partner. She's sick. Of course you do it. It's politically costless. So remembering that we're in law school and the goal here is to look beyond the surface of words to what's actually going on, this isn't about the central bank independence in monetary policy terms. And all of that very loud banging on the table that the Fed won't accept. It serves a bunch of very important strategic reasons, but none of them have to do with the actual refusal of the Fed in a moment of crisis.
All right, Nathan.
Hi. I wanted to talk more about this point about the Federal Reserve and the difference between public messaging about the Federal Reserve and what goes on beyond closed doors. And what's interesting in this conversation is this idea that Fed would resist or the Fed just isn't going to cooperate with the treasury. Finding a way to stay below the debt ceiling limit and make sure to make payments is that the Federal Reserve does that all the time. The Federal Reserve does that. Did that in 1969. When does it say, oh, yeah, sure, we'll buy foreign currency from this little pocket of foreign currency that the country holds in this fund stabilization fund, and doing that specifically to avert a debt ceiling crisis. I came across last week this amazing document that was only declassified in 2021 that then in the treasury, paul Volcker follows Arthur Byrne in 1973 and said, we have some treasury securities that are maturing in December 6. Please just hold them because we're right reaching out the debt limits, and thus we won't have the balance to refund you, or we won't have the authority to issue Treasuries to replace those Treasuries.
And the Federal Reserve agrees, and the Chairman agrees in that situation, to cooperate with something that's much less straightforward than depositing a coin, depositing some legal tender to cooperate with the Federal government trying to avoid default. Before, in the 1950s, eisenhower selling some gold certificates and monetizing the gold, some of those certificates to the Fed. And what I find the most interesting about this is that there's also conversations in previous debt ceiling that the Federal Reserve has had privately over what they would do if the treasury actually defaulted. And there's this extraordinary conference call that we have a transcript of from August 1 of 2011, where they run through all these things they would do to help support not just the treasury market, but the market for defaulted treasury securities. And one of the options. A couple of the options that they talk about are the Federal Reserve outrage, buying defaulted treasury securities. And in terms of, like, what Ron was talking about, this performance of talking about how you're uncomfortable and don't want to do this, you go through different responses to the options of the Federal Reserve buying defaulted treasury securities. They all say that they're uncomfortable with it, and the idea makes them really uncomfortable, but they won't take them off the table.
They might have to do it in extraordinary circumstances. The idea that the Federal government is willing to buy defaulted treasury securities to try to prevent instability in the treasury securities market, but they're going to abrogate their fiscal hazard responsibilities into the deposit.
Of a coin to avoid defaulting on.
Treasury securities, it's fantastical. And so when you read what Federal Reserve officials say behind closed doors, even if they know it's eventually going to be public, that's much more revealing for how the Federal Reserve thinks and how the Federal Reserve would respond. To a price of situation than these kind of cynical, opportunistic commentary from treasury officials or White House officials about what the Fed was supposed to do.
Yeah. Can I ask a question to the other two on the panel, actually, Stephanie and Joe. Stephanie, you've had some experience talking to people behind closed doors in Congress and then hearing what they say in the news after those meetings. And Joe, you've been covering financial markets and trying to just, in your irrepressible way, just always ask people to give them enough rope to hang themselves on their own hypocrisy. If you had to sort of identify some of the biggest myths that you hear here or some of the kind of moments that make you tear your hair out as a journalist interest in integrity or Stephanie, some of the biggest myths that are undermining the democratic conversation around the budget. What are some of the ones here that we haven't already talked about or anything you'd like to bring up here around the budget, just around this process? Anything that comes up here, anything that we haven't talked about. Ways in which the conversation the public hears filtered through the media is different from the conversation that the people on the inside are actually having amongst themselves.
That we haven't already covered.
Well, if you want to reemphasize ones we've already covered, that's fine too.
I think this idea jump in with something I've been thinking about that I think speaks to this, which is like, I think one of like, so we've hit this historic bout of inflation over the last year and a half, like, pretty high by the standards of the last several decades. And that was unfortunate, but there seemed to be like some sort of consensus about like, well, yeah, this is what happens when there's a lot of aggregate demand, a lot of spending power with supply constraints. Right? Maybe some people might say well, the problem with the supply disruption, people will say, well, the problem is that there's not too much money being spent. We didn't need to send out those.
