Powers not Granted

To listen to Paul Krugman, this whole debt ceiling thing is a farce and Congress MUST raise the debt ceiling because the increase in debt is nothing more than the consequences of previous decisions by Congress with regard to spending decisions and taxes.

This is total BS. It sounds good on the surface but when you scratch below the surface it is total BS. The problem is entitlements. Entitlements are expenditures based on law. Follow the law and certain expenditures necessairly ensue. But law can only be changed when the President signs legislation that has passed both houses of Congress. This elevates greatly threshold for Congress to control entitlement related expenditures. To control entitlement related expenditures, Congress needs the approval of the President or be able to over-ride a veto.

This is not what the Constitution intended. The Constitution intended that the Congress, specifically the House of Representatives, have the strongest of controls over spending. As it now, given the nature of entitlements, this control has been lost because the hands of today's Congress are tied by the decisions of previous Congresses, something that was not intended by the Constitution.

Enter the Debt Ceiling. The Congress also has to authority to issue debt. This is the mechanism by which Congress can regain control over spending. Congress can say: this is out of control, we will not grant additional debt authority unless all concerned agree to appropriate revisions to entitlement law.

End of Story.

Except it is not. We have the entire leftwing conspiracy conspiring to come up with mechanisms, schemes, to by-pass Congress's authority in regards to the purse. Some call for Obama ignore Congress and issue new debt anyway based on an impossible reading of the 14th Amendment. Others are urging the Treasury to mint a $1T platinum coin, a proposal that is beyond rediculous.

It just shows how far this great republic has fallen that these proposals are gaining any traction at all!

Make no mistake. What these morons are proposing is not only fiscal irresponsibility but a huge concentration of power in the hands of the Executive Branch. This is by many order of magnitude beyond what the Constitution ever intended.

These morons are throwing away 200 plus years of Constitutional governance for nothing more than the ability to spend more. It's a gigantic equivalent of Esau selling his birthright for a bowl of soup!

Invincible Ignorance and the $1T Platinum Coin Folly

It's stories like this that really make me fear for our country. The rank ignorance of economic matters that one finds at the highest levels of our country just sends chills down my spine.

A few weeks ago a college professor threw out the idea of the Federal Treasury Department minting a one ounce platinum coin and assigning a value of $1 Trillion to it. Apparently there is a loophole in the law that technically allows the Treasury to assign whatever value it sees fit to 1 ounce platinum coins.

The professor suggested this as a way of addressing the government's revenue shortfall.

I am not sure if the professor wasn't joking but the idea didn't die. It has now gone mainstream. There is a petition to the White House to mint such a coin and now we have the likes of Krugman endorsing the idea:

"...by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all."

Plus others are saying they can find nothing wrong with the idea. Just check out hashtag #MinttheCoin.

Here is the reason why it is a bad idea: were the Treasury were to mint such a coin with a statutory value of $1T and put it on the market, they would not get $1T for it. Let Krugman and a bunch of his friends pool their money and buy that coin if they think that's such a good idea. They wouldn't do it. Nobody would. It's that simple.

All the rest is nothing more than a scheme to side-step the value that the market would assign to such a coin.

Were the Fed to give the Treasury $1T in cash in exchange for the $1T platinum coin, the Fed would instantly become bankrupt. Because a 1 ounce platinum coin is not worth $1T no matter what is written on it. The Fed's liabilities would go up by $1T because Federal reserve notes and their electronic equivalents are liabilities on the Fed's balance sheet. The Fed's assets go up by $1T also because of the platinum coin. Except everybody would then know that the quoted value of the Fed's assets (or rather one particular asset) was bullshit! The Fed's balance sheet would be a pack of lies and, AND (!) everybody would know it!

Why? Because the Fed could never sell that coin for $1T. All the rest of the assets on the Fed's balance sheet the Fed could sell and get something in the vicinity of what it's listed for in its balance sheet. Not so in the case of the $1T platinum coin. Not even close. We would have a Fed that is insolvent that would have to be bailed out by...the Treasury! Where the Treasury get the money to bail out the Fed? Borrowing or taxes. So the $1T the Treasury were to get from the Fed in exchange for the $1T platinum they would sooner or later have to use to bail out the Fed.