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HOW A $1-TRILLION COIN COULD SOLVE THE U.S. DEBT CEILING CRISIS
NOBEL PRIZE-WINNING ECONOMIST PAUL KRUGMAN HAS SUGGESTED THE TREASURY MINT A $1-TRILLION COIN TO DEAL WITH THE DEBT CEILING CRISIS.
IDEA FLOATED BY NEW YORK TIMES COLUMNIST PAUL KRUGMAN
Mark Gollom
Jan 9, 2013
CBC News
With files from The Associated Press
http://www.cbc.ca/news/world/story/2013/01/08/f-trillion-dollar-coin-paul-krugman.html
As the U.S. heads toward more political conflict over the national debt ceiling, liberal economist and New York Times columnist Paul Krugman believes he has found a simple trillion-dollar solution to stave off yet another potential economic crisis.
Writing on his blog, Krugman, somewhat half-serious, suggests that if the Republicans, who are looking for spending cut pledges to tackle the debt, would be willing to force America into default by refusing to vote to raise the debt ceiling, U.S. President Barack Obama should be willing to take this step.
"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,"
he wrote.
The debt ceiling is the government's borrowing limit that can only be raised through congressional authorization.
Krugman notes that a legal loophole allows the Treasury to mint platinum coins in any denomination it chooses.
By minting a $1-trillion coin, then depositing it at the Federal Reserve,
"the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all,"
Krugman wrote.
INSPIRES TWITTER HASHTAG
And Krugman isn't the only one raising the idea. New York Democratic congressman Jerry Nadler has expressed support for it and a formal White House petition has been started, as has a Twitter hashtag (#Mintthecoin).
BUT IS THIS A PLAUSIBLE COURSE OF ACTION?
"The platinum coin is a silly, but elegant, solution to a silly problem,"
Mike Moffatt, assistant economics professor at Western University's Richard Ivey School of Business, wrote in an email to CBC News.
"The platinum coin proposal gives the Obama administration an alternative if House Republicans are completely intransigent on the debt ceiling issue."
Antony Davies, an economics professor at Pittsburgh's Duquesne University, took a dimmer view.
He said minting a trillion-dollar coin is the same as printing money, and is all part of the "money illusion."
"Money illusion is the (false) belief that one is better off when one has more money,"
he wrote in an email to CBC News.
"It certainly sounds reasonable until we distinguish between 'money' and 'purchasing power.'"
For example, he said that if the government announced that everyone was to add a zero to their money, every dollar bill would become a 10, just as $1,000 in a chequing account, would become $10,000.
"Would you be better off? The answer is no.
All that would happen is that businesses would add a zero to their prices. A 75 cent hamburger would cost $7.50," Davies said.
[Ce que les gouvernements ont déjà fait – comme la France- est dévaluer la monnaie ou en chager. Et un matin, vous vous réveillez avec un zéro de moins dans votre compte en banque. Le zéro de la fin, bien sûr. Les gens sont fâchés, bien sûr. Ils sont si fâchés qu’ils manifestent. L’État peut y aller si drastiquement que, selon certaines personnes peinées, les économies de toute une vie se sont envolées (ce qui est déjà arrivé sans que l’État soit directement responsable, en 2008]. Donc les gens enragés manifestent dans les rues. Causent des dommages. Troublent l’ordre public et la paix ce qui déplaît à ceux qui auront gagné lors de cette opération hasardeuse – il y en a toujours-. Et l’État ordonne à sa police et à son armée de tirer dans la foule. Ensuite, le calme revient. Les gens préfèrent alors mourir de faim paisiblement dans leur maisons – s’ils en ont encore une. Peut-être devront-ils la vendre afin d’avoir de l’$ pour se payer à manger.]
PRINTING MONEY CAUSES INFLATION
What makes money valuable, he said, is the goods and services money buys.
"Minting a trillion-dollar coin doesn’t change the amount of goods and services.
Therefore, all the trillion-dollar coin does is to take the value of existing goods and services and spread it around a larger number of dollars – thereby making each dollar worth less.
We call this inflation.
Printing more money (or minting more coins) simply causes inflation."
Moffatt agreed that if there was no response from the Federal Reserve, the trillion-dollar coin move would be inflationary.
But he said the Fed would almost certainly respond by taking an equal amount of money out of the economy, by selling some of the large inventory of bonds.
This, in technical terms, would "sterilize" the deposit, meaning there would be no impact on inflation,
Moffatt said.
"Although there are no direct economic consequences, I cannot see the Obama administration using such an option,"
Moffatt said.
"Such a move would be highly controversial and would not be well understood by the general public."
'HIGHLY CONTROVERSIAL' MOVE
In an email to the Washington Post, Philip Diehl, the former director of the U.S. Mint and Treasury chief of staff who helped write the platinum coin law, also said there would be no negative macroeconomic effects.
"The accounting treatment of the coin is identical to the treatment of all other coins. The mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the Treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues,"
he wrote.
"Once the debt limit is raised, the Fed could ship the coin back to the mint where the accounting treatment would be reversed and the coin melted.
The coin would never be “issued” or circulated and bonds would not be needed to back the coin."
Leaving nothing to chance, Oregon Republican Greg Walden said Monday he's planning to introduce a law that would bar the Treasury from minting such coin.
"This scheme to mint trillion-dollar platinum coins is absurd and dangerous, and would be laughable if the proponents weren’t so serious about it as a solution,"
he said in a statement.
"I'm introducing a bill to stop it in its tracks."
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RONALD REAGAN, DR. EVIL TOP $1-TRILLION PARODY COINS
(IlanaTaub/Twitter) Mock monies are circulating on social media. See the coins.
http://www.cbc.ca/news/yourcommunity/2013/01/dr-evil-reagan-grace-1-trillion-parody-coins.html
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BE READY TO MINT THAT COIN
Paul Krugman
January 7, 2013
New York Times
http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/
http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/?pagewanted=print
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.
And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can't pass through normal constitutional processes.
ENTER THE PLATINUM COIN.
There's a legal loophole
http://pragcap.com/lets-end-this-debt-ceiling-debate-with-a-1-oz-1t-coin
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.
http://krugman.blogs.nytimes.com/2013/01/02/debt-in-a-time-of-zero/
So why not?
It's easy to make sententious remarks to the effect that we shouldn't look for gimmicks, we should sit down like serious people and deal with our problems realistically.
That may sound reasonable -- if you've been living in a cave for the past four years.
Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it's just ridiculous -- far more ridiculous than the notion of the coin.
So if the 14th amendment solution -- simply declaring that the debt ceiling is unconstitutional -- isn't workable, go with the coin.
This still leaves the question of whose face goes on the coin -- but that's easy: John Boehner. Because without him and his colleagues, this wouldn't be necessary.
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