Joe Salerno has written an article entitled “The Flipside of the Trillion Dollar Coin.” From the first time I read the article, I have struggled with many of his conclusions and statements – both on monetary issues, as well as political issues. You can see a small taste of my confusion in the comments section, for example, Salerno’s comments as basis for my initial question at the site:
When new money is injected into the economy via open market operations, as it is today, it expands bank reserves….In contrast, when the Treasury creates money it does so by writing checks for bureaucrats’ salaries, for entitlement payments, and to pay vendors for government purchases.
I thank vikingvista for patience in replying; however I remain unsettled regarding his replies. As most (but not all) other comments seemed to be supportive of Salerno’s views, I have decided not to clog the thread up further with my confusion.
Additionally, I struggle with Salerno’s political conclusions as well, for example:
Last but not least, as an adjunct of the Treasury, the Fed would no longer function as bailer-outer of last resort…. A partisan Treasury under the watchful eye of the congressional opposition and in full view of the public will have to make these decisions.
In my ongoing struggle with many of the statements in this article, I have decided that the initial question (as well as follow-on questions) I asked at the Mises site, as well as the political point raised above are of secondary importance. I will come to address these later in this article, however I would like first to focus on these two points made by Salerno that most color me confused:
Thus, at a given level of government spending, siphoning off resources from the private economy via deficits financed by money creation is no worse than extracting them through taxation….As outlandish as the idea of the $1 trillion platinum coin at first appears, it gives us a glimpse of a monetary arrangement that, although far from ideal, is superior to the current system.
I am confused by both parts of this: 1) between these two alternatives, I believe the method that government uses to extract resources does matter, with money creation being worse than taxation, and 2) if offering for the dollar relatively more credibility is of value, the realities of politics would make this system inferior, not superior.
The system that is behind the idea of the trillion dollar coin is one of money creation from nothing, just as the Fed does today, but with two twists: a) not brought on via debt, and b) controlled by the Treasury Department as opposed to a supposedly independent central bank. Salerno is arguing that inflation (of a slightly different sort than that which exists today) is better than deficits paid for or financed with actual production.
Many propose this today (most famously Ellen Brown), and I have always viewed it as a step in the wrong direction from current methods (although it would likely bring down the dollar even faster, if that is what you like). Salerno is suggesting it is a step in the right direction, a system “superior to the current system.” I am reeling….