The MMT Trader — Fed lending to the Treasury?

Along the lines of the intraday overdraft scenario, this was suggested in 2006 [by the GAO].

Read the rest at The Modern Monetary Theory Trader
Fed lending to the Treasury?
by the MMT Trader
(h/t Mike Sankowski at Modern Monetary Realism)

beowulf comments at MMR:

 “Must read article: “Congress should consider providing the Federal Reserve the explicit authority to lend directly to Treasury” 

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“US Code Title 31 (Money and Finance) used to but no longer provided Tsy an overdraft or “cash draw authority”. In its last iteration (from 1979 to 1981 before Congress repealed it), Tsy’s draw authority was limited to $5 billion for up to 30 days. The issue is discussed in this post-9/11 GAO report.”http://www.gao.gov/htext/d061007.htmlhttp://moslereconomics.com/2011/02/07/excellent-post-on-the-mmt-controversy/#comment-43146 [This comment is reposted here directly below with a more direct link to it added.]

Beowulf Reply:
February 7th, 2011 at 10:36 pm

US Code Title 31 (Money and Finance) used to but no longer provided Tsy an overdraft or “cash draw authority”. In its last iteration (from 1979 to 1981 before Congress repealed it), Tsy’s draw authority was limited to $5 billion for up to 30 days. The issue is discussed in this post-9/11 GAO report.
http://www.gao.gov/htext/d061007.html

Since Tsy is no longer authorized to overdraft, its required to have money in its General Fund (plus a valid congressional appropriation) before it can spend. It can put money into General Fund by one of two ways (with a third way, as we’ll see, possible with a minor statutory change). 1. It can issue interest-bearing bonds, notes or bills per Title 31 sections 3102-3104 (subject to the statutory debt limit established in 3101) and spend the public debt proceeds.
http://www.law.cornell.edu/uscode/text/31/subtitle-III/chapter-31/subchapter-I
Tsy can mint coins which it can sell to the Fed at face value (the federal reserve notes or reserves passing through Mint Public Enterprise Fund to Tsy General Fund as miscellaneous receipts). By the terms of the Mint PEF Act, coin seigniorage revenue would appear to reduce the deficit, however Tsy accounting system doesn’t allow it too. However even under current Tsy rules, coin seigniorage could be used to pay down existing debt,freeing up room under the statutory debt limit to borrow more (platinum coins, curiously, may be issued by the Secretary in any quantity or denomination). We had a long discussion about coin seigniorage a couple of weeks ago you can dig through if you’d like read more.Finally, if Congress deleted Section 5115(b), Tsy could again issue interest-free “Lincoln Greenbacks” without limitation.
 http://www.law.cornell.edu/uscode/text/31/5115 

US Notes are sort of the duckbill playtpus of “lawful money”. The Fed doesn’t buy them at face value like coins, they’re public debt issued into circulation by Tsy itself (so while coin seigniorage should reduce the deficit, it doesn’t appear US Notes do). On the other hand they’re like coins in that Tsy does not include them in statutory debt limit (probably because of their interest-free nature). Tsy could probably issue US Notes in electronic form, which is for the good, we’ll save the idea of “electronic coins” for the distant future, after the singularity. :o)