tag:blogger.com,1999:blog-6704573462403312459.post1718149278097554324..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: The gold trickJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger61125tag:blogger.com,1999:blog-6704573462403312459.post-26646538247238157592017-08-07T16:11:05.802-04:002017-08-07T16:11:05.802-04:00Hi Dinero,
When we look at things from an alterna...Hi Dinero,<br /><br />When we look at things from an alternative viewpoint, coins ARE part of public debt (the Treasury doesn't say without a reason that they are Treasury liabilities).<br /><br />If I remember correctly, you agreed that coins are comparable to U.S./Treasury notes or tally-sticks? (You said none of them are liabilities to the entity that issues them.)<br /><br />Here's how it all works in my world, using U.K. Treasury notes as an example:<br /><br />I sell two sacks of flour to the government. Price £5. The Treasury issues a £5 note and gives it to me. That's a credit (in third-party records; in my own books it would actually be a debit) to me, telling that I've given something worth £5 without getting anything, yet, in return.<br /><br />The government took something worth £5 without giving anything in return. The government accountant records a £5 debit in its books on an expenditure/purchases account: "Two sacks of flour bought". How did it finance this purchase? By issuing a note and giving it to me. That's a £5 credit entry to account "Notes in circulation". On a balance sheet, that would be on the RHS (liabilities).<br /><br />I say that this £5 is public debt. This is how the public pays it back:<br /><br />My neighbour owns some cattle. The government decides to collect cattle tax from him, worth £5. So, my neighbour sells me beef priced at £5 and receives the note from me. I was supposed to receive something worth £5 in exchange for my flour, and now I did. My neighbour, being part of the public, was supposed to give up something worth £5 to repay some public debt. He did.<br /><br />What we are used to call "paying taxes" is only the record-keeping part of the transaction. The accounts are updated when my neighbour walks into the tax office and hands over the £5 note to the taxman. As a consequence, the government accounts are updated: a £5 credit entry on "Cattle tax collected" account (this revenue is netted against the earlier expenditure) and a £5 debit entry on "Notes in circulation" account. (The Treasury might as well burn the note at this point; it's no asset to it, as it can issue new notes at virtually no cost.) Public debt is reduced by £5, because I as a note-holder got beef from my neighbour, a member of the public. My neighbour doesn't receive anything to compensate him for the beef -- that's called repaying a debt --, as he had to give up the note.<br /><br />Remember: This is an alternative viewpoint, something you can try to adopt if you will. I'm happy to clarify. I'm writing a very long post on all this, but it might take some time before I'm done.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-61816616536501225892017-08-05T22:21:43.964-04:002017-08-05T22:21:43.964-04:00Coins seem to me to be a subdivision of paper or d...Coins seem to me to be a subdivision of paper or deposit currency. The initial creation of both coins and paper/deposit currency should have the same basic source.<br /><br />What is that source?<br /><br />Let's go heuristic here.<br /><br />Money is created when banks lend money. Hence, when central banks lend money to governments, money is created.<br /><br />When governments borrow money from central banks but never pay it back, the money supply must increase to the limit of money borrowed. "Never pay it back" should be read as never recapturing and destroying the money created when the initial loan was taken. Instead, government rolls debt over, increasing the amount owed to the central bank.<br /><br />Governments do not necessarily borrow from banks. Government can also borrow from private citizens who come into possession of money government has previously borrowed. This borrowing forms a mechanism to limit the amount of cash money actually in circulation (which aids in maintaining the value of money relative to other physical goods).<br /><br />Government can also get funding from taxation. Taxation and borrowing <b> from the public </b> have the identical effect on the cash money supply available to the public. Taxation avoids debt funding to the extent of taxes collected.<br /><br />I think MMT would assume that central banks are arms of government. I would agree. This explains why the central bank would willingly lend and re-lend to government without limit. Money can be created as required by government, disguised as debt. <br /><br />The fact that coins are directly created by government does not change this basic scheme. Only the middle-man (the central bank) has been eliminated.<br /><br /><br /><br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-27325282839635302842017-08-04T10:44:13.403-04:002017-08-04T10:44:13.403-04:00Hi Antii
