Krugman and the Trillion Dollar Platinum Coin
By now, you have undoubtedly heard of the crisis (and tragedy) that is the US debt ceiling. You have also hopefully heard that there is hope, and it comes in platinum.
The trillion dollar coin. It sounds too good to be true – so good in fact that you might assume it is a joke. I have to admit that was my gut reaction when I heard the idea. I assumed it was some more crazy kook nonsense about moving to a platinum standard instead of a gold standard (since that idea has so obviously failed.)
Then I read that Nobel Prize-winning Princeton economics professor and New York Times columnist Paul Krugman is in favor of the idea:
Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely.[…]
So if the 14th amendment solution — simply declaring that the debt ceiling is unconstitutional — isn’t workable, go with the coin.
If Nobel Prize-winning Princeton economics professor and New York Times columnist Paul Krugman is in favor of the idea it is obviously a good one. His endorsement saves me from having to explain the why’s and saves you from thinking deeply about it at all, so you’re welcome for saving you 2 minutes of your day debating exactly how brilliant this plan is.
If you aren’t familiar with the mechanics though, here is the gist of it:
We have hit the $16.xT debt ceiling, so technically the Treasury can’t issue any more debt to keep the federal government running. If this goes on for a short while the US will technically default.
The Treasury doesn’t have authority to print money (“Federal Reserve Notes”), so the government is kind of screwed unless the debt ceiling is raised (and remember readers: the government is YOU.)
So to get around this inconvenience, there is a technicality that the Treasury could issue a platinum coin and stamp $1T on it. That is because the Treasury can explicitly (specifically 31 USC § 5112) issue platinum bullion coins.
The treasury can then deposit the coin with the Federal Reserve and then the Fed issues them $1T worth of fresh digital dollars in their account to be used to pay Federal gov’t expenses. Voila: problem solved.
Now this is not $1T worth of platinum in the form of a coin (that would require over 20,000 tons of platinum). It could be the size of a dime, but it just needs to be granted the value of $1T by the Treasury.
This begs the obvious question: why only $1T?
Answer: no reason. In fact, it would make a lot more sense to make it worth $100T. We would be completely debt free and on top of that, Bernanke has been pussyfooting around printing only $85B in Federal Reserve Notes per month and that clearly isn’t enough to stimulate our economy, so why not go all in?
$100T worth of new money, put into the hands of our most productive citizens (federal officials) would be an amazing stimulus for our economy.
Think bigger government (and Nobel Prize-winning Princeton economics professor and New York Times columnist Paul Krugman).