Submitted by @JoeFirestonePhD. How many times have you heard that the Government can only spend money after it raises revenue by either taxing or borrowing? Nearly every time someone talks or writes about the US's public deficit/debt problem? How come nobody asks why, since Congress has the unlimited authority to create coins and currency, it doesn't just create money when it deficit spends? The short answer is that Congress in 1913, constrained both itself and the Executive Branch from creating currency or bank reserves, delegated its power to do that to the Federal Reserve System, and never looked back when we went off the gold standard in 1971.
But coins, it turns out are different. They're the province of the Executive. And Congress provided the authority, in legislation passed in 1996, for the US Mint to create one oz. platinum bullion or proof platinum coins with arbitrary fiat face value, having no relationship to the market value of the platinum used in the coins. These coins are legal tender. When the Mint deposits them in its Public Enterprise Fund account, the Fed must credit it with the face value of these coins. The difference between the Mint's costs in producing the coins, and the reserves provided by the Fed is the US Mint's “coin seigniorage” or profit from the transaction.
The US code also provides for the Treasury to periodically “sweep” the Mint's account at the Fed for profits. These then go into the Treasury General Account (TGA), narrowing or eliminating the revenue gap between spending and tax revenues.
Platinum coins with huge face values such as $60 Trillion, can produce profits closing the revenue gap and technically end deficit spending, while still retaining the gap between tax revenues and spending that can add to aggregate demand and produce full employment. Platinum Coin Seigniorage (PCS) is also a way for the Executive to end debt ceiling crises, since the profits could be used to repay debt instruments when they fall due, without the need to issue any more debt.
If all debt instruments are re-paid by using PCS, eventually the US would have no debt subject to the limit, or presence in the bond market, and would pay no interest to bond holders. No one would worry about the public debt, or use its size to justify blocking legislation.
So, PCS-based elimination of debt can end the whole austerity mindset that provides our current budgetary process with its constraining focus on narrow monetary costs considerations, rather than a broader framework that weighs the real costs and benefits of proposed Federal fiscal activities. Congress and the Executive would evaluate the substance of legislative proposals based on their likely direct impacts and side effects on the lives of Americans, rather than on Federal deficits and surpluses. That would be the fulcrum of a new politics, not debt, deficits, and debt-to-GDP ratios.
But won't creating all this money by using PCS be inflationary? No! See "Scott Fullwiler -- CS and Inflation"
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