From Bloomberg:
There's more than one way to print money though I
guess technically what I'm
describing isn't one of them, oh well.
Photographer: Andrew Harrer/Bloomberg
Mint the Premium Bonds!
As Congress looks increasingly likely to force a default on U.S. government debt for no real reason, there are two possible approaches for a rational outside observer to take, which are (1) despair and (2) hare-brained scheming. Option 1 is probably correct, honestly, and you can get your fill of it elsewhere; Martin Wolf's despair is eloquent. But Option 2 -- coming up with creepy tricks to avoid reality, reality being the debt ceiling and a pointless default -- is more fun so let's talk about it here.This is the first time we've visited with Matt since:
The creepy trick that has swept the nation* is the platinum coin option, in which Treasury mints a $1 trillion platinum coin, deposits it at the Fed, and suddenly has an extra $1 trillion of money to spend without incurring any debt (and, thus, without breaching the debt ceiling). This is a good trick as tricks go, and it's been extensively advocated by Josh Barro, Paul Krugman, Matt Yglesias, Joe Weisenthal, basically every economics blogger really. I am unaware of any good arguments that the platinum coin wouldn't work, but it does have the problem that it is really really really really obviously a trick. I mean, it's a trillion dollar coin, come on. So it's sort of sub-optimal symbolically, and would make people really mad. It's a crisis-enhancer, although with the benefit of avoiding immediate default.
My preferred creepy trick is creepier and less of a trick and it goes like this:
This idea is not original to me -- several people on Twitter have championed it -- and I wrote a long post about it during the last debt ceiling crisis. You should read that post if you want the long/technical version of the argument for why this works, but the short version is: I think it works. The debt ceiling applies to the face amount of bonds, not the amount raised, so selling a $100 bond for $275 only counts $100 against the debt ceiling and gets you $175 in debt-ceiling-free money. There are rules against issuing premium Treasury bonds, but the rules are just Treasury rules and they can be changed unilaterally by Treasury with no notice and no Congressional approval. So Treasury could do an auction tomorrow seeking to sell $100 billion of 23 percent bonds for $275 billion and as far as I can tell no one could stop them....MORE
- The U.S. government takes in $277 billion in tax revenues each month, and spends $452 billion each month, for a monthly deficit of around $175 billion.**
- It also has, on average, call it $100 billion of Treasury notes coming due each month.***
- Instead of just rolling those Treasuries -- paying them off at 100 cents on the dollar by issuing new Treasuries at 100 cents on the dollar -- it should pay them off at 100 cents on the dollar by issuing new Treasuries at 275 cents on the dollar and using the extra money to pay its bills. The 10-year yield today is around 2.6 percent, so you could sell a 10-year with a 23 percent coupon for 275 cents on the dollar.**** The 30-year is about 3.9 percent, so a 14 percent coupon should get you there. Etc. Math here.
- That's it. You aren't adding debt, so you never hit the debt ceiling, but you keep getting more money.
In Case You Missed It, Matt Levine Has Left DealBreaker
Between Bess' headlines and Matt's footnotes they had the biz covered in inimitable (I've tried) fashion.
From DealBreaker:
Housekeeping: So Long To Matt
