Tuesday, January 8, 2013

If The Government Can Just Create A Trillion Dollar Coin, Then Why Do We Have To Pay Taxes?

Michael Snyder, Contributor
Activist Post

If Barack Obama can "solve" the debt ceiling crisis by printing up some trillion dollar coins, then why does the federal government need our money?

As another debt ceiling showdown approaches, many in the liberal media are suggesting that if Congress does not raise the debt ceiling that Obama should just have the U.S. Treasury create a trillion dollar platinum coin and use it to pay our bills.  It sounds crazy, but many notable voices (including Paul Krugman of the New York Times) are supporting this idea.

But if the federal government has had the power to create trillion dollar coins out of thin air all this time, then why do we have to pay taxes?  Not only that, why do we have a national debt?  If the federal government can just create money whenever it wants, then why does the federal government ever have to borrow it from others?

The U.S. Constitution actually grants Congress the power to "coin money", so why is the Federal Reserve doing it?  Those are some very important questions.  Most Americans don't even realize that the U.S. government never actually needed to borrow a single penny from anyone else.  The U.S. Congress has the authority to create debt-free money whenever it wants to.  Conceivably, the entire federal government could be funded without ever borrowing a single dollar and without ever receiving a single dollar from any of us in taxes.

Just imagine that - a nation without a single penny of national debt, no income tax and no IRS.  What a wonderful world that would be.  Of course there would be other potential dangers under such a system (such as runaway inflation), and those dangers would have to be addressed.  But the truth is that we don't have to have an income tax or 16 trillion dollars of government debt.  We only have those things because we have chosen to have those things.

Sometimes, a crisis can illuminate options that most people had not considered previously.  As another debt ceiling crisis draws closer, many are looking for ways for the U.S. government to be able to continue to pay its bills if Congress does not authorize an increase in the debt ceiling.

If a debt ceiling agreement is not worked out, the U.S. government will soon only be able to pay about half the bills that are coming due after interest payments on the national debt (which will almost certainly be prioritized) are made.

That is why a lot of people on the left are pushing the "trillion dollar coin" alternative.  So how would this work exactly?  The mechanics were recently explained by Jim Pethokoukis on his American Enterprise Institute blog...
There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver, and copper.  BUT, the Treasury has broad discretion on coins made from platinum.  The theory goes that the U.S. Mint would create a handful of trillion dollar (or more) platinum coins.  The President would then order the coins deposited at the Fed, who would then put the coin(s) in the Treasury who now can pay all their bills and a default is removed from the equation.  The effects on the currency market and inflation are unclear, to say the least.
In my opinion, if anyone in the federal government is going to be creating money out of thin air, it should be the U.S. Congress.  After all, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been granted the authority to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures".

But those that are pushing Obama to create a "trillion dollar coin" point to a law that Congress passed that allows the U.S. Treasury to mint platinum coins.  The following is from a recent CNN article...
Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to 'mint and issue platinum bullion coins and proof platinum coins.'
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
One Troy Ounce Silver Medallion
But it wouldn't quite be that easy.  According to a recent ABC News article, some elements of the coin design would have to be determined by legislation...
The more difficult part comes sometime after the decision is made to coin the platinum and before the Mint gets to work in sculpting the pieces.
At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the 'specs' of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.
So we would likely end up back at square one.

But if printing up a "trillion dollar coin" does not work out, Paul Krugman of the New York Times has come up with another option...
Don’t like the platinum coin option? Here’s a functionally equivalent alternative: have the Treasury sell pieces of paper labeled “moral obligation coupons”, which declare the intention of the government to redeem these coupons at face value in one year.
It should be clearly stated on the coupons that the government has no, repeat no, legal obligation to pay anything at all; you see, they’re not debt, and therefore don’t count against the debt limit. But that shouldn’t keep them from having substantial market value.
Of course there is a very, very low probability that any of these wild ideas will ever be tried, but this debate has raised some very interesting points.

The truth is that we do not have to have a system where more money is only created when more debt is created.  We could have a system where the federal government directly creates debt-free money that is spent directly into circulation by the federal government.

In fact, this has happened before.

As I have written about previously, during the presidency of JFK a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government directly into circulation without any new debt being created.  In fact, each bill said "United States Note" right at the top.

Unfortunately, after JFK's presidency no more debt-free United States Notes were ever issued.
But even before JFK, there were times when debt-free United States Notes were being used.  According to Wikipedia, United States Notes were first used during the Civil War.... 
They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.
So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?

If the Federal Reserve did not exist and the U.S. government directly created money instead of borrowing it, it is conceivable that we could have a national debt of $0.00 today instead of $16,432,707,263,449.56.

Which option do you think our children and our grandchildren will wish that we had opted for?
In a system where the government directly created money, it is also conceivable that we could completely do away with the income tax and the IRS completely.  The U.S. once prospered greatly without an income tax, and it could do so again.

And the truth is that our system of taxation is broken beyond repair.  If you doubt this, just read this article.

