The trillion-dollar coin
actually represents one of the most important
principles of popular prosperity ever conceived:
the creation of money by sovereign governments,
debt-free.
Jon Stewart on The Daily
Show this month characterized the proposal
that the White House circumvent the debt ceiling
by minting a trillion-dollar coin as an attempt to
"just make shit up".
Economist and New
York Times columnist Paul Krugman responded with a
critical blog post accusing Stewart of a "lack of
professionalism" for not taking the
trillion-dollar coin seriously. [1] However,
Krugman himself had called the idea "silly". He
thought it was just less silly - and less
dangerous - than playing with the debt ceiling,
which was itself an unconstitutional shackle on
the Treasury's ability to pay debts already
incurred by congress.
Stewart responded on
January 15 that he stood by his "ignorant
conclusion
that a trillion-dollar coin minted to allow the
president to circumvent the debt ceiling, however
arbitrary that may be, is a stupid f*cking idea".
It's all good fun - or is it? Most
commentators have missed the real significance of
the trillion-dollar coin. It is not just about
political gamesmanship. For centuries, a secret
battle has raged over who should create the
nation's money supply - governments or banks.
Today, all that is left of the US Treasury's
money-creating power is the ability to mint coins.
If we the people want to reclaim that power so
that we can pay our obligations when due, the
Treasury will need to mint more than nickels and
dimes. It will need to create some coins with very
large numbers on them.
To bail out the
banks, the Federal Reserve, as head of the private
banking system, issued over US$2 trillion as
"quantitative easing", simply by creating the
money on a computer screen. Congress, the White
House, and the Treasury all rolled over and
acquiesced. [2] When it was proposed that the
government bail itself out of its budget woes by
minting a $1 trillion coin, the Federal Reserve
said it would not accept the Treasury's legal
tender. And the White House again acquiesced,
evidently embarrassed to have entertained this
"ludicrous" alternative.
Somehow we have
come to accept that it is less silly for the
central bank to create money out of thin air and
lend it at near zero interest to private
commercial banks, to be re-lent to the public and
the government at market interest rates, than for
the government to simply create the money itself,
debt- and interest-free.
The banks
obviously have the upper hand in this game; and
they've had it for the last two-and-a-half
centuries, making us forget that any other option
exists. We have forgotten our historical roots.
The American colonists did not think it was silly
when they escaped a grinding debt to British
bankers and a chronically short money supply by
printing their own paper scrip, an innovative
solution that allowed the colonies to thrive.
In fact, the trillion-dollar coin
represents one of the most important principles of
popular prosperity ever conceived: national
debt-free money creation. Some of our greatest
leaders, including Benjamin Franklin, Thomas
Jefferson, and Abraham Lincoln, promoted the
essential strategy behind it: that debt-free money
offers a way to break the shackles of debt and
free the nation to realize its full potential.
We have lost not only the power to create
our own money but the memory that we once had that
power. With the help of such campaigns as Occupy
Wall Street, Strike Debt, and the Free University,
however, we are starting to re-learn the great
secret of money: that how it gets created
determines who has the power in society - we the
people, or they the bankers.
It is no
secret who has that power today. In the great
bailout of 2008, banks were rewarded for making
irresponsible and fraudulent gambles in the
subprime mortgage scandal, with no one serving
time in jail. Then there was the robosigning
scandal, in which banks committed criminal fraud
and came away with a slap on the wrist. Now we are
seeing the LIBOR scandal unfold. While a commoner
might get 10-20 years for robbing a bank, bank
executives get huge bonuses for robbing us.
We may rail against the banks and demand
change, but nothing will change until we grasp
their fundamental secret, the foundation of their
power: that those who create the nation's money
control the nation. By mechanisms explained
elsewhere [3], nearly the entire money supply
today is created by banks.
Remembering
our roots Benjamin Franklin was called
called "the Father of Paper Money". He argued
before the British parliament that
government-issued money had allowed the colonies
to escape the yoke of debt, to thrive and grow.
The king, urged by the Bank of England, responded
by forbidding all new issues of paper scrip. The
colonial economy then sank into a depression, and
the colonists rebelled. They won the revolution,
but the power to create money was lost to a
private banking oligarchy modeled on the one
dominated by the Bank of England.
Fourscore and six years later, president
Abraham Lincoln boldly took back the money power
during the Civil War. To avoid exorbitant interest
rates of 24% to 36%, he decided to print money
directly from the US Treasury as US Notes or
"greenbacks". The issuance of $450 million in
greenbacks was key to funding not only the north's
victory in the war but an array of pivotal
infrastructure projects, including a
transcontinental railway system.
Lincoln
was assassinated, however and, the greenback
program was quickly discontinued. Repeated popular
attempts to revive it failed. In 1872, according
to Lynn Wheeler in Triumphant Plutocracy: The
Story of American Public Life from 1870 to
1920, New York bankers sent a letter to every
bank in the United States, urging them to fund
newspapers that opposed government-issued money.
