Wikipedia:Reference desk/Archives/Humanities/2023 January 25

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January 25

Trillion dollar coin

from the article "In January 2023, Treasury Secretary Janet Yellen saidthat minting a trillion dollar coin was not on the table as a solution to the 2023 United States debt-ceiling crisis and possible U.S. default on its debt, because the Federal Reserve would be unlikely to accept it." Question: If Yellen is right (is she?), why does Federal Reserve have the right to refuse acceptance of the coin? Rich (talk) 08:28, 25 January 2023 (UTC)

The Fed has statutory independence from the US government, and is empowered to make decisions that maintain a positive U.S. economy. I doubt that you'd find a specific law, rule, or regulation written down that says "The Fed must accept a trillion dollar coin from the U.S. government as payment", however, given their independence and mission, and the likely absolute disaster such a transaction would have on the U.S. economy, then no, they would not accede to such a silly political stunt. As noted at the Wikipedia article Federal Reserve and quoting their own statement on the matter "the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the President or by anyone else in the executive or legislative branches of government, it does not receive funding appropriated by Congress, and the terms of the members of the board of governors span multiple presidential and congressional terms."" (bold mine). Clearly, whether or not to accept such a coin as payment qualifies as a "monetary policy decision". --Jayron32 12:14, 25 January 2023 (UTC)

Imagine if the head of the Fed had that trillion-dollar coin in his pocket and absent-mindedly put it into a vending machine to get a Twix bar or something. ←Baseball Bugs ^{What's up, Doc?} carrots→ 12:33, 25 January 2023 (UTC)

Sounds like the basis for a good cartoon, or even a live-action farcical comedy. {The poster formerly known as 87.81.230.195} 90.212.208.82 (talk) 13:36, 25 January 2023 (UTC) — Preceding unsigned comment added by Baseball Bugs (talk • contribs)

<<-: Rich (talk) 13:30, 25 January 2023 (UTC)

The vending machine would most likely just spit it back out since it probably wouldn't recognize it as a valid coin. ― Blaze Wolf^Talk_{Blaze Wolf#6545} 14:05, 25 January 2023 (UTC)

In my cartoon it would spit out a trillion Twix bars.  --Lambiam 12:51, 26 January 2023 (UTC)

nah… just one Twix bar and $999,999,999,998.50 in change Blueboar (talk) 13:06, 26 January 2023 (UTC)

Would the people currently on the Fed consider it a disastrous for the economy, or is that your opinion? Would they consider it a silly stunt, as silly as refusing to raise the debt limit? Rich (talk) 13:30, 25 January 2023 (UTC)

Janet Yellen served as Chair of the Federal Reserve. I would say she would know better than anyone. If she said that the Fed could refuse to accept such a coin, then she's as right on that as anyone in the world. If you believe she is wrong about that, you need to take it up with her, and not me. --Jayron32 14:11, 25 January 2023 (UTC)

you're not the only volunteer at the reference desk.Rich (talk) 14:17, 25 January 2023 (UTC)

No, I'm not, but I doubt any one else frequenting this page is a Fed Chair, or even a board member. Willing to be proven wrong (Hey Alan, if you're out there reading this! Welcome!), but I doubt I am on that. --Jayron32 15:10, 25 January 2023 (UTC)

A rapid superficial rationalization based on reading Wikipedia is showing conflicting circumstances, considering at least the current state of the economy. See Trillion-dollar_coin#Inflation risks. --Askedonty (talk) 16:18, 25 January 2023 (UTC)

31 U.S. Code § 5103 states that United States coins are legal tender for all debts, public charges, taxes, and dues.^[1] This seems to imply that all debts for which the lender would seek relief in a US court in case of the US defaulting can be settled with newly minted money.  --Lambiam 16:06, 25 January 2023 (UTC)

While true, guess who gets to decide the Monetary policy of the United States, including the "policies related to the minting & printing of money"? I'll give you a hint, Janet Yellen used to be the chair of that organization. So while yes, the U.S. code does say that official United States coins are legal tender for paying off such debts, the Fed is in charge of deciding to mint such a coin in the first place. So we're back to square 1. Yellen is an authoritative source on what the Fed will and won't do with regards to U.S. monetary policy, and when she speaks on such matters, she can be trusted to know what she's talking about. Certainly more than me. If she says "It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that's a gimmick...The Fed is not required to accept it, there's no requirement on the part of the Fed. It's up to them what to do"[2] I think we can trust her stance as authoritative on the matter. --Jayron32 16:18, 25 January 2023 (UTC)

