What if the US Treasury Could Order the Federal Reserve to Increase the Balance in Its Spending Account Whenever it Needed to Either Spend Congressional Appropriations or Redeem Debt Instruments and Everyone Knew that It Could?
Well, it just so happens, that it can order the Federal Reserve to do that. It’s just that not everyone knows that it can.
And among those that know, there are many who don’t want the rest of us to know that truth, because if we did, then they wouldn’t be able to constantly tell us the lie that Congress’s spending isn’t limited by the Federal Government’s ability to tax and borrow. And if they couldn’t tell us that, and give it as a reason why we can’t have the necessary spending for all the things we need (forgive me) to make America great again, then their power over us, the consent we grudgingly give them, would be gone.
We would then make our representatives do what is in the people’s interests and pursue the public purpose which may include in the fiscal sphere, at least:
— A full payroll tax holiday until full employment is reached;
— State revenue sharing grants to support State governments in restoring the full range and quality of public services that existed before the Great Recession;
— A Federal Job Guarantee program guaranteeing a job offer at a living wage with full fringe benefits to anyone seeking part-time or full employment;
— A guarantee of annual entitlement spending without regard to “trust fund” balances and a doubling of Social Security benefits;
— National Improved Medicare for All, a full coverage no co-pay, no deductible program (See HR 676 for range of benefits);
— Fix US infrastructure using the full specification of requirements by the American Society of Civil Engineers over six years;
— A No Cost Educational System from Pre-School through Graduate School;
— A debt jubilee for College loan debtors;
— Create new clean Energy Foundations to rapidly transition to renewable, non-polluting energy sources;
— Create an Environmental protection program that will clean up and maintain a clean environment;
— Stop and reverse climate change;
— A Basic Income Guarantee;
— Maintaining or creating social safety net programs as good or better than any in the world, and safeguarding the rights of national governments to expand them regardless of the effects of public policy on private profits, without incurring any financial liability;
— Additional fiscal policies reducing economic inequality;
— End fiscal policy budgeting for deficit reduction and fiscal neutrality, replacing it with budgeting aimed at getting the best outcomes for public purpose.
Until everyone knows that Congress’s spending isn’t limited by the Federal Government’s ability to tax and borrow, the first question that is asked when someone wants to spend for something popular and worthwhile is “How you gonna pay for it?” The merits of the proposal in terms of its benefits for people and its relation to public purpose are then rarely discussed seriously since Republicans oppose any new taxes reflexively, and both they and most Democrats in Congress, as well, are strongly opposed to spending programs that may involve large amounts of deficit spending.
So, the upshot of this is that Congress rarely passes legislation involving new spending programs or expansion of old programs and the United States limps along, year after year, without solving until the United States is close to collapse, unless people know that:
1) There are no financial or legal constraints on Congressional Appropriations except self-imposed ones; and
2) The constraints Congress places on Treasury in relation to its ability to implement appropriations mandated by Congress do not force Treasury to rely only on taxing and borrowing to get the Federal Reserve to fill its spending account to perform mandated spending.
Claim 1) is clear from Article 1, Section 8 of the US Constitution which gives Congress the authority to coin money. There are no limits on this power, and over the years it has been interpreted to include paper money (currency), and bank reserves, including electronic credits, as well. In addition, Congress has delegated its power to create coins, paper money and reserves to either the Federal Reserve, the Treasury, or, in the case of currency and coins, both (the Federal Reserve orders currency, which it circulates from the Bureau of Engraving and Printing which creates the currency. It also orders coins from the US Mint which creates them.)
Claim 2) introduces considerations that are more complicated than claim 1, but I think facts relating to the delegation of the power to coin money to the Treasury support it as well. This is crucial, because all arguments for austerity and movements toward a balanced budget rely on the claim that taxing and borrowing are the only means Treasury has to fill its spending account.
That claim is not true! Coin seigniorage is also a way for Treasury to get the Fed to fill its spending accounts.