Extra $600 checks and whatever.
People have different opinions on why but at least there seems to be some understanding that the inflation that we've seen is something about like that intersection of constrained supply and robust demand. And so what's driving me crazy and the coin discussion now is that people are almost like, regressing their understanding or purposely misleading and like, going back to these like, monitoring ideas like, oh, like the money supply and it's going to change inflation expectations and this is basically going to be like QE and adding all this to the Fed balance sheet. And it feels like people are like, woefully ignoring the lessons of the last year. We know kind of what causes inflation. This is like disruptive supply, demand for goods, et cetera. And so it sort of drives me nuts to hear this sort of backstrap and we're suddenly worried about these quantity theories of money again. What happens if there's like a trillion dollar coins suddenly like bakers and truckers are all going to start changing the prices for some reason because exists in a wall. It's very frustrating sort of regressive turn for the conversation.
Joe I'd like to address a lot.
Of the comments that I see just sort of regular people trying to make sense of these debates is a lot of people just think that it makes good sense not to raise the debt ceiling limit because they think it's a break on spending. And so if you're someone who's worried about inflation and the price of eggs and whatever, you're experiencing your life and then you hear that Congress might not raise the debt ceiling limit, a lot.
Of people are like, well good because.
We need a break on spending. But it's not a break on spending, right? It doesn't permit the spending of anything beyond what's already been authorized.
And it seems like a frustrating dimension of that to me, which is that's totally legitimate to say we should spend less. Like these are like the debates that like a democratic country ought to have said, oh, we should spend less on defense, we should spend less on like those are like totally legitimate things that are like up for dispute, right? And yet the issue is how about we can spend less? And to my mind the response is not like no. To my mind the response is where's the bill that's going to show the last spending? Where's the bill? Where are the politicians going to put themselves on record to vote yes? I slash 500 billion from the defense budget. I voted to raise the age of retirement by taking the center. Those are all legitimate things. The moment actually nobody wants to put their name to those things. So you get this sort of like pretend version of fiscal hawk or fiscal agreement, which is voting for the dead ceiling or voting not to raise the dead sealing rather than putting your name for dispensing cuts, you're probably going to be politically unpopular. But if you're going to look yourself in the mantle of like pistol heart rates, hard nose deficit, I'm sorry, but we can't spend all this put your name to the spending cuts rather than just sort of like this pretend version of doing it via the dead.
One good question of all of you and maybe anything can just put on.
This if you want to or anybody else here. Is there anything that does scare you? I mean, so right now we've been talking about this kind of like the least bad, the whole variety of not very attractive options and there's just the fact that this is something different. It's something a little bit UNFI. Is there anything that does cause you resignation? Or do you feel like right now it is primarily a bunch of fictional stories that aren't quite coming together?
Anyone I think the right to deal with? Joe, also comment on the previous comment too.
Yeah, you raised two points.
One is.
One of the common misconceptions and myths that has been spun, I think, on purpose, many cases, sometimes from lack of understanding, is that by the debt limit takes as we run up against the debt limit, we're taking the credit card away from Congress. That metaphor does not work at all. The money has already been spent on the credit card and the question with the debt limit is whether or not we're going to pay that off or are we going to default on that credit amount at the risk of defaulting on our mortgage. That is the appropriate metaphor here. We're not taking anybody's credit card away. We've already spent the money. It's resting as a debit mastercard and it's as if we're just refusing to pay it and suffering all the consequences from that. The other point I want to address is whether or not the trillion dollar coin raises the money supply. And I think it's important here to talk about the difference between how a trillion dollar coin would be treated and how a circulating quarter would be treated. They'd both be produced at the United States meant and shipped to the Federal Reserve.
They'd go into the vaults of the Federal Reserve. Then the quarter would go into circulation, increasing by an infinitesimal amount the money supply in the US. Economy. The trillion dollar coin never leaves the vault. It stays in the vault. But eventually, having lived outlived its useful purpose, which is getting the country past the debt ceiling, it would be returned to the United States mint and melted down, the senior edge taken back off the books. The exact same thing happens with the quarter. It circulates in the economy maybe for 20 years. It's damaged, it's worn out, it's returned to United States Meant, after outliving its useful life and is melted down. So the big difference between the two is the trillion dollar coin never enters the economy.
