The Trillion Dollar Coin: Joke or Game-changer?

[ujoni08]

http://www.resilience.org/stories/2013- ... me-changer

Somehow we have come to accept that it is less silly for the central bank to create money out of thin air and lend it at near zero interest to private commercial banks, to be re-lent to the public and the government at market interest rates, than for the government to simply create the money itself, debt- and interest-free.

[UndercoverElephant]

Brilliant.

[emordnilap]

Yep, it's the solution. People, via properly elected government, should issue money. Simple, obvious, and the dreaded S word!

Watch The Secret of Oz; just the last 15 minutes if necessary as it's a long work.

[Totally_Baffled]

Did I read somewhere that the Bank Of England has credited back to the treasury all of the interest due on the bonds purchased by the BoE's QE program?

Literally interest free loans from the BoE to the treasury.

Next step is for the BoE to write off the debt and cancel those bonds and bingo - thats 20% of the national debt gone in an instant!!

[RenewableCandy]

I think the BoE was like the FED, only it got nationalised a while back (erm correct me if I'm wrong).

Also the cancelled bonds would otherwise be paying people's pensions (aIui...perhaps this is bollix?). So, problematic, but perhaps not impossible, to cancel them outright.

[Totally_Baffled]

Hi rc I could be wrong but interest on bonds held by the BoE don't contribute to pensions, although I think you are on the right lines as pension funds are the next biggest holder of UK govt debt.

Hence the only implications of cancelling these bonds is , erm, well not a lot really? I guess only the "markets?" could take a dim view and nuke sterling - but then a lot said the woould of happened by printing 375 billion out of thin air and it hasn't!!!

[PS_RalphW]

Sterling has been weakening in recent months.

1.28 to 1.18 Euro since August.

Also down v dollar.

[Totally_Baffled]

Sterling has been weakening in recent months.

1.28 to 1.18 Euro since August.

Also down v dollar.

True. But, when Greece, Spain, Portugal, Italy or all of the above need more dosh the euro will soon come back down!

Its a race to the bottom!

[raspberry-blower]

Hi rc I could be wrong but interest on bonds held by the BoE don't contribute to pensions, although I think you are on the right lines as pension funds are the next biggest holder of UK govt debt.

Hence the only implications of cancelling these bonds is , erm, well not a lot really? I guess only the "markets?" could take a dim view and nuke sterling - but then a lot said the woould of happened by printing 375 billion out of thin air and it hasn't!!!

Having worked in the financial services, I do have a recollection of what is going on here.
First up, a good description of what Treasury Bonds, or Gilts as they are otherwise known as, can be found here
As has already been pointed out, pension funds, along with insurance funds, are the biggest holders of gilts.

Most, although certainly not all, Gilts have a maturity date - that is, at a set period of time in the future, they are redeemed at par (i.e. for every £100 invested, you receive £100 back.) You also will receive two half yearly payments at half of what the coupon rate is. So, for example, if you invested £1000 in Treasury 6% Stock 2020 at its launch and kept it until it matured, you will get two payments tht equate to 3% of £1000 per year until 2020 at which point you will get your £1000 back.
(Please note, this is, AFAIK, a ficitional stock and that this is not investment advice)
Anyway, the important bit is the maturity date. The UK is fairly well insulated from defaulting on its gilts obligation by the fact that UK gilts have a wide range of maturity dates. This is something the Greeks did not have - they needed a rolling six month bailout to pay off their creditors. All that bailout money was simply redistributed to the bond holders (including Vulture Fund Managers who boght the stocks at cents on the Euro and demanded payment in full) while diddly squat went to the actual Greek economy.

The huge downside to the UK from all the gilt purchases, is, as Ralph rightly points out,that Sterling is in a far weaker situation than both US$ and the Euro. Part of this weakness is due to the Treasury printing £375 billion out of thin air - as all currencies are involved in a race to the bottom then it will take time for problems to become clear. When they do, it's almost certainly far too late..
Another part of Sterling's weakness is that, compared to other currencies, the UK has very little gold backing it up. The Germans are repatriating theirs, while the Chinese are aggressively buying anything gold coloured.

