logo
  Join        Login             Stock Quote

On The Platinum Coin

 January 09, 2013 10:25 AM


Okay, so the Treasury mints a Platinum coin, and deems it to be worth One Trillion Dollars.  We have a fiat currency, so what is the problem?

There are fiat currencies, and there are fiat currencies.  Depositing something as collateral into the central bank where the "melt value" is decidedly less than one million, much less trillion dollars, is ridiculous.  I realize that many believe that the Fed can do whatever it wants, but eventually cash flows will catch up with a central bank as inflation rises.

The Trillion dollar coin would have value only because the taxation authority of the US Government stands behind it.  But that is not the way the government is behaving.  The taxation authority is not taking in as much and more so that they can redeem the promises inherent in the coin.  Instead, they are looking to the Fed to absorb losses in a stealth monetizing of the debt.

[Related -Health Care SPDR (ETF)(NYSEARCA:XLV): The Only ETF You Need To Own – For September]

Monetizing government debt leads to inflation.  Receiving something worthless, and deeming it to be of high worth is the same as monetizing the debt.  Yes, the Fed can try to sterilize the effects, but it leaves the Fed with a problem — it will never be able to shrink its balance sheet to 2007 levels.  Thus inflation, eventually.

The platinum coin is a bad joke, and bad policy if eventually done.  This is what I wrote at Felix Salmon's blog yesterday:

[Related -CONN'S, Inc. (CONN) Q2 Earnings Preview: The BIG Move Quarter]

If they tried the platinum coin(s) once, Congress would legislate to eliminate the practice. The Purple party would take back their authority.

It is also possible that the Supreme Court would make them reverse the transaction, on the grounds that only Congress can regulate what is money. The executive may not. The minor exception made by Congress for platinum coins was only intended for numismatic coins — not anything large.

But yes, Felix, you are right. This would end the concept of the dollar as a reserve currency. Only banana republics monetize their debt. Hey, maybe even the Fed would develop a backbone, and refuse the coin, or tell them it is only worth $1000. They don't want to be stuck with QE not of their own design. Their QE is bad enough, but the coin, which will be a hole in the Fed's balance sheet for as long as it lasts will be far harder to reverse.

You can't get something for nothing.  Monetary stimulus is garbage, it steals from savers to reward solvent debtors.  Insolvent debtors can rot.  As with all monetary policy, stimulus helps the solvent.

This is a huge advertisement to get the government out of the economics business.  It has never been good at it, and this is proof.  The government might be able to goose things in the short-run, but it never succeeds in the long-run.

As it is, our government is addicted to short-run policy, and as such, does not consider long-run solutions that might be painful in the short-run.

Too bad.  Your kids lose, while you don't seem to lose much for now.  This is a lousy position to be in.  People play for short-term advantage while while inflation increases.

You can't get something for nothing.  Either there will be inflation, or taxation to pay back the platinum coin.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageLevel 3 Communications, Inc. (LVLT): A Good Time To Buy Says Macquarie

On a day Wall Street is struggling to advance, Level 3 Communications, Inc. (NYSE:LVLT) is having no such read on...

article imageAbercrombie & Fitch Co. (ANF) Q2 Earnings Preview: The Unkind Quarter

Abercrombie & Fitch Co. (NYSE:ANF) will be holding its second quarter 2014 earnings conference call for all read on...

article imageWorkday Inc. (WDAY) Q2 Earnings Preview: Built In Surprise

Workday Inc. (NYSE:WDAY) plans to announce its fiscal 2015 second quarter results after market close on read on...

article imageArcelorMittal SA (ADR)(MT): Steel Stocks about to Get Red Hot

For the second consecutive day, a major broker upgraded a steel company by advancing their recommendation read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.