The "who" that gets to decide is ultimately congress and/or the executive. The Fed was created by Congress, and as Alan Greenspan once said in testimony to it, remains the fiscal agent of the Treasury. Central Bank "independence" is basically just a very successful illusion and scam. In the ridiculous situation of Congress refusing to raise the debt limit, the arguments are very strong that the President has a constitutional responsibility to prevent default, which the 5th and 14th amendments and judicial precedents entirely oppose. But today's US government is incredibly irresponsible in all its branches, including the fictional fourth branch of the Fed. Yellen's statement should be considered in that regard. Her stance is not authoritative. Refusal leading to default is the disastrous stunt, not acceptance once the executive has decided to follow that course. I do not think that a reasonably neutral court or any body looking at the law and past practice would consider the Fed to have the power to refuse. I do not know whether such courts, especially at the top, still exist in the USA.John Z (talk) 17:16, 25 January 2023 (UTC)

Why is the 5th amendment involved? i thought that was basically a person can refuse to incriminate themself.Rich (talk) 18:46, 25 January 2023 (UTC)

I don't see anything in Fifth Amendment to the United States Constitution that has to do with monetary policy. ←Baseball Bugs ^{What's up, Doc?} carrots→ 22:20, 25 January 2023 (UTC)

It's possible that one could interpret the Takings Clause—nor shall private property be taken for public use, without just compensation—as requiring the government not to default on its domestic loans. If the government defaulted on such loans, it would in a sense be [taking] private property (the money loaned to the government) without just compensation (repayment of the loan with interest). I don't know if this interpretation has been adopted by the courts. Shells-shells (talk) 22:36, 25 January 2023 (UTC)

That has to do with Eminent domain. ←Baseball Bugs ^{What's up, Doc?} carrots→ 23:41, 25 January 2023 (UTC)

Yes, ultimately Congress holds the authority to pass laws to do whatever it wants. It can abolish the Fed, compel it to to its bidding, etc. etc. However, absent additional direction in the form of Congress passing laws, the Fed is treated as an independent agency that has the power to act on its own to set U.S. monetary policy free from interference from the rest of the Government. There is, of course, an element of realpolitik here, and it's foolish to think that everything that is supposed to happen on paper does so as it is written. However, at the same time, Yellen and others in the Fed do speak authoritatively about what the Fed will/won't or can/cannot do. If anyone has something authoritative to say on the matter, it's the people doing the actual job. The trillion dollar coin trick is not particularly taken seriously be Yellen because she knows it's a silly idea. Fiscal policy (taxing and spending) is not the Fed's problem anyways. What Greenspan is really talking about is not monetary policy, it is fiscal policy. Running up debt, or paying it down, is a Congressional matter, and that's what Greenspan is saying. The Fed's job is to manage money supply, not tell Congress how to spend its tax revenue. --Jayron32 19:11, 25 January 2023 (UTC)

The Fifth is relevant because it prohibits taking private property. There's a long line of precedents on the inviolability of the public debt, going back to John Marshall before the 14th Amendment. Doesn't mention the Big Coin, but Robert Hockett's Stop the Charade: The Federal Budget Is Its Own ‘Debt-Ceiling’ is good background. The point is that Congress is issuing contradictory commands to the Executive. Especially with the US Constitution on his side, as it would be, the President has great power to order the Treasury and the Fed what to do. That can include the Big Coin, for which Congress in its infinite wisdom has already provided authorizing legislation. My faded recollection is that that or other legislation provides that the Fed MUST accept it, besides.John Z (talk) 22:37, 25 January 2023 (UTC)

Hm. Let's see whose stance on the legitimacy of the trillion dollar coin should we believe. On the one hand, we have John Z, an anonymized Wikipedia user, whose stance on the matter is supported by, let's check my notes here... "faded recollection". On the other side of the discussion, we have Janet Yellen, who worked for the Fed starting in 1977-1978, spent the next decade and a half as a working research economist at several prestigious universities, served on the Fed Board of Governors for three more years, was CEO of the Fed Res Bank of San Francisco for 3 years, and returned to the Board of Governors, first as vice chair for four years and then as chair for four years. Tough call. Decades of experience working for the Federal Reserve at all levels. Faded recollection. Lets call it a coin flip. No way to tell who to trust here. --Jayron32 00:38, 26 January 2023 (UTC)

What denomination coin shall we flip? Hayttom (talk) 02:58, 27 January 2023 (UTC)

Yellen isn't a lawyer. I quoted one, not on the coin, but on relevant legal background. Plenty of people, academics, former Treasury officials with qualifications that add up to more than Yellen's that disagree with her. I really doubt that she herself would say her opinion is authoritative.John Z (talk) 04:33, 28 January 2023 (UTC)

