Gyroscopic Investing

http://www.politico.com/story/2013/10/d ... 97690.html

Do any of you smart folks here know what this means.....

"The final extraordinary measures include suspending the daily reinvestment of the portion of the Exchange Stabilization Fund invested in Treasury securities and the Treasury entering into a debt swap with the Federal Financing Bank and the Civil Service retirement and Disability Fund, according to Lew’s letter."


Sounds really dire to me.

Is there even a hint in here that the U.S. government is not going to pay off its bondholders and is that what they are trying to imply? If so, would this not be the end of the U.S. government as we know it?

notsheigetz wrote:"The final extraordinary measures include suspending the daily reinvestment of the portion of the Exchange Stabilization Fund invested in Treasury securities and the Treasury entering into a debt swap with the Federal Financing Bank and the Civil Service retirement and Disability Fund, according to Lew’s letter."

They are moving money around to pay bills. Not a big deal until the clock runs out.

notsheigetz wrote:Sounds really dire to me.

It is. The debt ceiling needs to be raised.

notsheigetz wrote:Is there even a hint in here that the U.S. government is not going to pay off its bondholders and is that what they are trying to imply? If so, would this not be the end of the U.S. government as we know it?

These things aren't worth worrying about in my opinion. It's just political theater. The debt ceiling will get raised. If it doesn't, the government is in big trouble. Hard to imagine the government would do that to itself.

Gumby wrote: Hard to imagine the government would do that to itself.

It would be an act of suicide, basically.

Well there's always the platinum coin. 

moda0306 wrote: Well there's always the platinum coin.

Right, but the gimmicky nature of it means it's really an escape hatch that would probably only be used in a dire emergency.

For those who are interested in the legal aspects of the Platinum Coin... These are comments left on PragCap.com — where the idea was first publicly postulated — from Philip N. Diehl, 35th Director United States Mint:

Philip N. Diehl, 35th Director United States Mint wrote:I’m the former Mint director and Treasury chief of staff who, with Rep. Mike Castle (R), wrote the platinum coin law and produced the original coin authorized by the law. Therefore, I’m in a unique position to address some confusion I’ve seen in the media about the $1 trillion platinum coin proposal.

* In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years. The Secretary’s authority is derived from an Act of Congress (in fact, a GOP Congress) under power expressly granted to Congress in the Constitution (Article 1, Section 8 ).

* What is unusual about the law (Sec. 5112 of title 31, United States Code) is that it gives the Secretary complete discretion regarding all specifications of the coin, including denominations.

* Moreover, the accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.

* Once the debt limit is raised, the Fed ships the coin back to the Mint, the accounting treatment is reversed, and the coin is melted. The coin would never be “issued”? or circulated and bonds would not be needed to back the coin.

* There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.

* This does not raise the debt limit so it can’t be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached.

* This preserves congressional authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amendment option would entail and avoids another confrontation with the Roberts Court.

* Any court challenge is likely to be quickly dismissed since (1) authority to mint the coin is firmly rooted in law that itself is grounded in the expressed constitutional powers of Congress, (2) Treasury has routinely exercised this authority since the birth of the republic, and (3) the accounting treatment of the coin is entirely routine.

* Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

Philip N. Diehl
35th Director
United States Mint
http://en.wikipedia.org/wiki/Philip_N._Diehl

Source: http://pragcap.com/philip-diehl-former- ... -coin-idea

Wow, straight from the horse's mouth!

Pointedstick wrote:

Gumby wrote: Hard to imagine the government would do that to itself.

It would be an act of suicide, basically.

Aren't you the one who pointed out that there is no such entity as "the government", there are only people who claim to be agents of the government, or something to that effect? Obviously that means that the government can't commit suicide; however, its supposed agents can kill it.

Libertarian666 wrote: Aren't you the one who pointed out that there is no such entity as "the government", there are only people who claim to be agents of the government, or something to that effect? Obviously that means that the government can't commit suicide; however, its supposed agents can kill it.

I was just using synecdoche. I mean Apple Inc. doesn't really exist either, but when a new iPhone comes out, we say, "Apple released a new iPhone!" not "The people who are employed under the umbrella of a corporate shell named Apple Inc. created a new iPhone and then other people announced it and then other people issued press releases and…"

Pointedstick wrote:

Libertarian666 wrote: Aren't you the one who pointed out that there is no such entity as "the government", there are only people who claim to be agents of the government, or something to that effect? Obviously that means that the government can't commit suicide; however, its supposed agents can kill it.

I was just using synecdoche. I mean Apple Inc. doesn't really exist either, but when a new iPhone comes out, we say, "Apple released a new iPhone!" not "The people who are employed under the umbrella of a corporate shell named Apple Inc. created a new iPhone and then other people announced it and then other people issued press releases and…"

Right, but the point I was trying to make is that some subset of Congresscritters might not be upset if the government collapsed, or possibly wouldn't expect that result from stopping deficit spending.

Don't fret over this stuff. It's all accounting gimmicks. The treasury can do a lot of gimmicky things and as long as the markets think they aren't going to get stiffed it won't matter. That's why the markets overall don't really care about the debt ceiling, govt. shutdown, etc. It's just not something anyone is taking seriously because it's all happened before in some form or another.

The problems nobody expected to happen are what really cause issues.

Wouldn't gold skyrocket if the platinum coin was ever produced?

Reub wrote: Wouldn't gold skyrocket if the platinum coin was ever produced?

I don't see why. Platinum would though... if they had free coinage of platinum into those coins. 

Libertarian666 wrote:

Reub wrote: Wouldn't gold skyrocket if the platinum coin was ever produced?

I don't see why. Platinum would though... if they had free coinage of platinum into those coins. 

Gold would go up becauase it would effectively add 1 trillion to base money. The government would spend 1 trillion into the economy that it didn't remove in taxes or borrow.

It would also set the precident that now the government was fully back in the money printing, er minting business.

Kshartle wrote:

Libertarian666 wrote:

Reub wrote: Wouldn't gold skyrocket if the platinum coin was ever produced?

I don't see why. Platinum would though... if they had free coinage of platinum into those coins. 

Gold would go up becauase it would effectively add 1 trillion to base money. The government would spend 1 trillion into the economy that it didn't remove in taxes or borrow.

It would also set the precident that now the government was fully back in the money printing, er minting business.

Actually, I don't think it would matter, so long as the government can borrow any amount they want from the Fed without minting the coin, and everyone understood that to be the case.

Now, if people thought it made any difference as to how much they could borrow, then it would make a psychological difference, or if the Fed actually started tapering, it could make a real difference in the economy.

Libertarian666 wrote:

Kshartle wrote:

Libertarian666 wrote: I don't see why. Platinum would though... if they had free coinage of platinum into those coins. 

Gold would go up becauase it would effectively add 1 trillion to base money. The government would spend 1 trillion into the economy that it didn't remove in taxes or borrow.

It would also set the precident that now the government was fully back in the money printing, er minting business.

Actually, I don't think it would matter, so long as the government can borrow any amount they want from the Fed without minting the coin, and everyone understood that to be the case.

Now, if people thought it made any difference as to how much they could borrow, then it would make a psychological difference, or if the Fed actually started tapering, it could make a real difference in the economy.

The FED controlling the press does provide some constraints. The market certainly doesn't believe they will print forever. If the government started minting trillion dollar coins.......I think we would see gold move up a smidge