White House opts not to create a Death Star. But a ‘magic coin’?
A number of fanciful ideas on economic policy have been floated in recent weeks. The so-called Death Star idea, officially rejected, was a stimulus plan. The 'magic coin' plot is meant to sidestep a showdown with Congress over the national debt ceiling. Seriously?
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Would it be legal and practical?
Well, technically, the law authorizes the Treasury secretary to issue commemorative platinum coins “in such quantity and of such variety as the secretary determines to be appropriate.”
Backers of the idea say the coin need not be large in size. It needn’t contain an amount of platinum that would actually be worth $1 trillion.
That doesn’t mean the idea would work, though. Many economists have publicly rejected the idea.
Economists Ethan Harris and Michael Hanson at Bank of America Merrill Lynch sum up their views this way: “We see several problems with this plan. First, its legality is open to question. Second, it would worsen the coming battle over spending cuts. Moreover, it would further deepen the distrust between the two political parties. Finally, it risks being the first step down a slippery slope of debt monetization.”
Debt “monetization” is a fancy term for what happens when a central bank, such as the Fed, allows inflation to eat away at a currency’s value, as a way of making it easier for a government to pay off its debts.
Paul Krugman, an economist and New York Times columnist, notes that behind all the discussion of a $1 trillion coin a deeper question is implied: Can federal deficits be solved in part by having the Treasury simply print more money, rather than by borrowing?
The answer is no. Other than the provision in law for an occasional platinum coin, America’s money creation is managed by the Federal Reserve, which puts money into circulation by buying federal debt, Mr. Krugman explains.
Moreover, even if the Treasury tried the trillion-dollar trick, “the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back,” Krugman wrote on Jan. 2.
So it's pretty safe to count on the coin gambit not happening.
But these petitions, whether they’re about a Death Star or a giant-denomination coin, do have a virtue of starting some educational discussions!