Perhaps you have heard the recent discussion about printing a trillion dollar platinum coin to pay off debts incurred by the United States government. Paul Krugman and a cohort of others are promoting the idea, which has been well-covered by Business Insider: click here. The US Treasury Secretary may be permitted to do this by law, and it's a way to get around the anticipated and potentially rancorous debt ceiling debate.(James Grant is the one who has perhaps best explained why the trillion dollar coin is not as great an idea as Paul Krugman thinks it is: click here.)
However, there was discussion on Bill Fleckenstein's subscriber website today about an arguably much better, though equally ludicrous idea.
As all major world governments are now essentially just printing money to cover their excessive expenditures, and the US central bank specifically is printing new dollars to purchase government treasuries, a reader pointed out that the same central bank which is purchasing essentially worthless government bonds could legally print inherently worthless money to purchase inherently valuable gold, so as to increase the store of real assets in that country's treasury.As Mr. Fleckenstein pointed out, any central bank that wishes to could proceed to do this now, until the same currency markets which tolerate moneyprinting (which is usually done for the politically expedient purpose of purchasing government bonds) would (ultimately) be forced to reply, "Hey, you can't do this anymore!"
At this final point, presumably, the central bank which had purchased the most gold with newly printed unbacked currency would be the "winner."
On a related and timely note, James Buchanan, who, like Paul Krugman, won the Nobel Memorial Prize for Economics, died Wednesday at age 93. Mr. Buchanan helped to found the field of public-choice theory, which examines how bureaucracies and elected leaders make decisions.
In 1962, with co-author Gordon Tullock, Mr. Buchanan published "The Calculus of Consent," which challenged the idea of government as a force for good. Experience showed, Mr. Buchanan later said, that "government did not behave benevolently." Rather, "Bureaucracies expanded exponentially" and "the welfare state itself created more demands than it satisfied."
One could argue that Mr. Buchanan "got out just in time!" However, those of us who truly care about our economic wellbeing will miss his presence among us.
13 January 2013: On a related note, the US Treasury Department has ruled out minting the trillion dollar coin. My comments are attached to the linked article: click here. (The Federal Reserve has not announced a decision to print dollars to buy gold, by the way. More's the pity - for the US Treasury.)
My guess, before this decade is out, some country somewhere will in fact decide to print money for the express purpose of buying gold - and will continue brazenly to do so, so long as this practice is allowed by the international marketplace.
Note that a number of nations, with Russia perhaps the most notable among them, have been buying gold aggressively. Russian gold reserves have doubled in the past five years. Russia is also expanding its money supply by 14-22% per year, according to figures published by the Russian Central Bank. (I haven't crunched the numbers, but China is also both printing money and buying gold on a large scale.)
In Russia's case, therefore, the printing of money to buy gold is already occurring on a de facto basis. Is it time for other nations to start playing this game? I think so, though of course, long-term, it is a policy which illustrates more clearly than any other the bankruptcy of the world monetary system.
20 January 2013: I am sorry, I cannot top Mark Steyn on the trillion dollar coin, so I'm linking to his scintillating and timely opinion piece: click here.
You've gotta read:
