Can a $1 TRILLION platinum coin solve the US debt crisis?

The problem: The Biden administration doesn’t have enough money to pay its bills and will run out of cash sometime in June.

The solution (at least according to some economists and the Twitter hashtag #MintTheCoin): Mint a $1 trillion platinum coin, which can then be deposited with the US Federal Reserve to keep the money flowing.

It’s not a new idea, having been floated during every debt crisis since 2011 as an accounting fix that circumvents the need for rogue politicians to agree to raise the debt ceiling.

But Treasury Secretary Janet Yellen shot him down over the weekend.

So could it really work and end the dispute over how to pay off the nation’s $31 trillion debt?

Treasury Secretary Janet Yellen weighed in on the fight against the debt ceiling during a tour to promote US investment in Africa. She said the idea was nothing more than a ‘trick’

As always, the truth seems to be a bit yes and a bit no, depending on who you ask.

The problem is certainly one that needs a quick fix. A US government default on its debt would deal a severe blow to the economy, causing job losses and higher interest rates creating the kind of economic pain that would last for years.

As Republicans in Congress signal a hawkish stance on raising the debt limit, the currency offers a more imaginative, or outlandish, solution depending on your stance.

The idea is 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, what’s to stop you from asking for a $1 trillion coin?

The Treasury is limited by law to the amount of paper money and gold, silver, or copper coins that can circulate at one time. However, platinum money is not subject to the same limits.

So far so good.

Economists are beginning to diverge on the next step: depositing the currency with the Federal Reserve, essentially the banker to the federal government.

Michigan Rep. Rashida Tlaib has dated a trillion dollar coin in the past

Nobel Prize-winning economist Paul Krugman is among the supporters of the idea, and he used a Twitter thread to blast skeptics about its feasibility.

This was where Yellen drew the line.

“It should by no means be taken for granted that the Fed would do it, and I think especially with something that is a gimmick,” he told The Wall Street Journal aboard an Air Force plane en route to Lusaka, Zambia. .

‘The Federal Reserve is not required to accept it, there is no requirement on the part of the Federal Reserve. It is up to them what to do.

Many other experts agree. Good idea, but what if the Fed just says no thanks?

However, you could say yes and allow the federal government to add $1 trillion to your ready-to-spend coffers.

This is where the other reserves come into play.

Wouldn’t this be economic chaos? Everyone knows that trying to print money to get out of the crisis, adding a trillion dollars to the economy without an equivalent increase in output, triggers runaway inflation.

“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 Equal Opportunity Research wrote in National Review, before citing a measure of currency in circulation.

“A trillion-dollar helicopter drop, which would equate to about five percent of the M2 money supply, would be one of the largest in US history.”

Supporters of the coin, such as Nobel Prize-winning economist and New York Times columnist Paul Krugman, say it doesn’t have to be that way. There are ways to restrict the money supply to control inflation.

The federal debt ceiling was raised in December 2021 by $2.5 trillion to $31.381 trillion, which is expected to be reached on Thursday, January 18.

The mint already produces a platinum ealge coin (left) and printing a trillion version would simply require changing the denomination (right)

‘It is true that the Fed would have to release funds if the Treasury were to use a currency-backed account, but this would not have to increase the monetary base; could be offset by the sale of securities held by the Fed,’ he wrote on Twitter.

‘In effect, the government, loosely defined as Treasury + Fed, would be borrowing exactly the same as before, except that the Fed, rather than the Treasury, would be selling securities to the private sector. Zero inflation impact.

Another way would be for the Fed to deposit the currency with the Treasury, proponents of the idea say, wiping out $1 trillion of debt.

But it all creates another problem, with the confusion of monetary and fiscal policy.

The first is related to decisions about money in the economy, which are made by the Federal Reserve.

While the latter is concerned with how the government spends its money, which is a political process in Congress and the White House.

If the president used monetary policy to create the currency and solve a fiscal problem, “it compromises the independence of the Fed,” according to Yellen, making it subject to short-term political pressure.

So could the $1 trillion coin solve the current impasse? Yes, possibly. But doing so would open another can of worms.