by Migeru
Mon Aug 1st, 2011 at 05:44:13 AM EST
As Drew put it
The whole idea of "TEA Party" rallies does have roots in the hard money movement, but most of those people view the Teabaggers as hypocrites who stole their schtick.
Some ways to thwart the
hard money movement's threat to cause the US government to default include (
via Krugman)
A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.
Fortunately for us, none of the loopholes available to the
crassly Keynesian spendthrifts at the US Treasury is available in the Eurozone, because the
Fathers of the Continent, in their infinite wisdom, hardwired basic tenets of the
hard money movement into the Maastricht Treaty so, thankfully, it's all deflation for us.
Indeed [PDF],
Article 128
(ex Article 106 TEC)
1. The European Central Bank shall have the exclusive right to authorise the issue of euro banknotes within the Union. The European Central Bank and the national central banks may issue such notes. The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union.
2. Member States may issue euro coins subject to approval by the European Central Bank of the volume of the issue. The Council, on a proposal from the Commission and after consulting the European Parliament and the European Central Bank, may adopt measures to harmonise the denominations and technical specifications of all coins intended for circulation to the extent necessary to permit their smooth circulation within the Union.
And we all know what happens to people who, in the throes of a Great Depression, decide to reinvigorate the economy of their municipality by issuing local money thereby infringing on the Central Bank's monopoly on money issue: they get
slapped back into Depression.
Despite attracting great interest at the time, including from French Premier Edouard Daladier and the economist Irving Fisher, the "experiment" was terminated by the Austrian National Bank on the 1st September 1933 on the basis of the "Certified Compensation Bills" being a threat to the Bank's monopoly on printing money.
It is perhaps appropriate that the Central Bank involved in 1933 was literally
Austrian while in 2011 they're all figuratively so.
Apart from the silly Trillion Dollar Platinum Coin idea, the following argument was advanced recently (h/t
Chris Cook)
CNBC: It's a Debt Ceiling not a Spending CeilingSo what happens when the government writes checks on an account with no money? Nothing out of the ordinary. Those checks will all clear, with deposits made in the recipients' bank accounts just as they would have if the account was not underfunded.
...
But if the government doesn't have enough money in the account, the Fed just doesn't debit anything at all. It simply creates the credit in the account without a counter-balancing debit anywhere else.
The government is unlike a household because it has the ability to create money simply by creating deposits. This money creation ability means that the government does not need to have raised funds--through taxes or borrowing--before it spends them.
Now, of course, our Federal Reserve is supposed to be independent. In theory, at least, it is possible the Fed could decline to credit accounts with deposits from the empty account of the US Treasury. But it is obliged by law to adopt policies that maximize employment and price stability. Refusing to honor the U.S. Treasury's checks would hardly seem likely to promote fuller employment and price stability.
There are two points here. One is, the Fed/Treasury system is the one entity in the US economy that is not balance-sheet constrained, because it can create fiat US$ at will. And the second is the fact that the mandate of the Fed includes macroeconomic objectives such as growth and employment, which are not subordinate to price stability. The ECB is much more single-minded:
Article 127
(ex Article 105 TEC)
1. The primary objective of the European System of Central Banks (hereinafter referred to as `the ESCB') shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119.
CNBC has written more on the topic:
Can The Treasury Department Really Run Out of Money?But can the government of the United States ever really run out of money?
...
When the government writes a check, it goes to whomever is getting paid. The payee then deposits it in its own bank account. The bank then submits it to the Federal Reserve for clearing.
So far, that's just pretty much the same thing that happens when anyone else writes a check. Except for something very strange--the Obama administration seems to be insisting the Federal Reserve would not allow the U.S. Treasury Department to overdraw its account.
Ah, now we're talking. However,
Reuters to the rescue:
"The Fed cannot allow sort of overdrafts by the Treasury," St. Louis Fed President James Bullard said in response to questions at a conference.
So that's it, then, I suppose. Fortunately for Europe, we have that covered, too:
Article 123
(ex Article 101 TEC)
1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as `national central banks') in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
And, moreover, when the ECB tries to buy debt in the secondary market (as opposed to
directly from the issuers), you can be sure the members of the ECB's governing council will be ready to come out and mislead the public about whether secondary market purchases are disallowed by the treaties.
