The $1tn coin is a poor replacement for US treasuries

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The writer is an FT contributor editor

The US Mint is a factory. Buy metal, stamp it on coins, and then sell those coins to the Federal Reserve at face value. Mentha’s profit is called “Seigniorage”. It goes to the person known as Senor in Middle English, the person in charge. Think of Janet Yellen as the ruler of America.

When Congress runs a deficit, it tells the Treasury to generate a new dollar.As a secretary, she needs to understand how.

This fall, the United States returned to Congress with a boring cycle of threats from the Republicans, making it difficult for Yellen to generate a new dollar.rear Temporary transaction This week, the next threat is scheduled for December.

The battle once again provided a moment to discuss fun legal theory: Yellen was able to produce a trillion new dollars through Seigniorage at the Mint. But behind that conversation is a much more radical idea. Maybe the dollar is exactly what Senor says.

The Treasury is spending dollars on the US economy from its Federal Reserve account. This account is typically replenished in two ways. When citizens pay taxes, commercial banks send dollars. Alternatively, the department can sell the Treasury — a financial contract that promises a little interest over time.

For the global financial system Treasury is a kind of dollar.. They trade like money. When a sector auctions government bonds, it creates something of value to investors and foreign central banks and exchanges it for bank dollars that can actually be used to pay salaries.

The dollar isn’t just coming to the federal government. Commercial banks can also generate dollars — even foreign banks. However, the federal government is the only organization in the world that can create government bonds. The Treasury auction is the only important gold mine pit face. But that regular threat from the Republicans that makes Yellen’s life difficult-it’s to stop the new Treasury auction.

Therefore, the Seigniorage option. First, Yellen instructed Mentha to stamp an ounce of platinum on the proof. This is a limited edition finely crafted coin. She then sells the evidence to the Fed for $ 1tn face value. Yellen, as Senor, has a net value of approximately $ 999,999,999,000. She excludes this and calls the coin a “gimmick”. interview With CNBC. But the simple fact that she is currently being asked about coins is a tribute to the power of ideas.

Last year, with a $ 1.2 billion face value coin, Mint made a profit of $ 550 million. This is mainly due to the high quarterly Seigniorage. Historically, that’s not a bad thing for Senor. And most years, Mint transfers hundreds of millions of dollars in Seigniorage to the Fed’s Treasury account. Legally, the $ 1 trillion profit of platinum proof coins is the same as what Mentha earns in the quarter. However, these are both types of seigniorage, and Wonton Miss at an office party and a secret family in another city are both types of adultery.

Seigniorage has always been a delicate negotiation between Seigneur and the subject. If you make too much money with coins, you can start losing value. If the intake is too low, it will be too valuable to be distributed. However, such a high Seigniorage has two historical precedents: siege coins and tokens.

Under the literal siege, medieval cities may issue engraved leather scraps in exchange for coins when the siege is lifted. Perhaps this is what platinum proof coins are: a temporary way to deal with barbarians. However, Yellen can also determine that the coin is a trillion dollar asset and is an end. Then, after the Republicans rolled Trebuchet, she didn’t have to sell the new Treasury and buy back the platinum-proof siege coins.

Rohan Gray, an assistant professor at Willamette University Law School in Oregon, wrote: Thoughtful and thorough defense He describes the “constitutional monetary moment,” the opportunity to vie for the nature of money. Gray claims that the dollar is what Yellen is saying. They are worth it because she requires Americans to pay taxes by returning them to the accounts of her department of the Federal Reserve.

In this view, it is irrelevant how Janet Yellen generates dollars. If she wants, she can say there are dollars in that account, and they will be there. Gray writes that the United States can’t run out of dollars any more than the bowling alley can run out of tickets. Coins are a gimmick, but they are also a way to be honest about the dollar.

But this idea of ​​the dollar doesn’t really have a way to explain what the Treasury is, other than as an accounting relic.But why is the Republican threat so powerful? Because the Treasury is so valuable.. The Treasury is not just a token, but a vague promise of American faith and credit. A specific Treasury contract sold on the market.

Perhaps all those buyers are going in the wrong direction about the nature of money. But they do seem to treat the Treasury as if you own or trade things like assets, land or gold. Janet Yellen should do whatever she has the next time she is besieged. But it’s not entirely clear why the United States needs a new way to make dollars.

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