3 Ways Around The Debt Ceiling

3 Ways Around The Debt Ceiling
http://www.businessinsider.com/3-ways-around-the-debt-ceiling-2011-7

The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process.

Now, there are ways around the debt ceiling which may or may not have been considered by the Obama Administration, as explained by Yves Smith.

1. Use the 14th amendment of the constitution to declare (or threaten to declare) debt ceiling as unconstitutional – but it seems that the administration is reluctant to use this.

2. Cancel the US government debts held by the Federal Reserve – the government can probably cancel a trillion or two of debts, large chunk of them purchased during the quantitative easing programme. This can buy a year or two, perhaps.

3. Coin Seigniorage – this requires a little bit more explanation.

The third option, as http://pragcap.com/coin-seigniorage-a-legal-alternative-to-the-debt-ceiling">explained in great detail here, uses the fact that the US Mint can create a platinum coin of any arbitrary face value. The profit from seigniorage (i.e. the face value of this coin minus the cost of making this coin) can somehow go into the Treasury General Account. The Mint can, for instance, mint a few US$1 Trillion platinum coins, book the seigniorage profit at the Federal Reserve Mint’s account, then “sweep” that to the Treasury General Account, magically solving all deficits problems.

Read more: http://www.businessinsider.com/3-ways-around-the-debt-ceiling-2011-7#ixzz1TCmxt5O2

I'm curious as to what interest this coin would retain.

edit: AHAH, it seems the people who are throwing the idea out there are aware of this and do not consider the coin an interest-bearer! Now that's an interesting idea, public money has interest, government money to pay down the debt does not.

This is a big no-no from the perspective of the gold standard creeps.

Modern bond issuance is basically a monetary operation that helps the Fed hit its Fed Funds Target Rate.

Fed Chairman Beardsley Ruml wrote a paper in 1946 titled "Taxes For Revenue Are Obsolete". At the time, we had just exited the gold standard and were briefly operating on a fiat system.

Ruml wrote that the real purposes of taxes were: to "stabilize the purchasing power of the dollar" (combat inflation), to "express public policy in the distribution of wealth and of income" (via progressive taxation), "in subsidizing or in penalizing various industries and economic groups" and to "isolate and assess directly the costs of certain national benefits, such as highways and social security".

From Ruml's text:

"The United States is a national state which has a central banking system, the Federal Reserve System, and whose currency, for domestic purposes, is not convertible into any commodity. It follows that our Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes. In general, it may be said that since all taxes have consequences of a social and economic character, the government should look to these consequences in formulating its tax policy. All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue."

to the fiat system.

State and local governments, for example, still rely on taxes for revenue.

That magic part should appeal to repubs. It's how they like to finance everything.

Although it might be hard to find vending machines to accept those coins, and if you did, you might be killed when your return change came out.