Home World The story of the “Platinum Coin with a Face Value of $1 Trillion”… (Photos) China Net

The story of the “Platinum Coin with a Face Value of $1 Trillion”… (Photos) China Net

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[Look at China, January 27, 2023]On January 19, U.S. Treasury Secretary Janet L. Yellen sent a letter to the U.S. Congress, saying that the federal government’s debt has triggered the $31.4 trillion debt ceiling. Next, the U.S. Treasury Department will take two special measures to prevent the federal government from defaulting on its debt by early June 2023.

However, if the U.S. Congress fails to raise the debt ceiling soon, both extraordinary measures are particularly uncertain, which in turn will pose a major challenge to U.S. spending in the coming months.

Seeing this news, I immediately checked the balance of the U.S. federal government’s Treasury account (TGA) with the Federal Reserve: 339 billion U.S. dollars in cash.

Compared with every time the “debt ceiling crisis” broke out before, there was only less than 100 billion US dollars in cash left in the US federal government’s TGA. At present, the federal government’s wallet with 339 billion US dollars in cash can still be said to have “sufficient food surplus” and can support several years. month too!

So the market is not very nervous about this matter at present. However, neither the US Congress nor the US government really has any shame about the US debt ceiling in the past 40 years.

In fact, from the founding of the United States until 1917, Americans have always adhered to the idea of ​​”living within our means”. In order to prevent the government from taking advantage of its strong position to borrow excessively, the U.S. Constitution specifically designated the power of the federal government to issue bonds (debt). It was given to the U.S. Congress to require any borrowing by the federal government to be known to the public and to be approved by Congress. Even if old bonds expire, new borrowing must be approved by Congress.

After the outbreak of World War I, the U.S. government initially maintained “neutrality”. Later, out of the perspective of protecting its nationals and property and improving its international status, it decided to participate in World War I in 1917.

To participate in the world war, there are too many places to spend money, and the amount is often not so sure. Moreover, during the war, the government has to submit some money to borrow some money, even if it is to replace old bonds, and it has to be submitted to Congress for approval. Annoying! The government was annoyed, and Congress was also annoyed, so Congress issued a “Second Liberty Bond Act of 1917”, which granted the U.S. Treasury Department, under the condition that the total debt of the federal government is not higher than the total debt at that time , You can issue bonds yourself to borrow (or replace old bonds), which is the origin of the debt ceiling.

Simply put, before 1917, any borrowing (bond issuance) by the US federal government required Congress to discuss and approve it. After 1917, only the total debt limit was discussed, and there was no need for Congress to vote back and forth for a little money, whether you are me or him.

In 1935, Henry Morgenthau, the Minister of Finance at the time, asked Congress to have more flexibility in the issuance of national debt by the Treasury Department, and to clarify the national debt as the financing needs of the federal government rather than a specific plan For the first time, the U.S. debt ceiling has been clearly established: the total amount of short-term treasury bond issuance shall not exceed 20 billion U.S. dollars; the total amount of long-term treasury bond issuance shall not exceed 25 billion U.S. dollars.

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On the eve of the outbreak of World War II, President Roosevelt and Secretary of the Treasury Morgenthau once again asked Congress to combine the two ceilings into 45 billion US dollars, without defining long-term bonds or short-term bonds. statement.

In mid-1940, Hitler shocked the world by occupying France. The U.S. Treasury Department requested an increase of US$4 billion in defense spending on the basis of the original debt ceiling, so the US debt ceiling became US$49 billion. By the beginning of 1941, the US debt ceiling was raised to US$65 billion.

The war lasted for 4 years, and the huge financial expenditure had to make the government repeatedly ask Congress to raise the debt ceiling. By the end of the war in 1945, the U.S. government’s debt ceiling had been raised to $300 billion.

At the end of World War II, as the bonds expired one after another, and thinking that the war was over, there was no need to spend so much money, so in June 1946, the federal debt ceiling was lowered to 275 billion U.S. dollars. For about 10 years, the U.S. government’s debt ceiling has remained at around $280 billion.

Beginning with the Kennedy-Johnson administration, the U.S. government’s debt began to run in small steps because of the Vietnam War and Great Society spending, and by 1967 the government debt limit had risen to $365 billion. Along with the growth of the U.S. GDP and the increase in the debt capacity of the U.S. government, the debt limit of the U.S. government has been increased almost every year. By 1980, the debt limit became 935.1 billion US dollars.

In the past, although the absolute value of the U.S. government’s debt increased, the government debt/GDP ratio actually decreased due to economic growth, so it can be regarded as an increase in responsible debt.

Reagan was the first president to start the “debt mode” after the war. Since then, large-scale federal government deficits have become the norm, and the growth rate of debt has far exceeded the growth rate of GDP. Presidents except the Clinton administration have begun to compete with “debt mode”. “—In contrast, of course, the government debt ceiling has been raised along the way, and it has become more and more a show trick by Congress and the government.

Saying they are performing a show, not talking about the debt ceiling adjustment, Congress will easily agree to. In fact, on the contrary, if the ruling party does not reach a unity with the opposition party, Congress often vetoes the adjustment of the debt ceiling, which leads to repeated shutdowns of the US government. Naturally, only close the door. Because of the debt ceiling, the Carter administration was shut down five times, and the Reagan administration was forced to shut down eight times. Even the Clinton administration, which was the most responsible government in terms of borrowing, shut down twice in 1995 because of the debt ceiling. close the door……

In the Obama administration in 2011, because the government debt ceiling was passed on the last day before the government shut down, Moody’s and Fitch lowered the US sovereign credit rating from AAA to AA+, which caused huge fluctuations in the financial market.

