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Precarious
Joined: 20 Sep 2009
Location: Sydney
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| David wrote: | | No-one's answered my question, though: what's the most likely result of all this? What can happen? Or does nobody actually know? |
A currency issuer such as the U.S. government can never be forced into default or missing payments previously passed by Congress, but it can be so willfully destructive as to voluntarily miss its payments. 
I don't think anyone can answer your question of what will happen for certain because it is not clear exactly how crazy the GOP is and/or how reticent Obama will be to take a straightforward option that could resolve the situation immediately. That option is simply to issue a Platinum Coin of large denomination to get around the debt ceiling. This appears to be permissible under current law. Though a gimmick, it is no more a gimmick than the debt ceiling itself.
This point has been made for a few years now, but has taken a while to be taken seriously in the mainstream. James Galbraith concurred with the view in a recent opinion piece at the NYT:
http://www.nytimes.com/roomfordebate/2013/10/02/can-obama-ignore-the-debt-ceiling/government-doesnt-have-to-borrow-to-spend
Previously, Paul Krugman also gave his support to the option in his NYT blog:
http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/
It is important to understand that doing away with the debt limit or working around it would have no economic effect other than to allow those spending commitments that have already been passed by Congress (as Tannin mentioned) to be met rather than go unmet. It would not automatically lead to additional spending or inevitable inflation problems. The check on spending and other government measures would remain, as now, the Congressional budgeting process.
As Galbraith briefly explains in his NYT piece, although under current arrangements the government is required to issue debt to match deficit spending, there is actually no good reason for this requirement. For a currency-issuing government, spending and lending logically precede taxing and borrowing. It would be far simpler for the government to spend without issuing bonds and simply pay any target short-term rate of interest on reserves (which build up as a consequence of the net spending). At the moment, these reserves are, in effect, switched for interest-yielding bonds, but the economic impact would be the same under the simpler arrangement of spending without bond issuance.
The point that taxes and bonds do not fund government spending in the case of a currency issuer is presented in a paper (later published in the Journal of Economic Issues, 2000):
http://estes.levy.org/pubs/wp244.pdf
Here is a more introductory treading over the same ground for non-economists:
http://heteconomist.com/what-everyone-should-know-about-budget-deficits-and-public-debt/
If you are interested in the Platinum Coin option, an early post by Atlanta lawyer Carlos Mucha (posting as "beowulf") explained the option here:
http://my.firedoglake.com/beowulf/2011/01/03/coin-seigniorage-and-the-irrelevance-of-the-debt-limit/
Origins of the idea are documented here:
http://neweconomicperspectives.org/2012/12/origin-and-early-history-of-platinum-coin-seigniorage-in-the-blogosphere.html
Last edited by Precarious on Thu Oct 10, 2013 3:27 pm; edited 1 time in total |
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HAL
Please don't shout at me - I can't help it.
Joined: 17 Mar 2003
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| Quite a lot of things. |
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Precarious
Joined: 20 Sep 2009
Location: Sydney
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| Yes, longer than I intended, Hal. |
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HAL
Please don't shout at me - I can't help it.
Joined: 17 Mar 2003
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| I'm glad you got a laugh out of it. |
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David 
I dare you to try
Joined: 27 Jul 2003
Location: Andromeda
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Thanks P. Interesting stuff.
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All watched over by machines of loving grace |
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watt price tully 
Joined: 15 May 2007
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The Daily Show:
Jon Stewart buries Fox reporting (Murdoch Press) re the rabid right wing of the US Republicans: Good watching for our Lib mates if they're not too busy rorting the system:
http://www.youtube.com/watch?v=H4LxMgBErz4
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“I even went as far as becoming a Southern Baptist until I realised they didn’t keep ‘em under long enough” Kinky Friedman |
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David
I dare you to try
Joined: 27 Jul 2003
Location: Andromeda
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I do love these videos. Thanks WPT.
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All watched over by machines of loving grace |
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Tannin 
Can't remember
Joined: 06 Aug 2006
Location: Huon Valley Tasmania
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Yes. As a rule I don't care for Jon Stewart, but in this case he was brilliant! Belinda had a good laugh too. A good link WPT. Thankyou.
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�Let's eat Grandma.� Commas save lives! |
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watt price tully
Joined: 15 May 2007
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I love Jason Jones: The Daily Show (again), they do it so well:
http://www.youtube.com/watch?v=DQc-aVc562Q
_________________
“I even went as far as becoming a Southern Baptist until I realised they didn’t keep ‘em under long enough” Kinky Friedman |
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Tannin
Can't remember
Joined: 06 Aug 2006
Location: Huon Valley Tasmania
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_________________
�Let's eat Grandma.� Commas save lives! |
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Tannin
Can't remember
Joined: 06 Aug 2006
Location: Huon Valley Tasmania
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So good I had to post it twice
_________________
�Let's eat Grandma.� Commas save lives! |
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watt price tully
Joined: 15 May 2007
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The same you tube as earlier, he other one got blocked:
The daily show, Jason Jones with a FBI hostage negotiator to assist in the standoff over the tea party rednecks:
www.youtube.com/watch?v=Fp-N0k1O08Y
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“I even went as far as becoming a Southern Baptist until I realised they didn’t keep ‘em under long enough” Kinky Friedman |
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Tannin
Can't remember
Joined: 06 Aug 2006
Location: Huon Valley Tasmania
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Thanks WPT. Bloody near had to change my pants.
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�Let's eat Grandma.� Commas save lives! |
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watt price tully
Joined: 15 May 2007
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David
I dare you to try
Joined: 27 Jul 2003
Location: Andromeda
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Amazing, isn't it? And they have a whole news channel devoted to this sort of madness that a lot of people actually watch. Thank the TV gods for Jon Stewart, anyway.
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All watched over by machines of loving grace |
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