US Default on Treasury Bonds

[Gumby]

Then, I heard an interesting story about how the US has wasted $300 million minting $1 coins that nobody uses

I always wonder what the definition of "wasted" is when I hear stories like that. I can only imagine that most of that $300 million was given to hundreds of employees, manufacturing equipment corporations and marketing corporations to create, move, count and market mountains of worthless coins. And then the $300 million entered the economy and bought meals and movie tickets and automobiles and dental reconstruction, etc. I mean it's not like the money went into some gigantic toilet. The $300 million enters the economy and is exchanged for goods and services (while the actual coins themselves rot in a vault).

[Storm]

Then, I heard an interesting story about how the US has wasted $300 million minting $1 coins that nobody uses

I always wonder what the definition of "wasted" is when I hear stories like that. I can only imagine that most of that $300 million was given to hundreds of employees, manufacturing equipment corporations and marketing corporations to create, move, count and market mountains of worthless coins. And then the $300 million entered the economy and bought meals and movie tickets and automobiles and dental reconstruction, etc. I mean it's not like the money went into some gigantic toilet. The $300 million enters the economy and is exchanged for goods and services (while the actual coins themselves rot in a vault).

I suppose so, but this also reminds me of a Milton Friedman story:

At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: 'You don't understand. This is a jobs program.' To which Milton replied: 'Oh, I thought you were trying to build a canal. If it's jobs you want, then you should give these workers spoons, not shovels.'"It would be more productive to dig holes and then fill them in again.

Are we trying to create jobs, or are we trying to balance the budget?  I guess it's pretty hard to have your cake and eat it too.

[moda0306]

I guess that's the real Keynesian question... assuming nothing valuable can be done with the money, what is the true, macroeconomic effect of the "misallocation of resources" of "digging ditches and filling them back in" if it puts people to work and get's the gears of the economy moving.

I share the belief that anti-Keynesians seem to have a lack of appreciation for short-term dynamics of the economy and the effects on the long-term results, but at the same time I find the idea of government dictating a certain level of demand as being appropriate to be inherantly disgusting on both an individualist and environmental level.

[Gumby]

I suppose so, but this also reminds me of a Milton Friedman story:

At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: 'You don't understand. This is a jobs program.' To which Milton replied: 'Oh, I thought you were trying to build a canal. If it's jobs you want, then you should give these workers spoons, not shovels.'"It would be more productive to dig holes and then fill them in again.

Whether you use machines or spoons, either way the money still enters the economy. The only difference is the final price. Obviously it's better if they can create something more useful (than a ditch or a pile of unused coins). But, the $300 Million isn't a total "waste." It just seems like an article to rile people up about nothing.

Are we trying to create jobs, or are we trying to balance the budget?  I guess it's pretty hard to have your cake and eat it too.

I'm not completely 100% sold on needing to perfectly balance our budget. If we were Greece (who cannot print more Euros) we would definitely need to balance our budget. But, why exactly do we need to balance our budget if we can just print money out of thin air? As long as we don't trigger high inflation, it would probably be beneficial to run a reasonable deficit at all times.

Obviously a country like Greece certainly needs to work towards a surplus, so that it has reserves and doesn't run out of money during downturns or by overspending. But, I'm not sure I see how a surplus would actually help the United States when money can be created with a few keystrokes on a computer screen at any time.

Note that I'm not saying that we should spend with reckless abandon. I'm just saying that a surplus seems like it wouldn't do anybody any good in a fiat economy.

[moda0306]

Gumby,

I tend to think along those lines regarding our currency... I tend to think our currency is fundamentally different than one pegged to another currency or a gold standard.  I think we have to think in terms of a "game" designed through taxation, borrowing and spending that gives our money value.

Call it confetti if you wish, but if our government were to force us to remit to them actual confetti (taxation), and then controlled all production of confetti sans a few criminals who figure out how to counterfeit it, then you'd develop a currency through fiat production, distribution, and taxation.

You can argue the morals and constitutionality of all this until you're blue in the gums, but until a government loses its ability to threaten sending someone to jail for not paying their confetti tax, then the confetti will probably retain its value.

I kind of like the explanation that taxation and borrowing destroys dollars outright, and spending creates dollars out of thin air... I know it's not this simple but it helps one think about the nature of sovereign fiat currency.

[Storm]

Obviously a country like Greece certainly needs to work towards a surplus, so that it has reserves and doesn't run out of money during downturns or by overspending. But, I'm not sure I see how a surplus would actually help the United States when money can be created with a few keystrokes on a computer screen at any time.

Note that I'm not saying that we should spend with reckless abandon. I'm just saying that a surplus seems like it wouldn't do anybody any good in a fiat economy.

Gumby, you make some really great points, and I would tend to agree that running mild deficits by a country with their own currency (especially the world reserve currency) is usually helpful to the economy.

In the context of the debt ceiling debate, a lot of rhetoric on both sides has been flung around, like some tea party suggestions that any amount the debt ceiling is raised must be cut from future budgets.

If we look at cause/effect, severely cutting government spending in the midst of a bad economic environment when private spending is already low might just make things worse.

But, I would much rather see the spending going to infrastructure like roads, trains, and schools instead of minting coins to store in a vault somewhere.  Just like the example of digging a canal with spoons instead of shovels or bulldozers.  Sure, it creates jobs, but if we're going to use government cheese let's at least do it intelligently, where more people will benefit, rather than just digging holes to fill them back in again.

[Gumby]

Yeah, I totally agree. I just think the media tends to exaggerating the loss — making it sound as if $300 was burned if a giant bonfire.

[Jan Van]

Oh, now it turns out the debt ceiling is unconstitutional, so we can close this thread 

Much Ado About Nothing on Debt Ceiling?

[quote=article]The plain language of the 14th Amendment prevents the United States from defaulting on its debt and says nothing about the power of Congress to force such a default:

“The validity of the public debt of the United States, authorized by law… shall not be questioned,”? reads the 14th Amendment.[/quote]

[Storm]

Oh, now it turns out the debt ceiling is unconstitutional, so we can close this thread   ;D

Much Ado About Nothing on Debt Ceiling?

The plain language of the 14th Amendment prevents the United States from defaulting on its debt and says nothing about the power of Congress to force such a default:

“The validity of the public debt of the United States, authorized by law… shall not be questioned,”? reads the 14th Amendment.

Interesting article, jmourik.  I don't think it's really Obama's style though, to do an executive override.  It might be more of a GWB type move.

[Gumby]

The HuffPo article (linked to in the article above) talks more about the strategy:

http://huffingtonpost.com/2011/06/28/14 ... 86442.html