09 January 2013

Seriously? A Trillion Dollar Coin?

My Dear Reader,

A couple people have asked for my take on the Trillion Dollar Coin meme, so I'll do my best to give you my honest assessment.


First of all, there's nothing magical about a single coin.  It could be a thousand Billion Dollar Coins (which would be easier to mint, but not easier to put in a headline or sound bite).  It's just too...too...contrived.

Second--and I really don't want to make this political--but I'm mystified by how much excitement this has gotten, when it's really quite absurd.  The left sees it as a way to get around those unreasonable "spend closer to what you actually have" Republicans, and the right sees it as Byzantine maneuvering by completely out of touch liberals.

Here's how I see it:  we have a very serious, very real problem, and this nonsense is a distraction from the tough conversations we ought to be having.  We cannot afford the promises we've made.  We can't tax enough to pay for them, and the consequences of cutting those promises (e.g. cutting "spending") are dire.

No quick fix is even responsible to consider.  This coin business is actually insulting to have to write about, and indicates just how far we've devolved when it comes to serious conversation about:
  • Why we feel compelled to over-promise and underfund;
  • What we're going to do about it going forward;
  • Why would we rather discuss absurd fantasies than deal with the actual problems that we've created;
  • What we do with $16,500,000,000,000 in already existing, real debt.  That's not a coin fantasy, that's money we actually owe.  
Sixteen and a half million, millions!  Imagine if everyone in the Greater Los Angeles area (and really think about what EVERYONE means--all those people driving or walking by outside, or sitting in their offices or houses right now) was given more than a million dollars EACH; that still wouldn't match the amount of our debt.

Most Treasury debt is actually short term (yes, we borrow mostly on our national credit card rather than taking out a mortgage), but imagine for a moment that we had to pay that $16.5T back over 30 years, like a mortgage.  That would amount to "mortgage" payments of about $73B PER MONTH, or $876B per year, assuming 3.4% interest over 30 years.  We only take in about $1.5T in cash each year from taxes, etc, so $876B is HALF of our national tax receipts.  We spend about $3T or $3.5T (hence our annual deficit; remember, "deficit" is our annual gap, but "debt" is forever).  We spend far beyond our means; like about 4x our means, if you imagine ever paying off the debt.  Even if we pay it off over 100 years, and interest rates magically stay at 3.4% that whole time (a ridiculously low rate), we'd have to spend $576B a year...and that's to pay it off in 2113.  Still a huge portion of what should be our budget.

And from whom do we borrow all this money?  Between $1.5T and $2T a year?  Well, conveniently, the Fed is buying about $1.2T in debt from the Treasury this year for its Quantitative Easing program.  So borrow it from ourselves, minted out of thin air.  Yes, that's as bad as it sounds, and don't let anyone talk to you about the "velocity of money" as evidence that it's GOOD for us all.  It's actually had little or no effect, as you've seen and felt from the Quantitative Easing we've "enjoyed" over the last several years.  It's mostly a clever way to debt finance our annual deficit.  The rest comes from all the dollars we spend overseas (buying disposable goods that don't increase our national wealth), and the new owners of those dollars (like China) have to put them somewhere, so they buy our debt.

These are the conversations that we should be having.  Not some idiocy about a miracle coin that's going to save us.  If anything, all that should show you my Dear Reader is that we've gotten to the point where money is meaningless, and is backed by wishes and fantasy.  That should concern you greatly, because the effects of such a monetary regime can be disastrous.

If the coin subject comes up, ask people if they know about the numbers a couple paragraphs up, and how much of our national budget would go to debt service if we were serious about paying off our debt.  And don't be tempted to imagine that Uncle Sam can solve its problems as easily as printing a platinum coin.  This coin thing is a psychological phenomenon, not an economic phenomenon, and it's dissociative  irresponsible, childish, and counterproductive to the work we actually have ahead of us.

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