Bottom line is this: the original article was suggesting a platinum coin to replace fiat paper currency in certain transactions. This would doom fiat currencies, as we currently know them, certainly in the long run. Given the implications of Peak Oil, it may be sooner than that...

[PS_RalphW]

Inflating away our debts (and savings) it is then.

Bye, bye Sterling.

[Totally_Baffled]

The huge downside to the UK from all the gilt purchases, is, as Ralph rightly points out,that Sterling is in a far weaker situation than both US$ and the Euro. Part of this weakness is due to the Treasury printing £375 billion out of thin air

The US and Japan have both had QE programs (the US program runs into trillions of $'s) and the Euro has issues so large it probably it wont be around in 5 years (Italy/Greece/Spain etc are going to need a constant stream of loans/bail outs given that their economies are absolutely in the toilet and their membership of the euro is preventing their recovery - Spanish unemployment for under 25's is now 60%!! )

From what I see all of the currencies have their issues, hard to see who is the most disadvantaged.

Mind you being a British forum we always consider ourselves the most f*cked, it would be interesting to read forums like these in other countries and see if they consider themselves the most stuffed economically

A race to the bottom as you say!

[raspberry-blower]

Here's a very pertinent article from Golem XIV on currency wars:

Then something new entered the story. Instead of being forced into talking about the failure of what they had done, our leaders began to point to other countries who had been printing and claimed that while we were printing in order to help our banks lend and help the rest of us, ‘they’, those johnny-foreigners, were printing in order to devalue their currency against ours. And although no one actually said so, there was the handy, albeit unspoken implication that perhaps the reason our printing hadn’t worked was because some countries, mentioning no names – oh all right then, China and Japan! – were undermining all our otherwise brilliant efforts with their dastardly and selfish currency manipulation!

We were printing to help our banks help us. They were currency manipulators.

We seemed to slide from a world of central banks taking ‘coordinated and heroic emergency actions’ to a world where the same printing, when done by foreigners, was now reported as a ‘race to the bottom’ of ‘beggar they neighbor’ devaluations.
Currency wars: their Imperial Aspect

[UndercoverElephant]

Here's a very pertinent article from Golem XIV on currency wars:

Then something new entered the story. Instead of being forced into talking about the failure of what they had done, our leaders began to point to other countries who had been printing and claimed that while we were printing in order to help our banks lend and help the rest of us, ‘they’, those johnny-foreigners, were printing in order to devalue their currency against ours. And although no one actually said so, there was the handy, albeit unspoken implication that perhaps the reason our printing hadn’t worked was because some countries, mentioning no names – oh all right then, China and Japan! – were undermining all our otherwise brilliant efforts with their dastardly and selfish currency manipulation!

We were printing to help our banks help us. They were currency manipulators.

We seemed to slide from a world of central banks taking ‘coordinated and heroic emergency actions’ to a world where the same printing, when done by foreigners, was now reported as a ‘race to the bottom’ of ‘beggar they neighbor’ devaluations.
Currency wars: their Imperial Aspect

Yes. It is spooky watching the crisis morph from one form to another.

First we had a mortgage debt and housing boom crisis, which was turned into a banking crisis, which was turned into a sovereign debt crisis affecting the big banking nations, which has now turned into a global race to the bottom as all the fiat currencies try to inflate/devalue to keep up with the money-printing that started in the US/UK. And as discussed here many times before, the only way this can end is with a crisis in the sovereign bond markets and a dash to hard assets, especially gold. There will be no more private buyers of government debt.

[emordnilap]

This bit brought a smile to my face:

Money can only be handed to those who know how to use it profitably,
not waste it on pointless things like health services and pensions.
The common people must realize they have brought this upon themselves
and must now accept their medicine and work longer for less so they can
get back to shopping, consuming and above all borrowing.