So what would the downside be to such a system?  Well, of course rampant inflation would be a huge danger.  Allowing Congress to print up money whenever they wanted to would be playing with fire.  That is why it would be imperative for there to be a hard cap on what the federal government could spend.  For example, you could set the cap on spending by the federal government at 20 percent of GDP.  That way we would hopefully never end up looking like the Weimar Republic.

And the current federal debt could be paid down a little at a time using newly created debt-free currency.  This would have to be done slowly to keep inflation under control, but it could be done.
Of course if you wanted to continue to fund the federal government through taxation, there are other options that would still allow you to do away with the income tax.  For example, one of the ways that our founders intended for the federal government to be funded was through tariffs, and we could definitely raise a lot of money that way.  Plus, that would have the added benefit of making American companies much more competitive again and it would reduce the flow of American jobs out of the country.

So am I in favor of having Barack Obama create a trillion dollar coin to get around the debt ceiling crisis?

Most definitely not.  If it does not violate the letter of the Constitution (which I believe it does), it sure does violate the spirit of it.

But if the U.S. Congress decided to shut down the Federal Reserve and the IRS and they decided to abolish the income tax, and instead they started directly issuing debt-free currency directly into circulation, that is something I would very much be in favor of.

Yes, that system would not be perfect either, but it would be far more preferable to what we have today.

So what do you think?  Should we keep our current system of debt-based money, or would a system of debt-free money be better?

Please feel free to post a comment with your opinion below...

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.


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Anonymous said...

There is one way to know for sure if this will work: Is the federal government proposing it? FAIL.

Paul Panza said...

Answer to headline: To keep you bound to the evil generated by possessing money and debt. It is the same with weapons to keep you bound to the evil and negativity of such devices. You want money and a gun now don't you? The meta-physical gives form to the physical.

Anonymous said...

The debt based money system is the PTB's best ever idea to enslave the masses followed closely by compound interest. For a better monetary solution that is globally applicable, fair and easy to understand please check out secondmoneysystem.webnode dot com, it's my offered solution to end this madness.

Anonymous said...

It is my firm belief that the founders of this once great nation were 100 times more intelligent and understood human behavior infinitely more when it comes to its relationship to power and governance than any of today's excrement filled meat puppets in the federal guvmint.

Molon Labe!

Anonymous said...

You'll know this is for real when they start converting the vending machines for these coins.

Anonymous said...

Inflation has long been an issue with our current economic system being controlled by the FED. Let's not let that deter us from implementing changes needed to restore the control of currency to the government of the people and stop the exploitation being perpetrated by the FED. I suppose those most opposed to implementing any sort of change are those with much to lose if such change were to occur. The masses must recognize our current system is corrupt from the top down, and must be eliminated. We must ignore the issues, such as inflation, looks, etc. Instead we must focus on steps needed to remove those in power, from the top down, within our current system. We must demand these criminals be held accountable for there actions against the citizens. We must demand a termination of the corporate influence within the federal government. We must demand the federal reserve be eliminated and investigated on criminal charges. The time has come for the exploitation to end. Monetary gain is the crack cocaine of the corporate world.

Anonymous said...

Money created from thin air is currency debasement no matter if the fed or the treasury does it. Sound money is only answer all the rest just more of the same and is immoral. Maybe the person suggesting this should take economics 101 or just visit the mises institute for a quick lesson before making any more suggestions. Any money created without commodity backing is a fiat and presents the cruelest hidden tax ever conceived

Anonymous said...

Priorities #1 End the FED #2 End Prohibition

There DONE

Anonymous said...

"Money created from thin air is currency debasement no matter if the fed or the treasury does it. Sound money is only answer all the rest just more of the same and is immoral. Maybe the person suggesting this should take economics 101 or just visit the Mises institute for a quick lesson before making any more suggestions. Any money created without commodity backing is a fiat and presents the cruelest hidden tax ever conceived."

True enough, however for those who want an "advanced society" such as America has (supposedly) been for the past few decades a fiat currency is pretty much a necessity.

While economic spending and GDP and such are nice stats to use for PR purposes the actual amount of money invested in the U.S economy at any one point in time is in the tens of trillions of dollars range(if not higher at times).

Good luck backing that much money with any commodity without devaluing that base commodity itself.

A reduced society could manage without a fiat currency system of course, but today it seems the majority of people still desire a society of the scope that America is today(or was until the last decade's economic declines anyways).

So your choice would be devaluing a fiat currency or devaluing a commodity(like gold or silver) to maintain the massive financial investment in American society.

Commodity backing is more comforting for those who understand the purely "perceived" nature of fiat currency value, but is it really any different at that scale?

I personally have no problem with fiat currency itself as history has many examples of it working quite well, it is the (perhaps purposefully) reckless policies of those controlling most of it today that are the problem.

Personally I've always wondered if it would work to base a currency on employment rather than a commodity, though I suppose "human resources" would count as a commodity of sorts as well.

