January 05, 2013

Saturday Morning Essay: The Platinum Coin Gambit

"In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”
Friedrich Nietzsche

I think it's a good idea to reprise this fine aperçu  from the great Friedrich periodically to remind ourselves that the lunacy we are seeing in high places in the United States is not actually unprecedented in either magnitude or duration. We should take what comfort we can from that observation.

 America, as we know, is plagued by money problems.  We have a fundamental mismatch between, on the one hand, the demands of hoi polloi (from the Greek: the masses) to be rescued from a dysfunctional economic system which no longer provides a reliable means of securing their vital heat; and, on the other, the resistance of the plutocrats (that higher stratum of American society which through either monopoly or participation in global commerce has commandeered all the money) to disgorge enough of their (often filthy) lucre to provide for these same hoi polloi

In simpler terms: wealthier Americans, who already pay a greatly disproportionate share of income and estate taxes (as opposed to Social Security taxes, which are more broadly spread), do not want to give up even more of their money in order to fund Social Security, Medicare, Medicaid, food stamps, unemployment, Social Security Disability, and welfare.  While the relatively affluent are greatly outnumbered by America's Wretched of the Earth, the American political system (through the marketing-based electoral system) is run on money, and so a balancing between the unruly demands of a democratic process and the rights and privileges of the aristocracy can be maintained. 

Yet it produces great tension, because the natives are restless.  They want as much money as they can get from the government, because increasingly that's all the money there is for them, and the government is funded, one way or the other, by the rich.  We have arrived (as societies periodically do) at that point in Marxist devolution where things could blow sky high.  Thus, we see dangerous symptoms of the dysfunction, such as the Debt Ceiling Crisis, appearing now for a return engagement following its roll-out in the summer of 2011.  Or the Fiscal Cliff, a trap of Congress's own devising to force another crisis.

And now: the Magic Coin.  Yes, it's come to that.  In a dramatic flourish straight out of the perfervid imagination of J.R. Tolkien, serious adults in the United States are considering fabricating Our Precious to bail us out of our fiscal difficulties.  Learned intellectuals such as the strange, troll-like Paul Krugman, who presides over the economic debate at the New York Times - he thinks it's a good idea.  The cultish membership of the Modern Monetary Theory movement - they say, why not? 

It "works" this way: using a statute in the United States Code Annotated (USCA) which obviously has nothing to do with its application here (the statute is clearly about specifying details for ordinary coins and authorizing the minting of commemorative coins), the Magic Coin people seriously suggest that a way for President Obama to circumvent the debt ceiling problem, which limits federal government borrowing, is to find another source of income besides borrowing.  And they believe they've found it in 31 U.S.C. § 5112Continuing with the logic:  since this statute makes reference to the minting of platinum coins in "any denomination," the Magic Coin advocates (apparently with a straight face) argue that this provision empowers the Executive Branch (through the Treasury) to mint a platinum coin with a face value of one trillion dollars, or whatever value the Treasury Secretary likes, simply by sending a memo over to the U.S. Mint with the instructions, "make me a platinum coin with an eagle on it, put the 'in God we trust' thingie in its beak, and around the edge, put a one with twelve zeroes after it.  Then take it over to the Federal Reserve and deposit it into our account. And don't accidentally use it in the Coke machine on the way there."

Thereafter, the U.S. Treasury would commence writing checks against the coin, all borrowing and issuance of Treasury bonds obviated.

It behooves us to pause and consider where we are in American history when ideas such as this gain currency, to coin a phrase about coining a coin.  I do think the Magic Coin gambit is helpful in the sense that it highlights the nature of  the increasingly insane games that the federal government and the Federal Reserve are playing in creating money out of thin air to keep the American project afloat. Because you can certainly argue that the Magic Coin is simply a variant of Quantitative Easing.

I think when all is said and done that the Magic Coin is symptomatic of a society that desperately wants to hang on to the illusion  of its traditional prosperity and of its cohesion as a society with a national identity, when both of these things are  long gone.  The economy has stopped working, it has stopped creating truly viable employment for the masses, we've been stuck at the same number of jobs for over ten years, and the jobs are of increasingly poorer quality, less remunerative in real terms, and the "hiring" numbers have to do with folks in the 55 to 70 year old demographic resuming the trades, professions and businesses they once pursued, relinquished, and then desperately sought to do again when they realized they were going to need the money.

Magical thinking shows up when you've run out of real ideas and real solutions, which is where we are now. You can avoid all the hard work, all the struggle, and settle down into a comfortable senescence with a National Get-Rich-Quick Scheme.

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