The United States Mint is a bureau of the Department of the Treasury and as such is not under the control of the Federal Reserve. Associated with the Mint is a Public Enterprise Fund. 31 U.S. Code § 5136 provides that the Federal Reserve must provide receipts to the Fund for the sale of coins;^[3] paying off a debt should qualify as a sale.  --Lambiam 23:29, 25 January 2023 (UTC)

The mint, as part of the Treasury, is responsible for actually making the coins, like the physical process. But who authorizes the Mint to make any specific number of coins? Which is to say, who is allowed to place the order at the Mint to fire up the coin presses, and who controls which and how many coins are made? ""The job of actually printing the money that people withdraw from ATMs and banks belongs to the Treasury Department's Bureau of Engraving and Printing (BEP), which designs and manufactures all paper money in the U.S. (The U.S. Mint produces all coins.) However, the amount of currency printed by the BEP each year is determined by the Fed," So, in order to make any putative, legal tender, "trillion dollar coin", the Fed would have to make the decision to order such a coin to be made, under currently existing processes. The Treasury only gets to produce currency if the Fed asks them to. They aren't under any authorization to "free lance" and just start making currency all on their own. Under current policy (and yes, I know, Congress can pass new laws, yada yada yada), this still has to go through the Fed, who has the final say on currency in the U.S. Janet Yellen (who I still have to keep reminding everyone, was an actual chair of the Fed, and should be expected to know her shit in this regard) is likely the most authoritative source on what the Fed will or can do in these situations, and she, knowing the operation of and the policies about, these matters, is to be trusted on this. Still. Randos on the internet cherrypicking policy to support their pet theories are less reliable than an actual Fed chair on these matters. --Jayron32 00:31, 26 January 2023 (UTC)

Could you explain why you say the Platinum coin would be disastrous for the economy of the United States? Thanks, Rich107.3.112.138 (talk) 05:23, 26 January 2023 (UTC)

I don't have any opinion on the matter; lacking the expertise to have one. Yellen is against the idea, and I'm just following her lead, being the one who knows more about these issues. If you want to know why she thinks it's a bad idea, ask her. --Jayron32 12:13, 26 January 2023 (UTC)

Yellen's statement is that she doubts the Fed would accept the coin if the Treasury were to deposit it at the Fed to draw its value. The US is not in debt with the Federal Reserve. While I'm not saying it is a good idea, I think that (at least formally) debts can be settled by paying with (high-valued) coins that are legal tender, obviously in lower denominations than 1G$.  --Lambiam 12:47, 26 January 2023 (UTC)

Yellen did not mention a potential negative effect on the US economy, and one can question if the worst could be nearly as bad as the cascade of effects caused by the US actually defaulting on its debts. A value totaling about 1T$ being deposited in commercial banks will increase the M2 money supply by about 5%, and while this may have some inflationary effect, it will not cause run-away inflation: the economic effect should be essentially the same as if the debt ceiling had been timely raised.  --Lambiam 19:59, 26 January 2023 (UTC)

'Timely raised" as I watch it being used in the current discussion is a joke, and not even strictly synomym with "there is none". Note that Eisenhower was frustrated over his own plans by Congress when it was his turn sometimes. Thus all of this fuss occuring would be purely a matter of bipartisanship, however why would the nation not allow the Presidency its House majority if the intention was of allowing it to move forward? In the case of Eisenhower Congress might have be wrong because the Sputnik came. "No ceiling" however, compared to the opposite it's exactly the same car but only without a neutral gear. --Askedonty (talk) 20:39, 26 January 2023 (UTC)

The problem is not that of not being able to spend money. The problem is that of not paying one's bills when they are due. They may impound your fancy car and sell it to the highest bidder.  --Lambiam 09:24, 27 January 2023 (UTC)

Absolutely. It is about to plunge into a narrowly focused study of the future and the economies. Short of the trillion coin is the issue liable to be solved with the help of the [IMF] as it's merely an institutional crisis? Yet is it merely an institutional crisis or is it a democracy crisis? Isn't the controversy by itself an indicator of the accomplishments achieved since after the end of the last past global conflict ([4])? I'm also awed seeing Biden placed in the role of a retrograded July '36 General Franco disembarking in front of the statutes of the Federal Reserve. It's behind the curtains of such that potential novel kind of show that I wouldn't see Yellen eager of complying before any other consideration. --Askedonty (talk) 13:37, 27 January 2023 (UTC)

