Practical Dad

The Trillion Dollar Scumbaggery

If you want to strip all of the speciousness away from an issue and understand it's true meaning, try to explain it to a teenager.  When they get it, they typically ignore the niceties and go directly to the meat, often with refreshing candor.  So it was that after Middle and a buddy came in from school, I posed them a question in order to see what they'd both understand and say, specifically about the Trillion Dollar Coin.

As we stood in the kitchen, I told Middle that I had some outstanding debts and couldn't pay him his overdue allowance but I could give him a Toonie - a Canadian two dollar coin - that I'd had sitting in my jewelry box.  Middle and his buddy stood there looking first at me and then at the Toonie sitting on the island, then back at me as if I'd lost my mind.  To him, this was simply a Toonie, worth about $2.02 at present exchange and nothing I said otherwise made a difference.  He pressed my seriousness again and I dropped the charade; I explained the concept of the Trillion Dollar Coin and its proposed use to circumvent the newly breached debt ceiling and then asked them what they thought.

That is such scumbaggery was his single comment.

When I pressed the two of them as to their thoughts on the issue, they came up with the following. 

  • First, nobody in their right mind in our town would accept a Toonie, and especially if it they represented it at the convenience store for an arbitrary value that I'd assigned to it.  If they wanted to buy Red Bulls, three bags of Doritos and a gallon of ice cream, the clerk would never accept something that I'd given to them with an arbitrary value attached.  Assuming that the guy even took the Toonie, it was still only worth $2.02 American dollars and not the value of the overdue allowance. 
  • Second, nobody in their right mind in the real world will see this as anything other than complete nonsense.  The debt will still be incurred and the interest will still have to be paid in the real world.  The Federal Reserve might go along with the fiction, but the other buyers of government debt still look at such issues as the ability to carry the interest payments and the solvency of the issuer.  D'ya think that the Chinese are gonna go along for this?

Let's consider the boys' first comment.  A quarter is a quarter because there's common acceptance that it's worth that amount.  The US government says that the quarter is worth 25 cents and the market accepts that; the quarter will purchase 25 cents worth of a good or service, no more and no less.  But when the market no longer believes that a good or service is worth 25 cents, then the market demands another value - usually higher.  It doesn't mean that the quarter is worth less than 25 cents, but that it will purchase less than what it purchased before.  Said another way, the cost of the good/service has increased because the quarter will purchase less than it did.  A candy bar once sold for a quarter - and a guy with a kid in elementary school can remember those days - but today, it sells for more than four quarters; the quarter is still worth 25 cents, but the market has decided that all things considered, the item now takes four times the money as before.  The convenience store clerk might not accept my claim that a Toonie is worth all of the junk food bought by the boys since I'm just me and don't have access to intercontinental missiles, carrier battle groups and all of the hookers and blow that Congressional privilege can obtain.  In the micro world of the local convenience store, the market has decided that I'm just full of crap.  There can also come a point where the market - the many members of the world economy - decides that the US government is likewise full of crap for arbitrarily assigning a large value to a single coin as an accounting dodge.

Now for the boys' second comment.  They themselves realize that this is solely an accounting gimmick and that the Federal Reserve is a willing accomplice to our collective failure to stem spending.  But the rest of the world, for whom wealth is a bit more precious and hard-earned, isn't going to look googly-eyed at our grand achievement.  They will continue to assess the nation's ability to service and stand good for the debt and will act accordingly and if they see that our national accounting standards have devolved to the level of I still have checks so I can't be out of money, then they'll simply leave our debt issuance alone entirely. : The result would be that real interest rates would spike - a painful thing - or the Federal Reserve would have to become the sole buyer of government issuance - overt monetization of the debt.  So many dollars will be willingly issued with no concern for value that it will be rendered worthless.

The boys' had no idea about the constitutional issue regarding this act and I wouldn't expect them to.  But they were smart enough to appreciate the role of the market in this, which is frankly surprising since those who uphold the market are derided by the economist apologists as out of touch; the government can say and do anything because they're the government and their decree is what matters.  But Don Quixote believed in his imaginary world, where a windmill is a dragon and a whore a damsel.  If the United States Government plays the Don Quixote, abetted by the Federal Reserve's Sancho Panza, then the world will soon treat them - and us - with the same disregard. 

I'm now wondering whether the money spent on college and economics courses will actually ruin the boys' ability to think.

Comments

Leave a comment (email addresses will be kept private!)

Name:

Email:

URL:

ARTICLES BY CATEGORY

Basics for Dads

Child Development

Child Health

Child Safety

College

Commentary

Communication

Dad and Mom

Discipline

Economics

Family / Personal Economics

Family Management

Father Lessons

Housework

Humor

PracticalDad Solutions

School

Youth Culture

Basics for Dads Child Development Child Health Child Safety College Commentary Communication Dad and Mom Discipline Economics Family / Personal Economics Family Management Father Lessons Housework Humor PracticalDad Solutions School Youth Culture