See JP's comment " neither U.S....Hi Antii<br /><br />See JP's comment " neither U.S. notes nor silver certificates count to the debt ceiling."<br /><br />The coins are not a component of the government debt, and so you cannot use the context of a debt on a balance sheet in describing them.<br /><br /><br />When they appear on a central bank balance sheet , they are the same as gold bars on the balance sheet because of the governments particular legal right to mint coin an mandate the value there of. The government does not have an obligation to sell public assets due to the issue of the coins, unlike a person who issues a loan contract, who does have an obligation to sell something and so a liability.<br />The is no obligation on the public either.<br />All you can say is there needs to be enough public and government commerce in the economy to maintain the value of the total issue without inflation. But that is not a liability.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-10388680580905676782017-08-04T09:47:09.338-04:002017-08-04T09:47:09.338-04:00I said budget, but what I really meant is financia...I said budget, but what I really meant is financial statements. I just thought that it's more conventional to talk about government budget even in this case :-)Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-34113682275945864922017-08-04T09:39:59.880-04:002017-08-04T09:39:59.880-04:00Regarding GAO report on coins, this is how in my v...Regarding GAO report on coins, this is how in my view coins should be accounted for:<br /><br />The Mint should not receive any revenue from selling the coins. The Fed "buys" the coins as Treasury liabilities, just like it buys gold certificates. It should credit the TGA, just like any bank credits a loan customer's -- which in this case is the Treasury, not the Mint -- checking account after having received the customer's IOU.<br /><br />In the consolidated government budget, the minting costs should be reported as expenditures. The full face value of coins (and gold certificates, for that matter) should be reported in the same way as newly issued Treasury bonds are reported.<br /><br />A case could be made for reporting the bullion/intrinsic value of the coins as assets, though. This is because as records of a liability, the coins could be viewed, in a way, as physical property of the Treasury. (Chips are property of the issuing casino, aren't they?)Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-52225242187228127582017-08-04T06:05:29.687-04:002017-08-04T06:05:29.687-04:00JP, yes, it bothers me that they are part of Treas...JP, yes, it bothers me that they are part of Treasury cash. It's like a casino reporting the full face value of chips in its possession as assets, while saying, correctly, that chips in circulation are its liabilities -- without reporting them as its liabilities (subject to debt ceiling). You see what I mean?<br /><br />This might be a daring thing to say, but I think this is a reporting error which is due to lack of understanding when it comes to Treasury currency. (This is understandable, though, because there is no agreement about what a "government liability" really means -- see my comment to Dinero above.)Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-29937061750439906832017-08-04T05:55:35.157-04:002017-08-04T05:55:35.157-04:00Dinero said: "The coins carry no obligation f...Dinero said: "The coins carry no obligation for the government to supply goods and services to the holder of the coins."<br /><br />No, they don't. The obligation is usually fulfilled by the taxpayer, who needs currency to be able to settle his taxes. Although it might be fulfilled by the government which sells public assets. To see how this all works requires that one views the monetary system as a record-keeping system for this kind of nominal debts of goods and services (nominal, because a $10 debt doesn't define any real amount of goods owed).<br /><br />As a rule of thumb, if on the LHS of the central bank balance sheet there is an item which has a face value (which is higher than the intrinsic value of the item) -- in other words, it's a nominal item -- then it is a record of someone's liability to give up goods and services. Treasury bonds, gold certificates, coins, MBSs, etc. Most importantly, public debt is the public's liability -- not the government's liability, per se. Public debt is reduced through taxation (= taxpayers, ie. members of the public, and not the government, pay the debt by giving up goods and services).<br /><br />I'm writing a longer blog post on how this all works.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-11924014717725097982017-08-03T12:46:55.613-04:002017-08-03T12:46:55.613-04:00If a 5 cent coin was not to be the chosen settleme...If a 5 cent coin was not to be the chosen settlement by the policy it could have been a larger coin, a dollar or two dollar coin for 100 or 200 pennies. A coin for a coin seems reasonably appropriate.<br /><br />In the paper the melt value is taken into consideration reducing the cost to $50 million.<br />As I said it also needs to be take into consideration the fact that the demand for 5 cent coins will increase an so that revenue to the Treasury needs to be taken into consideration. As you say Canadians have a demand for small change. Transactions that were done in 5 pennies will now be done in 5 cent coins.<br />Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-18043251402222520192017-08-03T10:37:55.861-04:002017-08-03T10:37:55.861-04:00Antti: Good find, U.S. notes seem to work the same...Antti: Good find, U.S. notes seem to work the same way. You can see that they are also included in the definition of Treasury cash, which is in the earlier link I posted. Earlier when I was doing research for this post I found it interesting that neither U.S. notes nor silver certificates count to the debt ceiling. <br /><br />Dinero: "as the government could have compensated the public with one five cent coin for every 5 of one cent coins withdrawn. That did not happen, maybe for convenience."<br /><br />That did not happen. Canadians certainly have a demand for small change, but by 2013 the penny did not satisfy any part of that demand; it was considered useless. So when Canadians brought in their three or four rolls of pennies, they did not need a substitute, say 60 or 80 nickels. Rather, they asked to either get money credited to their bank accounts, or large denomination cash.<br /><br />In <a href="https://sencanada.ca/content/sen/Committee/403/fina/rep/rep08dec10-e.pdf" rel="nofollow">this paper</a>, the Canadian senate estimates the buyback would cost around $100 million.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-24559016310738398442017-08-03T06:05:52.527-04:002017-08-03T06:05:52.527-04:00> JP