Yeah, I think as Stephanie wrote a whole book on this which you haven't read, you should call the deficit myth. It's the spending that puts money into the economy. It's not the whatever accounting you do within the government. And whether you quote unquote print coins or print paper or quote unquote print treasury debt, you can call treasury debt green money versus red money. When you're an investor, you're holding treasury debt as money. We don't worry about running a deficit in those situations. We deal with it, as Joe said in the budget process. And I'm very glad to hear that director Deal actually lives in the Pacific Northwest with all of us. So my joke now is if Director Deal minted a trillion dollar coin in the woods up here and it never got spent, would anybody notice? The answer is of course not. Right. It's only when it actually enters circulation that matters. So the other part of this is professor Judge asked what, is there something to be afraid of here? I was a musician. I was a classical musician. I played French horn and cello. The composer John Cage used to say people always ask me if I'm afraid of new ideas.
It's the old ideas I'm afraid of. What we are having right now is decades of austerity, decades of government budget cuts, decades of unfunded obligations or things that should be being financed that are constantly on the chopping block. We had President Obama after the largest economic crisis of our generation asked when we were going to run out of money and his answer to 60 Minutes we're out of money now. It was not true then and it's not true now. But that myth continues to hurt our democratic policy making process. And lastly to the point that it's already been spent, right? The idea that we would be taking the credit card away from Congress is exactly what the people who passed the 14th amendment were trying to prevent. Because if you can take away the credit card for the thing that you don't like white supremacists can take away the credit card for funding the Civil War. We do not get to second guess congressional decisions that have already been made. That is the recipe for constitutional collapse and a dangerous precedent more broadly. So if you don't like the spending that exists, if you don't like the way our government is going, vote change the laws.
Put forth a bill that you can be politically accountable for. And the point I want to make about that is there is a reason that the Republican Party and particularly the Freedom Caucus is getting more and more aggressive with this is because they know they do not have a majority of the popular will behind them. They will never get these kinds of spending cuts passed, they will never get the gutting of funding to LGBTQ education programs or anything else passed at the majority level. So the only way that they push their agenda is through these kinds of counter majoritarian jamming of existing legislation. We shouldn't allow it in the 1860s, and we shouldn't allow it today.
All right, with another question.
Hi, Ron. This is a question primarily for you, and that is that Carlos Mutual, who's credited with coming up with an interpoint idea, had another suggestion, which was console bonds. And unlike the premium bonds that have been written about in recent weeks, which are really just a way of delaying it in the ceiling, consul bonds are perpetual securities. And the gimmick or technicality there is that with no maturity date, it technically doesn't count towards total national debt. To me, that seems like it might face less opposition by the Treasury Secretary who's concerned about the division of monetary and fiscal policy, and that it would essentially accomplish the same thing as being a potentially permanent solution to this debt ceiling. Comment about that?
Anybody? I mean, I'm happy too. I won't speak for Carlos. I think he's a genius. And these ideas are all great. I think there are pedagogical reasons why the coin is better. Being able to tell a five year old how this works instead of leaving this conversation to people that have advanced degrees in finance, I think is an improvement in the democratic process. But as I said at the beginning, I'm trying to make a moderate, gentle case for the coin today, which is, if you want to do any other option first, be my guest. As long as that button exists before you go over the cliff, as long as you acknowledge that this button is more important than default, we're on the same side. The rest is just haggling over the details. That's my view. I like the coin over consoles. I am not the enemy of anyone who says that there are options instead of default.
I think the console option is definitely should be considered. I think there's interesting issues with the console that doesn't exist with the coin. So, for example, if many people who believe that the Supreme Court would object to the coin essentially believe that it would be illegitimate to end run the debt ceiling, and that would be the kind of logic is that there wasn't an intention to give this escape hatch to the debt ceiling or the debt ceiling fights of debt ceiling having to be raised. One counterargument is that this is not debt. This is coins. This is the coinage power. It's a different lane than debt. Whereas with consoles consult, the point of doing your console is to end run this process. If the Supreme Court is really motivated by forcing a debt ceiling, a confrontation, the argument that this is just this or the low face value, high coupon bonds, these are just the end runs becomes, even if anything, even stronger with the decease than with the Coin. And then operationally. The thing about the Coin is the Coin is not that different from say, selling foreign currency out of some fund in the treasury to the Fed.