According to the US Mint:
FY 2016 United States Mint estimated total revenues are $3,839,982,000, total expenses are $3,595,307,000, of which $30,468,000 are for capital investments, and net results are $244,675,000 in earnings.
The Mint’s earnings, that $244,675,000, also known as the “coin seigniorage”, or simply “seigniorage”, is the difference between the cumulative face values of the coins it ships and the expenses it incurs, including both operating and capital expenses of the Mint during 2016. Both the face values and the seigniorage accumulate in the Mint’s Public Enterprise Fund (PEF) account throughout the year.
The Treasury can “sweep” the PEF for the seigniorage into its own spending account at will. So, that is a third way to get reserves into its spending account other than getting the Fed to mark down its Treasury Tax and Loan accounts (TT & L) and then mark up its spending account.
Compared to the credits to its spending account coming from its TT & L accounts, the amount of coin seigniorage coming from the Mint is small. But it is there and it demonstrates that there is another way the Treasury gets it spending account filled so it can spend Congressional appropriations funding its spending. And, as it turns out, that way of Treasury filling its spending account can be used to much greater effect than in the past.
By using the authority of a 1996 law to mint proof platinum coins with arbitrary face values in the trillions of dollars Treasury, through the Mint, can cause the Fed to fill the PEF with enough reserves to allow Treasury to use the resulting seigniorage and in performing its already Congressionally funded spending, and even enough to pay off the existing debt.
This idea, originating with beowulf (attorney Carlos Mucha) in its Trillion Dollar Coin (TDC) form has gotten a lot of attention during the debt ceiling crises of 2011, and 2012–2013. But a variation of it in its High Value Platinum Coin Seigniorage (HVPCS) form, requiring a coin with face value of $100 Trillion, for example, has received much less attention, other than in my own writing.
The differences in the TDC and HVPCS variations in their political implications are great. The TDC looks like a temporary expedient to get around debt ceiling problems, whose use can be repeated when needed. But, it doesn’t quickly remove the political problem of “the national debt” from consciousness as one of our most serious political problems.
On the other hand, minting a $100 T coin would change the background of politics by providing for relatively rapid payoff of the debt subject to the limit without balanced budget-creating recessions. If such a coin were used then there would be no more austerity talk, and no questions about “How you gonna pay for it?”, since one can always answer “Well once Congress funds it then Treasury can get reserves in its spending account from the Fed through transferring existing reserves in its TT & L and its PEF accounts.”
So, how can the US Treasury order the Federal Reserve to increase the balance in its spending account whenever it needs to either spend congressional appropriations or redeem debt instruments? Simple: it can order the Mint to issue platinum coin(s) when it wants to fill it and ship the coin(s) to the Federal Reserve for deposit.
The coin(s) then serve as a message, an order from Treasury to fill up the Mint’s PEF account. Once that’s done, Treasury can then send an order to the Fed to debit (mark down) the PEF account for the value of the seigniorage and credit (mark up) the Treasury’s spending account in that amount.
So, that’s it! Go tell all your friends that the Treasury can order the Federal Reserve to increase the balance in its spending account, whenever it needs to spend its Congressional funding, and that people who tell you Treasury can run short of money to do this and be forced to shut down the Government are telling you a fairy tale.
People won’t believe you, at first, so you’ll have to keep repeating and explaining it to them. But eventually, the light bulb will go on!
In fact, if the platinum coin happens to be in the amount of $100 Trillion, then all bets on austerity are off. So much for the deficit and debt problems the austerians use to terrorize American voters; and so much for the rationalizations they use to stop the rest of us from demanding the various necessary things for the more just, and equal society Americans need.
Those rationalizations will be gone for good, and then we’ll be able to get on with the job of building the nation we all want to see for our children, our grandchildren, one another, and ourselves.
*I’ve discussed HVPCS at length in my book, in many posts at New Economic Perspectives, and on my current blog, covering the subject comprehensively. So, if you’re interested in more detailed information, then these are the places to go.