Saturday, August 06, 2011

Unilateral helicopter drop

The most interesting thing I learned from the recent debt ceiling game was a bit of formerly obscure law about platinum coins. As my readers know, I'm all for injecting a few trillion into the money supply. If Obama's supposed pivoting back to the jobs issue is to amount to anything, he should use the platinum coin option as leverage.

One explicit threat would be, "Senators, confirm Mankiw and Romer to the Fed board of governors, or I'll do my own monetary policy." Another would be, "Fed governors, I want QE3 yesterday. I've told the nice folks at the West Point Mint to help you out if you get too far behind schedule."

Coin seigniorage is actually a more credible threat than the Tea Party's threat of a US technical default. The Mint could immediately make a trickle of platinum coins with $10K face value, most to be sold to collectors, but some for the Treasury to deposit with its account at the Federal Reserve Bank. In this scenario, would explicit threats even be necessary?

That was fun, but in the real world, Obama accepts the opinion of many (most?) professional economists that looser monetary policy wouldn't work. Therefore, Obama doesn't really care whether misguided inflation hawks among Senate Republicans continue to prevent the confirmation of new Fed appointees.

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