The source you quote is only about printing money. By 31 U.S. Code § 5112 (k), the Secretary of the Treasury is authorized to mint and issue platinum bullion coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.^[5]  --Lambiam 12:36, 26 January 2023 (UTC)

The administration cannot raise taxes, nor spend money, unless authorized by Congress. Up until now, the federal government has not issued more Treasury bills and notes (debt) than what Congress has authorized. This “debt ceiling” is the subject of the current stand-off. Because we run budget deficits, we need to raise the debt ceiling regularly. You may think this should be automatic, but it isn't; it's a political football that the GOPers love to kick around. The last time we faced this unnecessary crisis (2011), Standard & Poors took the unprecedented step of down-grading the credit rating of the US Government. That raises the cost of financing the government (higher interest rates), which is exactly the opposite of what "some people" say they want to do.

The 14th Amendment of the Constitution say that the debts of the Federal government shall not be questioned. Since the constitution determines the powers of Congress and the Executive branch, and is held in check by the Supreme Court, the constitution supersedes mere law. The debt ceiling is a mere law.

It would be unconstitutional for the Executive Branch to refuse to pay the principle and interest on existing debt, regardless of what mere laws Congress enacts. Since the constitution provides the Treasure with the right to coin money, the easy solution is to create a very, very expensive coin. The (ten?) trillion dollar coin would be deposited into the Treasury's accounts and used to meet the government's obligations. That's probably the least attractive alternative.

> Better would be to come to an agreement that whatever money was authorized to be spent (beyond revenues) in the past comprises an obligation on future congresses to provide sufficient funds for repayment. The drawback is that it requires the GOP to act in the best national interest, something that party has been shy of doing for some time now.

> Better, they openly say, to cut Medicare and Social Security payments to the needy, and let's not talk about the tax breaks for the rich enacted in the early days of the previous (mal)administration.

> Better, they say, is to stop paying soldiers, sailors, airmen, veterans, FBI agents, the Border Patrol, and other federal employees (and let's not talk about the so-called party of national security).

In the meantime, about 80% of government obligations can be covered by recurring revenues (e.g., tax income). Treasury Secretary Janet Yellen (the first in that seat who formerly chaired the Federal Reserve) is now doing that.

At least some adults are still doing their jobs!

DOR (ex-HK) (talk) 19:02, 26 January 2023 (UTC)

The real issue with the ten trillion dollar coin is that it's a trillion dollars of money created out of thin air and put into circulation. While inflation is a complex matter, there is known to be significant correlation between money supply and inflation. While in modern times, the Fed mostly controls money supply via the Federal Funds Rate, the old fashioned method of just printing more paper and punching more coins and putting it into the economy also has the same effect. Now, I know this silly coin won't be in circulation, but ten trillion more real dollars will suddenly hit the market all at once. The whole system is fungible, and the reaction of the economy of ten trillion dollars of extra money supply essentially instantly is an unpredictable shock to the economy. As the Wikipedia article I just cited states "There is some empirical evidence of a direct relationship between the growth of the money supply and long-term price inflation, at least for rapid increases in the amount of money in the economy." That's why Yellen has said there's no way the Fed would agree to such a scheme; their entire raison d'etre is the management of the money supply, the Fed are literally the experts on how this all works, and this ten trillion dollar coin idea is the equivalent of someone's kid running around a nuclear power plant flipping a bunch of switches at random. You've taken a complex system that it takes years of expertise to know how to carefully run so it doesn't blow the fuck up, and you've blown it the fuck up. This goes back to Greenspan's much earlier testimony cited above: Congress is trying to fix a fiscal issue (an imbalance between taxing revenues and expenditures) with a monetary (money supply) fix. Greenspan was telling them, basically, to stay out of the monetary policy and fix it using the correct tools: Raise revenue with more taxes or cut spending. --Jayron32 19:20, 26 January 2023 (UTC)

So, is raising the debt ceiling equally as harmful economically as the platinum coin stunt, except maybe for the perception of silliness of the gimmickry? To double check my comprehension,do both increase the money supply? Rich (talk) 01:53, 27 January 2023 (UTC)

One dumps ten trillion dollars of currency into the market in a single act; the other slowly trickles that cash into the economy over time (essentially what we've always been doing for decades and decades). --Jayron32 12:56, 27 January 2023 (UTC)

Failure to raise the debt ceiling is harmful. I recall Ronald Reagan defending the raising of the ceiling because "we have to pay our bills." ←Baseball Bugs ^{What's up, Doc?} carrots→ 05:06, 27 January 2023 (UTC)