The withdrawal is the same as the replacem...> JP<br />The withdrawal is the same as the replacement for worn out coins , as the government could have compensated the public with one five cent coin for every 5 of one cent coins withdrawn. That did not happen, maybe for convenience.<br />Overall the government will make a profit on the withdrawal of the one cent coin, if , for every 5 of one cent coins the banks sold to the government , the banks go on to to buy 1 five cent coin from the government.<br />It costs less than 5 cents to produce a five cent coin and the mint will also get the melt value of the one cent coins.<br /><br /><br />In the UK we are replacing all £1 coins this year.<br /><br /><br />Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-38871171924372622432017-08-03T06:04:47.647-04:002017-08-03T06:04:47.647-04:00> Antii
" goods and services owed. "...> Antii<br /><br />" goods and services owed. "<br />The coins carry no obligation for the government to supply goods and services to the holder of the coins. Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-80235067741241314152017-08-02T13:13:49.215-04:002017-08-02T13:13:49.215-04:00JP, as in your Canada example, the US Treasury'...JP, as in your Canada example, the US Treasury's account (TGA) is debited when FRBs redeem U.S. Notes:<br /><br />"5040.10d—Transaction D: U.S. Notes and Silver Certificates Redeemed and Destroyed by FRBs--<br /><br />CCB authorizes FRB Richmond to charge the TGA for the amount of U.S. notes and silver certificates redeemed and destroyed by the FRBs." [<a href="https://tfm.fiscal.treasury.gov/v1/p2/c500.html" rel="nofollow">link</a>]<br /><br />The effect is identical with a case where the Treasury has to redeem a maturing Treasury bond/note/bill in the Fed's possession. This proves that U.S. notes (comparable to coins) are a Treasury liability in the same way as Treasury bonds are: it redeems both with "cash" charged from the TGA.<br /><br />Btw, I still haven't found coins on US government's financial statements. It doesn't look like they report them as liabilities, even though they say that coins are liabilities.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-66690261944749129742017-08-02T12:49:01.330-04:002017-08-02T12:49:01.330-04:00Good example, JP!
Dinero: I agree no money is owe...Good example, JP!<br /><br />Dinero: I agree no money is owed. Money itself is about goods and services owed, although the claim is to a nominal "amount" of goods (whatever costs, say, 10 dollars), just like in the case of gold certificates.<br /><br />Likewise, in your gold example above, the value of notes would not fluctuate, because they are claims on a nominal amount of goods/assets; equity fluctuates assuming assets are marked to market.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-89993889470188700962017-08-02T10:23:42.530-04:002017-08-02T10:23:42.530-04:00"The only way I can see that the existence of..."The only way I can see that the existence of the coins represents a "liability" to the Treasury is in a cost to be incurred after the coin is issued, in providing a replacement coin to a person who presents a worn out coin to the treasury for replacement."<br /><br />It's far more than that. When Canada withdrew the 1 cent coin a few years back, we didn't just throw them in the street. We brought them back to banks, which in turn sold them at par to the government. So 1 cent coins were always a liability of the Canadian government--one that only became apparent when it had use tax revenue and/or issue bonds to fund the redemption of 1 cent coins.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-83309016842650396062017-08-02T05:24:10.953-04:002017-08-02T05:24:10.953-04:00The UK had treasury issue more recently than Engli...The UK had treasury issue more recently than English Tally sticks. In 1914 there were Bradbury notes. There are pictures of then on the BoE website.<br /><br />Tally sticks and Treasury notes and coins, they are not Liabilities.<br /><br />Dictionary.com definition of liabilities<br /><br />Liability<br />noun, plural liabilities.<br />1.<br />liabilities.<br />a) moneys owed; debts or pecuniary obligations (opposed to assets ).<br /><br />When the treasury buys something with a coin or treasury note it does not incur on the Treasury further "moneys owed" as of course the money has already been consigned.<br /><br /><br />On the subject of Gold, here is something to ponder, if a Central bank had a significant amount of gold would the value of its notes fluctuate, particularly on the forex when the gold price fluctuated.<br /><br /><br />Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-52650123689251783152017-08-01T19:00:05.790-04:002017-08-01T19:00:05.790-04:00What about English tally-sticks or U.S./Treasury n...What about English tally-sticks or U.S./Treasury notes, how do you view them? Government liabilities or not? I think they are fully comparable to coins, though much cheaper to produce.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-40023415578479180122017-08-01T13:22:57.563-04:002017-08-01T13:22:57.563-04:00The only way I can see that the existence of the c...The only way I can see that the existence of the coins represents a "liability" to the Treasury is in a cost to be incurred after the coin is issued, in providing a replacement coin to a person who presents a worn out coin to the treasury for replacement. And so when the treasury issues some coins it undertakes the "liability" of replacing them a later date when they wear out. Which I suspect is the case.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-4760699530123245142017-08-01T06:02:08.906-04:002017-08-01T06:02:08.906-04:00From JP's link:
