Sunday, December 09, 2012

Dollars, Cents, Smoke, and Mirrors

I like to think of myself as a fairly intelligent and well-read fellow [pats self on back], but nevertheless there are a lot of things I just don't understand. One of them is economics. Of course, Congress doesn't understand it, either, so I don't feel so bad ... except that the economic ineptitude of Congress can harm a lot more people than mine.

There are a lot of things I don't understand about economics, and in these times that's probably a bad thing. But one of the things I really don't understand about economics is the concept of money. We all know what money is on a basic level - it's that stuff we never seem to have enough of, the stuff that other people demand in exchange for the things they have that we need or want. That's simple enough, right? But there are actually all sorts of arcane mysteries surrounding money, mysteries that generate Nobel Prizes in Economics for people with 500-pound brains who sit around pondering esoteric stuff. For instance, what makes a coin or a piece of paper money? What gives money its value? Who decides what a particular unit of money is actually worth in terms of other units of money from other countries, and how? Why does one country recognize the money of another country as having some particular value?

These are the sorts of things that make my head hurt in a way that German grammar doesn't.

I got to thinking about the whole idea of money the other day when I read this article in the Washington Post: Could Two Platinum Coins Solve the Debt-Ceiling Crisis?

It seems that Congress, in its never-ending search for a silver bullet* that will solve our economic woes without alienating any powerful constituencies or offending The Great God Norquist, has picked up on an idea first floated a few years ago that was based on a loophole in the law governing money. Here's how the article explains it:

"Thanks to an odd loophole in current law, the U.S. Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases. Under this scenario, the U.S. Mint would produce (say) a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed then moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The [debt] ceiling is no longer an issue."

How about that deus ex machina approach to fiscal health, eh?

US law limits how much paper money the government can circulate at any one time, and how many gold, silver and copper coins the Treasury can mint. But there’s no such limit when it comes to platinum coins. Here's what the law** actually says:

“The Secretary [of the Treasury] may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

A literal reading of that paragraph in the law would lead you (and lots of greedy politicians) to think that the Secretary of the Treasury has a magic platinum wand which, when waved and accompanied with the proper bureaucratic and legal incantations, could shrink the fiscal cliff to a mere crack in the economic sidewalk. So, why don't we do it?

Well for one thing, although the law doesn't specifically say so, the intent of that paragraph was probably to provide for the issue of commemorative coins, and not to provide a dodgy and politically safe way of providing funds to run the government***. For another, other countries would see it as a transparent dodge to avoid the need to put our economic house in order. And finally, the GOP - being reflexively opposed to anything President Obama proposes - would hysterically oppose it****.

The bottom line of the discussion appears to be that the trillion-dollar platinum coin is a neat idea, but wouldn't work out in practice. Looks like Congress will have to get its act together and come up with a real solution to the fiscal crisis*****.

So ...

I still don't understand economics on a scale grander than the balancing of my checkbook, nor do I understand the whole concept of the assigning of value to money.

I only wish Congress understood it better than I, and could pull its head out of its fiscal backside long enough to resolve the crisis ...

But it doesn't look like I'll get that Christmas wish.

Have a good day. More thoughts tomorrow.


* Yes, I know all about the gold standard, but just work with me here, okay?

** 31 USC § 5112 - Denominations, Specifications, and Design of Coins, Paragraph (k)

*** You may recall from our previous discussions that this is what "taxes" are supposed to do, but since nobody can have a rational discussion of taxes any more, we're reduced to looking for loopholes in the laws governing coinage. Oy.

**** As would the Democrats if the situation were reversed.

*****Yeah, good luck with that.


Mike said...

An economist is nothing more than a gypsy fortune teller in training.

Duckbutt said...

A trillion dollar platinum coin would really ramp up counterfeiting!