In other words allow a certain amount of currency in circulation for every x% of the population that is employed, increasing or decreasing if employment rises or falls.

In theory such a system could prevent things like hyper-inflation and such as well as encouraging better business practices from the big corporations(more domestic employment rather than "outsourcing" and such), though I'm sure there are probably many drawbacks to such a system too.

But regardless to me it is interesting to consider alternatives to the traditional commodity backed and fiat currency systems you hear about most frequently.


Anonymous said...

We pay taxes to maintain the illusion that money has some value. If the government can print money to pay all its bills without raising taxes, the peasants will realise that fiat money is nothing more than coloured bits of paper and will refuse to exchange real goods and services for them. It's the same illusion that we have that bank loans come from deposits made by little old ladies at the bank, when in fact, the loans are simply conjured out of thin air.

Anonymous said...

Jesus, would this site and others stop writing about this F***ING debt ceiling? There is no federal debt ceiling, and there never has been! It's nothing but Kabuki theater for blockheads.

Nemetron 2000 said...

Fuck government.

There, next question.

djohnston said...

"So am I in favor of having Barack Obama create a trillion dollar coin to get around the debt ceiling crisis?

Most definitely not. If it does not violate the letter of the Constitution (which I believe it does), it sure does violate the spirit of it."

"After all, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been granted the authority to 'coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures'."

Ah, therein lies the rub. You see, powers not granted to Congress are reserved to the several States, or to the People. And the counterbalance to Article I, Section 8, which enumerates what powers Congress DOES have, is Article I, Section 10, which enumerates the powers that States DO NOT have.

"No State shall ... make any Thing but gold and silver Coin a Tender in Payment of Debts;"

You see, only Congress can COIN money, and the States cannot make anything but gold and silver COIN legal tender. This is still Constitutional law. And the Constitution is still the highest law of the land.

"This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

The Senators and Representatives before mentioned, and the Members of the several
State Legislatures, and all executive and judicial Officers, both of the United States and of the several States, shall be bound by Oath or Affirmation, to support this Constitution; but no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States."

Article VI

Anonymous said...

Nice article, no taxes or debt, it is possible thru PUBLIC not privatized banking system, ONLY public bank in US is in NorthDakota___Solution__Read - webof debt.com/articles - PublicBankingInstitute - canobs.livejournal.com

Anonymous said...

You are all still stuck in the bargaining stage of grief. Let it go.

svirtue2012 said...

I am tired of paying DMV, TIRED OF PAYING TAXES that support invading other countries for a resource, (WE already have). Tired of IRS that is a separate entity, outside the Federal Government. Are we playing the same game as the (Private Bankers) Federal Reserve in Imploding world wide markets with a confedence game in fiat, manipulation, drag out & taken to the woodshed mantality when there is nothing backing up? This world would be a better place if we followed Muammar Gaddafi in the Green Book? Inflation here we go? Have you read : THE ACT OF 1871? UNITED STATES INCORPORATED. TAKING BIDS FOR TAKING ELECTED & NON-ELECTED OFFICALS TO THE WOOD SHED!

Vytas said...

They need tax to keep value of that one trillion coin. That coin basically is valuable as long as government will promise to accept it back as one trillion taxes. Without this it would become just another piece of metal.

Anonymous said...

Primrily inflation occurs when money is created and loaned into circulation as debt,at interst under the fractunal reserve bankng system.

Excess parasitic profits earned without work or effort and usury interest rates must me erradicated from the face of the earth.

The Federal Reserve is unconstitutinal, inherently frauduent and inimical to the public interst.

It is a gigantic Ponzi Pyrami Scam

Banks can loan out 10 time the money they have in reserve on time deposits and 8 times on demand deposits. Worst yet, all the money that is being created is pure fiat. Money without precious metal backing. Money created from debt and which we are forced to accept due to the legal tender laws. What ever the king or the Elite Globalist Banking CABAL of the NWO that are members of the Illuminati determines what it is worth.

Anonymous said...

So long as oil has to be paid in petrol dollars , and so long as the people who depend apon this oil can pay for it nothing will change ......

Anonymous said...

I can't believe someone is so dumb to think like this

Leslie said...

"But if the federal government has had the power to create trillion dollar coins out of thin air all this time, then why do we have to pay taxes?"

That is indeed the question. And we all give the answer every day that we keep permitting the fiat money system to continue. The answer: Because we're too stupid to say no.

Kate said...

JFK got shot for printing US Notes.

Manuuuh said...

That last question should have been done to Libyans, before overthrowing Gaddafi...

Anonymous said...

Debt-free money is bogus. By printing more money to pay of our debts, we devalue all currency currently owned by the people. Don't like paying taxes? Too bad, because printing up more money simply taxes the dollars you already have. Printing money can be a reasonable thing to do, but not for the reasons that this article suggests. As Anon above said, "I can't believe someone is so dumb to think like this."

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