Tuesday, January 08, 2013

Soylent Green Is Made Of Nothing

I think this is a good post from Joe. Basically people freaked out by the platinum coin are freaked out by the notion that money is just made up, don't like to acknowledge that Treasury, as a normal part of doing business, engages in significant coin seigniorage all the time, and that when the Fed "increases its balance sheet" or "engages in quantitative easing" it is actually waving a magic wand and creating massive amounts of money out of thin air.

We leave most money creation to the Fed because we have this idea that absent independent central banking governments will choose printing money over tax or borrowing as a way to pay their bills, and unacceptably high inflation will be the result. But this isn't what would be happening with the coin. It wouldn't be used for anything other than paying already scheduled expenditures, and when the Congress got sane again they would unwind the transaction (melt the coin). The All Powerful Markets would understand that this was the plan, and it would be infinitely preferably to stopping paying bills and defaulting.