[4] The letter read in part:
Dear Sir: It is advisable to do all
in your power to sustain such prominent daily
and weekly newspapers... as will oppose the
issuing of greenback paper money, and that you
also withhold patronage or favors from all
applicants who are not willing to oppose the
Government issue of money. Let the Government
issue the coin and the banks issue the paper
money of the country... [T]o restore to
circulation the Government issue of money, will
be to provide the people with money, and will
therefore seriously affect your individual
profit as bankers and
lenders.
Bank-created money (which
now includes electronic money) could be rented at
a profit to the people. The "people's money" was
limited to coin, which today composes less than
one ten-thousandth of M3, the broadest measure of
the money supply.
Lincoln's assassination
and the abandonment of debt-free greenbacks
effectively marked the exchange of one type of
slavery (race-based) for another (wage- and
debt-based). As a result, the American government
and American people are so heavily mired in debt
today that only a radical overhaul of the monetary
system can free us.
Gimmick or
game-changer? That is the real context and
backstory of the trillion-dollar coin. The stakes
are much higher today than just fending off the
debt ceiling. We the people need to take back the
power to issue our own money, and coins are the
only means left to us to do it.
The idea
of minting large-denomination coins to solve
economic problems was evidently first suggested by
a chairman of the Coinage Subcommittee of the US
House of Representatives in the early 1980s. He
pointed out that the government could pay off its
entire debt with some billion-dollar coins. The
constitution gives congress the power to coin
money and regulate its value, and no limit is put
on the value of the coins it creates. In Web of
Debt (2007), I suggested that to solve the
government's debt problems today these would need
to be trillion-dollar coins.
In
legislation initiated in 1982, however, congress
chose to impose limits on the amounts and
denominations of most coins. [5] The one exception
was the platinum coin, which a special provision
allowed to be minted in any amount for
commemorative purposes. An attorney named
Carlos Mucha, blogging under the pseudonym
"Beowulf", proposed issuing a platinum coin to
capitalize on this loophole, [6] after hearing me
mention the trillion-dollar coin in a Thom
Hartmann interview. [7] At first it was just an
amusing exercise. But with the endless gridlock in
congress over the debt ceiling, it got picked up
by serious economists as a way to checkmate the
deficit hawks.
Philip Diehl, former head
of the US Mint and co-author of the platinum coin
law, confirmed that the coin would be legal
tender:
In minting the $1 trillion platinum
coin, the Treasury Secretary would be exercising
authority which Congress has granted routinely
for more than 220 years... under power expressly
granted to Congress in the Constitution (Article
1, Section 8). [8]
Warren Mosler, one
of the founders of Modern Monetary Theory,
reviewed the idea and concluded it would work
operationally. [9] The funds would simply be new
reserve balances at the Fed rather than new
Treasury securities.
Joe Firestone pointed
out that the trillion-dollar coin could solve the
government's debt problems once and for all,
putting in its grasp the power to replace
austerity with the abundance enjoyed by our
forefathers. [10]
The trillion-dollar coin
can raise cries of "hyperinflation!" It evokes
images of million-mark notes filling wheelbarrows.
But as economist Michael Hudson observes:
Every hyperinflation in history has
been caused by foreign debt service collapsing
the exchange rate. The problem almost always has
resulted from wartime foreign currency strains,
not domestic spending. [11]
Professor
Randall Wray explains that the coin would not
circulate but would be deposited in the
government's account at the Fed, so it could not
inflate the circulating money supply. [12] The
budget would still need congressional approval. To
keep a lid on spending, congress would just need
to abide by some basic rules of economics. It
could spend on goods and services up to full
employment without creating price inflation
(since supply and demand would rise together).
After that, it would need to tax - not to fund the
budget, but to shrink the circulating money supply
and avoid driving up prices with excess demand.
Time to take back the money
power The current economic crisis cannot be
solved with the thinking that created it. There is
simply not enough money in the system to fund the
services we desperately need, pay down the debt,
and keep taxes affordable. The money supply has
shrunk by $4 trillion since 2008, according to the
Fed's own website. [13] The only solution is to
add more money to the real, producing economy; And
that means some congressionally mandated entity
needs to create it, either the Fed or the
Treasury.
The Fed has declined. In flatly
rejecting the Treasury's legal tender, the Fed as
representative of the banks is asserting itself as
outranking the elected representatives of the
people. If the Fed won't acknowledge the coins
created by the government, perhaps the government
needs to charter a publicly owned bank that will.
We have a chance today to end the charade
of big money gridlock politics, as well as the
reign of the big banks. We have the power to
choose prosperity over austerity. But to do it, we
must first restore the power to create money to
the people.
Notes: 1. For
Krugman post, see here.
2. See here.
3. See here. 4.
For Wheeler, Triumphant Plutocracy, see here.
5. See here. 6.
See here.
7. For Hartmann interview, see here. 8.
For address by Diehl, see here. 9.
For Mosler review, see here.
10. For Firestone article, see here.
11. See here.
12. For Wray, see here. 13.
See here.
Ellen Brown is an attorney and
president of the Public Banking Institute, PublicBankingInstitute.org.
In Web of Debt, her latest of 12 books, she
shows how a private cartel has usurped the power
to create money from the people themselves, and
how we the people can get it back. Her websites
are webofdebt.com and
ellenbrown.com.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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