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.
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?