Economists are resurrecting the idea of a $1 trillion platinum coin as we approach the debt ceiling in an effort to keep money flowing, but Treasury Secretary Janet Yellen, in a rare moment of sanity, threw cold water on the idea over the weekend.
As it stands, the country will run out of funds to pay its bills in June if the debt ceiling is not raised. The nation is $31 trillion in debt and it just keeps getting worse. Raising the debt ceiling will not stop a crash at some point as the government just keeps printing money and our leaders seem intent on not cutting spending. It is likely that a digital currency will eventually be introduced to solve the problem and wipe out the debt with Americans bearing the consequences of that move.
Some leftist economists, who probably should take an economics refresher course, believe that minting a $1 trillion platinum coin which can then be deposited at the US Federal Reserve would solve the problem according to the Daily Mail. These same financial brain trusts have floated that idea during every debt crisis since 2011 in an attempt to do a workaround for politicians who bicker over the debt ceiling.
As we print more and more money, the dollar loses more value and will eventually become worthless. That does not seem to have been factored into constantly raising the debt ceiling. We can’t keep digitizing dollars and spending into infinity without it eventually bringing the house of cards down.
— Rashida Tlaib (@RashidaTlaib) September 28, 2021
Despite the facts of the issue, there are those still pushing the $1 trillion platinum coin solution. They believe that the president has the authority, under a 1990s law, to order the Mint to make commemorative coins of any value in platinum. Instead of the usual $5 or $10 coins, they want him to approve a $1 trillion coin.
By law, the Treasury is limited on how much paper cash and gold, silver, or copper coins can circulate at any given time. Platinum money is not restricted by those limits. But the bone of contention comes into play when actually depositing the coin in the Federal Reserve, which is in essence the federal government’s banker.
“It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that’s a gimmick,” Yellen told The Wall Street Journal onboard an Air Force plane en route to Lusaka, Zambia during an interview. “The Fed is not required to accept it, there’s no requirement on the part of the Fed. It’s up to them what to do.”
PLATINUM COIN: Is there no limit on the deviousness of Democrat leaders? They are desperate for a “Gimmick” to circumvent Congress and continue reckless spending. Minting a trillion dollar platinum coin and getting the Fed to accept it is such a GIMMICK! Janet Yellen said so. pic.twitter.com/DaDNu1opZR
— JoJo and Charles B (@joeyab) January 24, 2023
If the Fed agrees to the coin, which is highly unlikely, the action would almost assuredly trigger runaway inflation even worse than what we are seeing now.
“Economists since David Hume have known that helicopter-money drops — which are permanent additions to the balance sheet — are highly inflationary,” Jon Hartley and Jackson Mejia, of the Foundation for Research on Equal Opportunity, wrote in the National Review. “A trillion-dollar helicopter drop, which would equal about five percent of the M2 money supply, would be one of the largest in American history.”
New York Times columnist Paul Krugman naturally supports the whacky idea. He thinks there are ways to constrain the supply of money to control inflation. Many believe he is dead wrong on the issue.
“It’s true that the Fed would have to release funds if Treasury drew on a coin-backed account, but this wouldn’t have to increase the monetary base; it could be offset by selling Fed-held securities,” he wrote on Twitter airing his flawed economic reasoning.
The other is that the coin would be “printing money” and inflationary. No. It’s true that the Fed would have to release funds if Treasury drew on a coin-backed account, but this wouldn’t have to increase the monetary base; it could be offset by selling Fed-held securities 3/
— Paul Krugman (@paulkrugman) January 31, 2023
“In effect, the government, broadly defined as Treasury + Fed, would be doing exactly the same borrowing as before — except that the Fed rather than Treasury would be selling securities to the private sector. Zero inflation impact,” he ridiculously contended.
And come on, people, we’ve been discussing this possibility since 2011. No excuse for making elementary conceptual mistakes 5/
— Paul Krugman (@paulkrugman) January 31, 2023
Others claim that the Fed could just deposit the coin at the Treasury, wiping $1 trillion off the debt. Economics doesn’t work that way. For every monetary action, there is a commiserate reaction.
Not to mention the fact that all of this mixes up monetary and fiscal policy, acting as if they are the same when they aren’t. Monetary policy deals with money in the economy overseen by the Federal Reserve. Fiscal policy deals with government spending and the process in Congress.
Yellen contends that if Biden uses monetary policy to create the coin and solve a fiscal problem it “compromises the independence of the Fed.” Which, in turn, makes it subject to short-term political pressures.
Any way you slice it, the $1 trillion platinum coin is not the answer here and is a bad idea. Cutting spending is the answer.
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Author: Frieda Powers
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