It doesn't affect bonds issuance, the regularly scheduled auction and the general process of.
How treasury securities operate, or the Federal.
Reserve's managing of the book entry system of treasury securities issuing one of these weird bond does. It means primary dealers have to make bids on them. Since this kind of market would be basically a new treasury market where they would have to build liquidity in it, that means they're probably just going to get stuck with it, filling their balance sheet. There's deviations from the normal auction schedule which generally people who are participating in the treasury market rely on. So even though the Coin sounds crazier as an operation, like people have that instinct of come on, coin with a bunch of zeros on it, come on. It is actually much more of a piece of the other ways of the other accounting gimmicks that treasury uses all the time to slow its path to hitting the debt ceiling limit and doesn't affect its auction schedule or anything with treasury. Whereas the other options, the low face value, high coupon, the consoles also operationally involved that. And I think it's telling that they didn't take the option to issue console bonds when rates were at their lowest point. There's always discussion of this. Grahamer was yelling about that March 2020 and got it, interest rates are collapsed, so this would be a great time to issue consoles.
And they didn't do that. Obviously. I'm not going to say, oh, that means it's legal because they did do that, obviously say the same thing about the Coin. But it points to there being these operational issues, which there isn't really with the Coin, there's just this kind of ideological instinctual. Oh my God, that can't be really.
Can I say one last thing? And I think it's probably my last point listening to this conversation, it does feel like there's sort of like a coupon console ideas different, but sort of different sort of bond and runs. It's almost like there's an aesthetic sort of divide that you see with more like centrist, like sort of like Josh Barrow, like magic laziest types, a little bit more comfortable with the bond versions of bonds that are differently triggered and then deploying types. And as Roman said, that all these are clearly better than the false. Right. And you know, it seems and listening to like, thinking back to the beginning of the conversation, what's interesting about like, this sort of like we haven't even like talking about like MMT per se, but one of the like, sort of like core like MMT ideas is like the idea that, like, money could be democratic, right? The mint is house of deterrence. We don't have mint independence for the way we don't talk about that. And yet historically when you think about where money comes from us existence of money creation and now we sort of think of like the mint as like a creator of sort of like services points and all the collectibles we don't really think about like money creation.
But I do think that part of the reason that you might have this aesthetic divide that's sort of like all the political divide is like, well, who houses like, who gets to create keep it onto the treasury, the high coupon bond council scenarios? The Fed still gets to set the price of that money because the Fed sets the rate of interest along the curve. And so I think there are just some really interesting ideas here. Again, sort of from a journalistic perspective, maybe from a sort of logical perspective, well who gets to create money in an economy? And I think the coin like the idea that yes, the treasury which is part of the democrat not independent of sort of the elected apparatus they still get to create money. I think there's like a really important dimension and then you're thinking about like coins really aren't like the most private money. Now granted, if you had a trillion dollar coin everyone would know you can't hide that one. That would be a tough one to hide. But the idea that we do get to have this one type of money that doesn't have serial numbers on it electronic is like a very interesting thing that's important to remember.
There's sort of populous like people's money elements.
Anybody else? Closing comments?
We have one question from the audience here, which I'll just ask, which is given there's an alleged recession coming, are there any positive effects of mining twin for the next recession? And I may be handed over to Stephanie. I mean my thought would just be we don't have a huge default, which is a problem.
That's what I would say too. This is Jenny Ellis point. We're all hoping that we can avoid an economic contraction, but this seems like a pretty sure path to ensure one if we were to end up defaulting.
And creating the kind of economic chaos.
Thank you.
That's up from our side. We got a student company close us up.
Everyone joined me in thanking oh, we.
Have a few there.
Everybody, I just wanted to say thank you to our panelists for making this event happen and also for pushing this conversation, making this a hot topic right now. I want to say thank you to the Columbia LPE Group for co sponsoring this event and thank you to everybody here and on the east coast and watching virtually and especially on the West.
Coast for a 09:00 a.m. Ten out. Thank you very much. Be on the other side.
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[1] Jointly hosted at Columbia Law School & Willamette University College of Law. Co-sponsored by the Columbia Law & Political Economy Society, LPE at Willamette, The Modern Money Network, & Public Money Action.
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