In 2012, the debt ceiling problem in the United States played a new trick, which was called “Debt Limit Suspended (Debt Limit Suspended)”. What does that mean?

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That is to say, the U.S. Congress no longer directly raises the debt ceiling, but sets a certain time limit, and the debt ceiling is no longer in effect, thus allowing the Treasury Department to issue bonds without restriction during this period-after this period, use The original debt limit, plus the additional new debt growth during this period, is the debt ceiling. For example, the Obama administration struggled to push Congress to suspend the debt in 2012. The time limit was only until May 2013. As a result, from May to October 2013, because the government’s funds were gradually exhausted, the Obama administration had to experience a 16-day shutdown.

In all, since records began in 1940, the U.S. federal debt ceiling, the theoretical debt red line, has been revised 104 times, an average of once every 9 months!

Tell me, what’s the point of this red line?

The most recent one was when the debt suspension expired on July 31, 2021. At that time, the debt ceiling was determined to be 28.5 trillion U.S. dollars. What a big deal, the suspension of the national debt has been extended until 2023 (because there will be a congressional re-election in the United States every two years, and the current Congress cannot make decisions for the next Congress).

No, 2023 is here, and the debt ceiling has been determined to be 31.4 trillion US dollars.

In recent years, with the polarization of the political spectrum in the United States, voters have been severely divided, especially since Trump (Trump) took office, which has brought extreme partisanship between the Democratic Party and the Republican Party. It has become a life-and-death struggle now. It is for this reason, coupled with the intensified inflation since the second half of 2021, that many financial analysts on Wall Street believe that with the arrival of the debt ceiling deadline, the debt ceiling battle in 2023 is likely to be more intense than ever. It will become more intense, which will bring huge variables to the financial market.

Still, most agree that the US will not choose to default on its debt. This is because once the U.S. treasury bonds really have a “debt default”, it means that the credit of the US dollar has been greatly damaged. , and even triggered the US sovereign credit crisis, and further deduction, it will be the overall collapse of the contemporary credit currency system based on the US dollar, and the collapse of the entire global economy.

Simply put, if the U.S. Treasury defaults, the financial market will experience a greater financial crisis than in 2008 and 2020. Because the consequences are so serious, there is a high probability that the negotiations on the debt ceiling between the Republican-controlled House of Representatives and the Democratic-controlled Senate will be delayed until the last moment, but in the end, a compromise will still be reached, because the United States cannot suffer the consequences of breach of contract. Furthermore, the entire global credit economy cannot afford the consequences of a US treasury default.

Since the Republican-controlled House of Representatives firmly opposes the debt ceiling increase, the Biden administration and Democratic lawmakers began to discuss the legendary “platinum coin with a face value of $1 trillion” story.

The legendary “$1 trillion platinum coin”? (Web picture)

What do you mean?

The current law in the United States has strict restrictions on the face value of banknotes and other metal coins, but the face value of platinum coins is not limited. Under the U.S. Code, the U.S. Department of the Treasury may allow platinum coins to be minted in denominations that are entirely at the “discretion” of the Secretary of the Treasury.

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In this case, the U.S. Treasury Department can create a platinum coin, and then stipulate that the face value of this coin is 1 trillion U.S. dollars, and then deposit this coin into the Federal Reserve, and then 1 trillion U.S. dollars will appear in the TGA account out of thin air In cash, the federal government naturally has a lot of money to spend.

This plan sounds extremely absurd, but from the perspective of American legal procedures, it is in compliance. The ghost idea of ​​”platinum coin repayment” was proposed by Philip Diehl (Philip Diehl), former director of the US Mint, in 2011. At that time, the Obama administration of the United States was facing the same debt repayment problem as today’s Biden administration. Ridiculous, but every time the US debt ceiling crisis breaks out, someone will come up with this plan and hype it up…

As recently as January 19th, the 2008 Nobel laureate in economics Paul Krugman (Paul Krugman) also mentioned this plan seriously in a speech (by the way, Krugman’s Nobel Prize in Economics , is one of the most watery Nobel Prizes in my opinion). Of course, the recent treasury ministers of the United States have always come forward to deny that they will implement this plan, including during the debt ceiling crisis in 2021, Yellen clearly denied this plan.

Yellen, former Fed chair and current U.S. Treasury secretary
Former Federal Reserve Chair and current US Treasury Secretary Janet Yellen (Image: Alex Wong/Getty Images)

To be honest, although this plan is in line with the legal procedures of the United States, everyone knows that if a country owes debts for decades, several generations of Americans and the US government since World War II have enjoyed decades of wealth Feast, then, a few coins minted directly by the Ministry of Finance can solve the debt problem of 31 trillion US dollars, so what is the point of currency? Moreover, what is the difference between this way of thinking and the way of solving economic problems in Zimbabwe and Venezuela?

Therefore, if the U.S. government dares to adopt this platinum coin repayment plan, for the financial market, the consequences will be almost the same as the default of the national debt. A real, blatant deception to the world.

Responsible editor: Yu Zhen–All rights reserved, any form of reprint needs to see the Chinese authorization. Mirror sites are strictly prohibited.

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