"Coin and paper currency...From JP's link:<br /><br />"Coin and paper currency (excluding Federal Reserve notes) held by the public, financial institutions, Reserve Banks, and the Treasury are liabilities of the U.S. Treasury. This item consists primarily of coin, but includes about a small amount of U.S. notes--that is, liabilities of the U.S. Treasury--that have been outstanding since the late 1970s. U.S. notes are no longer issued."<br /><br />It's not that straightforward nor intuitive, so I understand well Dinero's standpoint. As the GAO report showed, up until 2002 the Treasury used to report seigniorage as revenue in the budget, even though it should have reported it as a source of financing. (As I said earlier, I still don't understand why only seigniorage -- face value less minting costs -- is considered a source of financing, and not the full face value of coins.<br /><br />I might be wrong, but I think that in this discussion we are already very close to the limits of the current understanding related to coins/other Treasury liabilities among any experts.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-22228080910174997922017-08-01T00:20:38.190-04:002017-08-01T00:20:38.190-04:00My understanding of coins is that they are a liabi...My understanding of coins is that they are a liability of the Treasury. For instance, we might imagine that the quarter starts to lose value such that one quarter only buys four nickels, and it takes five quarters to get a $1 bill. It's the Treasury's obligation that the proper exchange ratio (1 quarter to 5 nickels, 4 quarters to 1 dollar bill) prevails, not the Fed's. It will have to buy back quarters en masse to fix this.<br /><br />That being said, I don't know exactly where that liability is listed. It pops up in the H.4.1 statement as "Treasury currency," [<a href="https://fred.stlouisfed.org/series/WTCOA" rel="nofollow">link</a>] but I don't see it on the Treasury's actual balance sheet.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-18613464541847343832017-07-31T17:11:48.803-04:002017-07-31T17:11:48.803-04:00There is no connection with debt. The coins are SO...There is no connection with debt. The coins are SOLD to the Fed. There is no outstanding obligation.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-79171491300351964132017-07-31T15:50:18.740-04:002017-07-31T15:50:18.740-04:00Make that bond perpetual (a consol). An asset for ...Make that bond perpetual (a consol). An asset for the Treasury? The same applies to gold certificates, which look much like perpetual, zero-coupon bonds. (Note that 'perpetual' means it doesn't need to be repaid, but it can be repaid. That's why I often talk about debt without defined maturity.)Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-47895904366201784102017-07-31T14:27:17.797-04:002017-07-31T14:27:17.797-04:00The difference is a bond needs to be repaid. That ...The difference is a bond needs to be repaid. That is the difference.<br /><br />Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72481688198412670732017-07-31T14:00:18.511-04:002017-07-31T14:00:18.511-04:00Dinero, let's assume the Treasury was allowed ...Dinero, let's assume the Treasury was allowed to sell bonds directly to the Fed. If you now replace 'coin' in your comment with 'bond', then what's the difference? I don't see any difference, yet Treasury bonds are definitely not an asset for the Treasury. Interest payments are not relevant here, because the Fed will remit those back to the Treasury.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-26500274715052852942017-07-31T13:19:36.799-04:002017-07-31T13:19:36.799-04:00> Antii
The GAO says that the Treasury sells ...> Antii <br /><br />The GAO says that the Treasury sells coins to the Fed at the face value of the coins and that transaction reduces interest payments on debt to the Fed. <br />But to put it more simply, The Treasury sells coins to the Fed at face value ,and if it did not have debts with the fed, it would receive Fed notes which it could spend. That what makes coins a face value asset for the Treasury.Dinerohttps://www.blogger.com/profile/14632385731642361211noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-6722509056872453172017-07-31T11:02:57.605-04:002017-07-31T11:02:57.605-04:00I replied to you in the 'digital money' th...I replied to you in the 'digital money' thread. I'm afraid this post is too technical for me to catch up with, seeing that I'm late to the party. But from what I can tell, I'm on the same page with you (and everyone else :-)).<br /><br />In general, I find the the debt ceiling discussion a giant distraction. IMO the focus should not be on how much is being spent, but primarily on what it is that government is spending on. By answering the latter question, the former answers itself and becomes superfluous. <br /><br />I suppose playing around with accounting is as worthy a pastime as any other. But quite frankly, if Congress wanted to find to spend more, they'd just raise the debt ceiling. No need for additional 'tricks' or help from accounting wizards - or only to the degree that tricks can fly below the radar. The real question is: why don't they want to? And indeed, should they? And on what? I don't think accounting offers any answers to these larger questions.Oliver Daveyhttps://www.blogger.com/profile/09960924207469377279noreply@blogger.com