Posted by WARREN MOSLER on 20th January 2011
Joe Firestone has a new post on Coin Seigniorage, where he gives credit to our own Beowolf’s comment on this website.
As far as I’ve been able to determine, it does work operationally. It seems the US Treasury is already legally empowered to simply mint it’s own platinum coin in any denomination it wants and effectively deposit it in its Fed account, rather than sell bonds to the public to fund its Fed account.
This process doesn’t change actual govt spending, so doing it this way doesn’t add to inflation, nor does it change the fact that govt deficit spending adds income and net financial assets to the other, non govt sectors. It’s just that the new financial assets will simply be new reserve balances at the Fed, rather than new Treasury securities (which are also simply accounts at the Fed).
What issuing these coins does do is remove the legal need for the debt ceiling to be raised, and also reduce the amount of outstanding Treasury securities, which is what is called govt debt. So while both reserves and Treasury securities are, functionally, govt liabilities and differ in name (and sometimes duration) only, the headline rhetoric does make that distinction. So technically, this process eliminates the ‘national debt’ and removes any (misguided) notion of solvency risk:
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