Both increase the money supply by essentially the same amount. A sudden increase of the MB money supply (if the Feds accept the coin for deposit) won't have an immediate effect; the effect of an equally sudden increase of the M2 money supply by almost 5% might be noticeable – but there is no reason for the increase to be sudden.  --Lambiam 09:16, 27 January 2023 (UTC)

Yellen has not said there's no way the Fed would agree to such a scheme, at least according to the WSJ article; all she said was that they likely wouldn’t accept the coin for deposit. She also did not state she thinks it's a bad idea (if it works), but merely that it likely won't work, the supposed reason why she thinks the Fed might not accept it being (in her words) especially that it is "something that's a gimmick".  --Lambiam 09:10, 27 January 2023 (UTC)

There's certainly a "between the lines" reading of Yellen's statements here though... Her words say that, but her tone says "Are you effing kidding me with this shit". She plainly thinks it's silly. --Jayron32 12:53, 27 January 2023 (UTC)

Maybe I should not speculate here on whether Yellen really thinks the coin is silly or just prefers the GOP to okay the debt ceiling increase, though if President Biden decided in favor of the coin, I'm "very very very" not positive she would still oppose it. But can the president, unilaterally, or through his Treasury Secretary Yellen, direct the Treasury to mint the coin? To ask in another way, If I understood you right, you said that the Fed asks the Treasury to mint a coin, and the Treasury then mints it? Is that the only lawful way, or can the president lawfully do it?Rich (talk) 02:32, 28 January 2023 (UTC)

If Americans are worried about seeming to be silly internationaly with the platinum coin gimmick, at least it's not as silly as other things America has done, and certainly not as evil as America has in the past done, and it could save a hell of a lot of grief. Besides, a the United Kingdom recently did Brexit and a major russian political figure recently suggested Japanese PM commit harikiri. So we(United States) are no more oafish than certain other nations. Rich (talk) 02:42, 28 January 2023 (UTC)

Jayron: Ten trillion more real dollars will suddenly hit the market all at once

Absolutely not. That is simply not what is being proposed. I agree entirely that that would be a terrible idea, cause massive inflation. What would happen is that ten trillion dollars would be put in the Treasury General Account at the Fed. Spending would go on as normal, basically just as if the debt ceiling were raised ten trillion, or as the article I linked to suggested, Biden simply ignored the ceiling as being contrary to the Constitution. This may happen. Biden has surprised before. John Z (talk) 04:47, 28 January 2023 (UTC)

DOR (ex-HK): Better would be to come to an agreement that whatever money was authorized to be spent (beyond revenues) in the past comprises an obligation on future congresses to provide sufficient funds for repayment.

Yes. That's the basic tenor of a long line of precedents going back to John Marshall's court on the inviolability of "government obligations". Mostly or all unanimous, too. Last I swotted up on this, the last and most expansive was Cherokee Nation of Oklahoma v. Leavitt. Our article: it "was a United States Supreme Court case in which the Court held that a contract with the Federal Government to reimburse the tribe for health care costs was binding, despite the failure of Congress to appropriate funds for those costs." Appropriations ain't necessary, just dough in the till.

Marshall distinguished way back when between the US system where the constitution sat above the legislature and the greater sovereignty of the British Parliament, which could "constitutionally" decide to break its promises that way. He also noted that the greatest sovereignty imaginable could not erase the past, erase the moral obligation.

The Big Coin, or Robert Hockett's recommendation of Bad to the Bone "Dark Brandon" just ignoring the ceiling are much more sensible than doing anything the Rs want, infinitely more sensible than default. John Z (talk) 05:23, 28 January 2023 (UTC)

Code word for the letter I

India is the official code word for the letter I. But some people who otherwise use the NATO phonetic alphabet use Indigo instead of India. Why?? Georgia guy (talk) 15:57, 25 January 2023 (UTC)

Not every organization uses the NATO alphabet as-is, and not every time you see people using words-for-letters are they even trying to use the NATO alphabet, so there is a LOT of variation on this. This seems to indicate that in certain British contexts, some organizations either have, in the past, used Indigo for "I", or some may even do so today. Some sources indicate the RAF may have used it: [6], and some indicate that British police forces may use it: [7]. There may very well be other organizations using their own system that uses Indigo as well. --Jayron32 16:05, 25 January 2023 (UTC)

See Spelling alphabet for a number of alternatives, though Indigo is not listed there. I understand (but cannot provide a source) that when communicating using a phonetic alphabet in Pakistan, it is considered tactless to use India for 'I', and that Indigo is an acceptable alternative. -- Verbarson  ^talk_edits 22:57, 25 January 2023 (UTC)