Buy USA!
January 11, 2013, 10:21 pm
Filed under: Uncategorized

Okay, so the Treasury isn’t allowed use (more) debt to get the funding it needs for the spending Congress told it to do.

How about equity?

Could the Treasury just sell off a bunch of ‘stock’ in the USA? I don’t know who would buy it, but hey.

Just a question I wanted to get out there in case that’s actually the next Big Clever Reg-Arb coming down the pipe. You heard it here first.

4 Comments so far
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The US Dollar *is* equity in the US Government. While it’s labeled “debt”, it isn’t debt, because you can’t redeem it for anything. Treasuries are just restricted shares that convert to regular shares in the future.

So, when the US Government prints dollars (or “creates debt” or “mints a $1 trillion coin”) it’s really just dividing its existing equity base and distributing it to those it smiles upon. If a corporation was doing this it would be called an equity death spiral.

Here’s Moldbug’s explanation:

“Even USG’s “debts” (such as Treasury notes) are not debt but equity, because they are denominated in equity (dollars). A Treasury STRIP or zero-coupon bond, for instance, is a form of restricted stock – financially equivalent to a dollar with a “not valid until” date.

Thus it is sheer nonsense (as Mosler will tell you) to talk of USG being unable to repay its “debt,” because its “debt” is not debt but equity. If USG had contracted to deliver 20,000 tons of gold in 2020, it would have debt. If it had contracted to deliver 20 trillion euros in 2020, it would have debt. If it had promised to wash 20 million cars, it would have debt. Its promises to deliver its own shares, however, are no more than restricted shares. Of course, any corporation may issue any number of shares at any time. No sweat!”

Comment by Dave

Yeah, basically. I had in mind printing something even more meaningless than dollars and labeling ‘equity’ specifically.

But yeah. So I guess we’re back to The Coin (unless, we Split The Difference).

Comment by The Crimson Reach

Krugman came up with an example of what you mean:

The Treasury could print “Moral Obligation Coupons” in order to fund entitlements.

Of course, if they are redeemable for dollars (even via an informal promise that they will do so), then that’s just printing dollars.

I find it hilarious that these Smart People are trying to out-gun each other in finding even more informal and obscure ways to print dollars.

Comment by Dave

Yup. I tried to decipher what he meant there and I think they would be ‘registered warrants’. The difference between debt warrants and actual debt is a bit hard for me to take seriously in realistic/real-world terms, but of course the Wall Street Regulatory-Arbitraging Sociopath inside me understands it perfectly. The irony is that it isn’t Wall Street types coming up with these shady dodges, it’s self-proclaimed goo-goo reformers who get the flutters about CDS and CDO but see no problem with a trillion-dollar end-run around regulations.

Comment by The Crimson Reach

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