So some nutjobs actually believe minting a $1 Trillion coin to pay down the debt is a good idea. And, they believe it won’t be inflationary since it won’t be added to the money supply.
Obviously, since it’s a horrible idea, involves creating money, and will eventually lead to ruining America, Paul Krugman is all for it.
While I appreciate the creativity of avoiding another debt ceiling debate, how anyone can seriously suggest this is beyond me. First off, it is inflationary. Even if it’s not adding a trillion dollars to the supply of money, it’s debasing the currency and undermining confidence. Second, everyone should know that as soon as we do this once we’ll continue to do it forever. This is the economic equivalent of saying “just the tip.” Nope. Third, any solution that’s created solely to circumvent the natural order of governance should immediately fail the smell test.
There is no “quick fix” to the debt ceiling debate. Waving a wand and making $1,000,000,000,000 disappear is so amazingly dangerous I can’t believe this is being taken seriously.
I think it’s mostly a joke. There is a loophole in US law that limits the amount of paper money that Treasury can print. However, there is no law against minting coins. So, these guys are like “hahaha we should do it”.
That’s exactly the first thing I told my wife when I saw this on the news. We’re now setting economic policy based on The Simpsons. Hopefully we’ll only base it off the first 12 seasons.
Either Krugman was right all along (we need to have massive keynesian injections) or we should remove his nobel prize. He has said some crazy things on the record. He might be smarter than all of usl or just crazy.
Yeah, I was wondering how the coin would actually enter circulation and affect money velocity. But presumably someone would try to sell shares of it… that someone probably being the US Treasury.
It’s also unclear who would actually accept the coin as payment of debt. The Fed is probably the only holder that would have both the ability and the motivation to do so. But, then again, it wouldn’t really need a coin to do that.
How much does the Federal Reserve hold in treasuries? Isn’t it like $2 trillion? The government could theoretically use the platinum coin to pay off a large part of its obligations to the Fed, and then sell $1 trillion more in new debt to the Fed to replace the debt that was paid down. This would do crazy things to interest rates, of course…
Yeah, the Fed is pretty much the only people that hold enough UST debt that the coin could possibly be used to pay off. I guess China or Japan have just over a trillion, but they would have no interest in accepting a platinum coin for the debt, since they couldn’t actually use it or exchange it for anything (other than more USTs) once they had it.
But the Fed could equally well just forgive the debt it holds, which would be equivalent to accepting the coin for payment, so what’s the point?
Maybe the Treasury could buy all the toxic debt from the Fed with the coin, and we make that stuff disappear. Then mortgage payments become effectively UST revenue and US Mortgage adjustments become self-financing in a way.