Does America Need a Trillion Dollar Coin?
There is an idea going around that is undoubtedly crazy. But it has gained popularity and support from some of America’s foremost economic thinkers. As another debt ceiling showdown looms, experts say it could all be stopped by simply striking a US $ 1 trillion coin.
Yes, a trillion dollar coin. It was endorsed by Nobel laureate Paul Krugman and debated by Treasury Secretary Janet Yellen, though she didn’t give the idea resounding approval.
“I oppose it and I don’t think we should seriously consider it,” she said in an interview with CNBC. “It really is a gimmick, and what is needed is for Congress to show that the world can count on America to pay its debts.”
The idea of the $ 1,000 billion coin is indeed a gimmick. But it’s also perfectly legal. The man credited with the idea says it’s a loophole to get around an equally absurd idea: the US debt ceiling.
“On the one hand, I think it’s funny,” said Atlanta attorney Carlos Mucha. “But on the other hand, honestly, it’s sad that what stands between us and the government in economic crisis is this gimmick.”
8:34Could a Trillion Dollar Coin Solve America’s Debt Ceiling Crisis?
So how did we come to this? It starts with the debt ceiling.
Remember that the US Congress passes bills, those bills become laws and policies. But there is a catch. Congress must also give permission to the federal government if it wants to take on more debt to pay for these projects.
This authorization is called the debt ceiling. Previously, it was little more than a technical detail. After all, why would Congress pass a law approving new spending if it had no interest in allowing the government to borrow money to spend money?
Krugman says not allowing the government to raise funds to cover its expenses would make no sense.
“Not just because it would cripple government operations,” he wrote in this New York Times editorial. “But also because it would threaten to wreak financial havoc: US government securities are the foundation of the global financial system, used as collateral in many transactions. Threatening federal cash flows could therefore cause a global collapse.”
And yet, every year there are endless tussles as the parties bicker over a deal to raise the debt ceiling.
One room to rule them all
It was during one of these debates in 2011 that Carlos Mucha had an idea.
“The US Mint has the power to mint $ 1 coins,” he told CBC radio. Day 6. “They also have the power to increase it; they can mint a trillion dollar coin.”
Mucha verified a law introduced in 1996. And of course, in the section usually reserved for commemorative platinum coins, the Secretary of the Treasury has full leverage.
“The mint manager drafted a law, she gave it to Congress and they passed it, which authorized the secretary to publish [coins] whatever design, quantity and denomination the secretary chooses, ”Mucha said.
So technically Yellen could order the US Mint to make a single coin worth $ 1,000 billion. The Mint would then deliver that coin to the Federal Reserve, which is required by law to accept legal tender. The Fed would credit the Treasury Department’s bank account and poof, the government no longer needs to borrow money to pay its bills.
Thing? Sure. But it would work, and Krugman says Democrats must do whatever it takes to end the hostage negotiations the debt ceiling has turned into.
“So go ahead, Democrats, and do whatever it takes to get over this,” he wrote in The New York Times. “The gadget in the defense of reason – and, in an important sense, of democracy – is not a vice.”
White House press secretary Jen Psaki was asked about this option and the idea of banning the debt ceiling as unconstitutional.
“We are obviously looking at a range of options and none of those options were viable,” she said.
One of the main concerns with the idea is that pumping a trillion dollars into the economy would inevitably lead to inflation.
Avery Shenfeld, chief economist at CIBC, says the way a government gets money to spend doesn’t really affect inflation.
“It would really do nothing other than allow the government to spend the money already authorized (by Congress),” Shenfeld said. “If the government was spending too much and causing inflation, then Congress shouldn’t have approved the level of spending it did,” he says.
A $ 1,000 billion coin looks more like an episode of The Simpsons than an article on Bloomberg. And as fate would have it, The Simpsons were way ahead of their time on this.
In one episode, the US government printed a $ 1 trillion bill to help Europe rebuild after World War II. But, as you might expect, the bill was stolen by the show’s richest man, Montgomery Burns, and was never seen again.
The next debt ceiling debate will end in early December. Wait for the trillion dollar coin debate to resurface at the same time.