At 1/13/13 02:36 PM, poxpower wrote:
You just said it PREVENTS the raising of cash. How are you equating this with RAISING CASH...??
The debt ceiling prevents the Treasury from raising cash. With the coin made, the Treasury can now do this regardless of the debt ceiling being raised on time.
As far as I understand, if they don't raise the debt ceiling, it would mean defaulting on a lot of payments, which will devalue the US's credit /confidence rating and cause all sorts of shenanigans. But it won't increase the debt or the money supply.
If they raise the debt ceiling, it will create ( for instance ) 1 extra trillion in debt, payable in the future with interest.
The debt ceiling doesn't create the debt, it allows debt. The debt isn't created until money is spent. You can raise the debt ceiling to 400 quadrillion dollars, that doesn't mean we're 400 quadrillion dollars in debt.
If they print 1 trillion, it increases the money supply by one trillion, which they use to pay off existing debt. How is that not increasing the money supply? Isn't the point to pay for stuff RIGHT AWAY?
Not necessarily. The normal way for the Treasury to pay its bills is to sell debt (t-bills). Hitting the debt ceiling means they can't do that, so the coin gives them a route to a temporary bridging loan from the Fed. The money is not to pay existing debt, it is to pay for the operational costs of running the government. It's just an insane wacky way to technically increase the debt ceiling by bypassing Congress by using a loophole in a bill which was, ironically, passed by Congress. Let's look at how this works, both normally and under the coin option:
Normally, if the Treasury needed a hypothetical 500 billion bucks, they would sell 500 billion dollars worth of t-bills. They get their 500 billion, and spend it.
Now, let's use that same exact hypothetical situation, except they can't sell t-bills because of the debt ceiling being reached. This is how the coin would work under that scenario: the coin is minted and the Treasury borrows 500 billion dollars from the Fed. The Treasury can now spend 500 billion dollars. Eventually, the debt ceiling will be raised. This what will happen when that happens: the debt ceiling is finally lifted, so the Treasury now sells 500 billion worth of in t-bills as it normally would. The Treasury now gives the proceeds to Fed. The Treasury gets coin back and destroys it. The net result of this is that the Treasury sells $500B in T-bills, and spends $500B. Both scenarios have the same net effect of the Treasury selling $500B in T-bills and spending it. One is just more complicated than the other.
Back to the real world example, the $1T injects no money at all into the economy directly. It is essentially collateral for a temporary loan from the Fed to cover monetary needs during the crisis, sort of like a checking account. Once the crisis is over, the loan is repaid and the collateral returned. It's completely neutral, fiscally.
Sorry I am just not getting this.
As far as I understand, the only "trick" to this coin is to allow the wrong people to print money, but it's still printing money.
But I am not an expert in this at all. Just trying to understand.
Completely understood, I'll be here as long as I need to.