If you haven’t heard of the latest ploy to monetize America’s debt, read onward.
In the last few weeks an obscure idea has come on with a vengeance. Supported by left-wing politicians, economists, bloggers and even some people formerly considered rational, the idea of the $1 trillion coin as an answer to America’s debt problems is spreading like wildfire. If you’re not already wary at the mere mention of a coin valued at $1 trillion, it’s a sign of the sorry state of the country.
Birth of a Bad Idea
According to WIRED magazine, the idea was first broached in 2010 in what the originator of the idea called a “pointless … online bull session.” Shouldn’t that be a red flag when considering policy? Apparently not according to liberal economists like Paul Krugman.
So here’s the theory on what would happen if the Treasury minted a trillion dollar platinum coin. And it has to be platinum, because that’s the only metal that beats the so-called loophole (see USC 31 5112(k)). First the Treasury mints the coin, then would deposit this coin at the Federal Reserve. The Federal Reserve (presuming Bernanke & Co. would go along with such a ridiculous plan, which according to recent reports they would not), would then recognize $1 trillion in the federal government’s checking account, thereby giving Uncle Sam enough money to pay his bills without raising the debt ceiling.
After many intelligent people correctly attacked the trillion dollar coin idea, defenders like Matthew O’Brien at The Atlantic say it is just like borrowing money because the dollars created by the coin would be used to pay bills Congress has already incurred. But he’s wrong. What the money is spent on is meaningless. It’s where the money comes from that creates the problem. There are two conditions that make debt much different than the trillion dollar coin. The first is that the money is borrowed, i.e. someone gives it up with the expectation that they get it back. The second is that a price is paid, called interest. The trillion dollar coin idea meets neither of those very important criteria.
If it’s Such a Bad Idea, Why Are We Even Talking About It?
You may be wondering, “if it is such a bad idea, why are we even talking about it at the national level?” The trillion dollar coin is supposed to kill the bargaining leverage of the House Republicans in the upcoming debt ceiling debate. According to reports the Obama administration was primed to take advantage of the coin loophole, but thankfully the Federal Reserve wouldn’t go along. The Federal Reserve apparently enjoys its monopoly on debasing the currency.