Several people asked me to comment on the $1 trillion coin proposal endorsed by New York Times columnist and Noble Prize winner Paul Krugman.
I did so yesterday in a satirical post Krugman Supports the $1 Trillion Coin; Why Stop There? I Support the $1 Quadrillion Coin.
In response to the above article, I have received several emails wondering where the money comes from. For example reader Tom writes ...
Thank you for your hard work and honest voice in producing this blog, I follow it daily. There is something that I do not understand in the platinum coin proposal. Where does the treasury come up with the trillion to purchase the platinum? Is this money printed from thin air? If the treasury had a spare trillion to purchase platinum they would not need to give it to the fed, simply use the trillion to finance more worthless deficit spending, a blatantly bad idea given the very low return we are now experiencing on stimulus.
The proposal is nothing but a fictitious accounting entry. There is no trillion dollars. Certainly the treasury would not buy a trillion dollars worth of platinum. Indeed, that would be impossible, at least at today's pricing.
Rather, the proposal was to take a coin (size is irrelevant), and stamp "one trillion dollars" on it.
Questions of legality have arisen as noted in my article.
It's important to note that Krugman (correctly) never proposed spending the coin. It would take an act of Congress to spend it.
Thus, the proposal was to value the coin at one trillion dollars simply as an accounting entity. In other words, the Treasury would take a coin worth essentially nothing, that could not be spent, and value it on the books as one trillion dollars.
My personal opinion is that it would be fraud to place a one trillion value on a coin that could not be spent (in this case, because the money was already spent. In higher denominations, the money would not be spent until Congress authorized such spending).
Regardless, actual future spending would be precisely what Congress authorized to be spent, no more no less.
No Inflationary Effect
There would be zero inflation as a result of minting such a coin. Indeed, it would not cause inflation if the Treasury minted a 1,000 quadrillion coin. This is an important point.
Debt Ceiling Nonsense
The entire exercise is to avoid another nonsensical discussion about whether or not Congress will bump up the debt ceiling. I say "nonsensical" because we all know that Congress will indeed cave in and bump up the debt ceiling.
On that score, Krugman actually has a point. However, (ignoring legalities and accounting fraud) there certainly is a huge need for discussion in Congress about the deficit and debt levels.
That is why I am against the coin idea even if it is legal (which I doubt).
However, in case I am legally wrong, I repeat what I said earlier (the treasury should mint a one quadrillion coin), simply to highlight the absurd nature of the idea.
With that, I repeat my proposal for this picture on the front of the coin.
The back of the coin should be equally obvious.
Paul Krugman Prays for America.
There is a lot of crazy talk out there regarding the minting of a $1 trillion coin to get around the debt ceiling.
Today Paul Krugman hopped on the $1 trillion bandwagon in his New York Times article Be Ready To Mint That Coin.
Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.
For those new to this, here’s the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit — tax and spending bills the president is legally required to implement — and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.
Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all.
So why not?
Krugman asks "why not?" The answer should be obvious. It's crazy to think $1 trillion would be enough. A year or two from now, the Treasury would have to mint another coin, with the same silly debate we are having right now about whether the process is legal.
Question of Legality
I do not accept the idea that the proposed process would be legal. Others side with me as well. Here are a few examples:
Nonetheless Tut! Tut! I say to Krugman detractors.
Does any president care what is legal? Roosevelt didn't. Nixon didn't. Bush didn't. Obama didn't.
We all know presidents are above the law and they do what they want anyway. Kidnapping, torture, wiretapping, holding people without charges in Cuba, data gathering of all sorts with drones and other measures without due cause and in direct violation of the constitution, so clearly the constitution is meaningless already.
No one will possibly do anything if Obama breaks the law as Krugman wants. Krugman's major error is $1 trillion is nowhere near enough.
Let me be first to support the idea of a $1 quadrillion coin.
Read more at http://globaleconomicanalysis.blogspot.com/2013/01/reader-questions-on-1-trillion-coin.html#7QToUKHMXbb5M1gs.99