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January 10, 2013

The Magic Coin

 

It should probably be no surprise that the people who think we do not have a spending problem—in fact, who think the problem is that we are not spending enough money—have decided that the way to get around Congress’ authority to authorize increased government borrowing is for the Treasury Department to take advantage of a legal loophole and mint a magic $1 trillion platinum coin.

No, I kid you not.

The idea is to take advantage of an obscure provision that allows the Treasury Department to issue platinum coins in any denomination—as if the writers of the Constitution ever envisioned one of those denominations to be $1 trillion!—and transfer this coin to the Federal Reserve, allowing the Fed to create more money and make everyone happy.

But if that is such a great idea, why not mint a $999 gazillion coin? Well, THAT would be nuts, wouldn’t it? But somehow a $1 trillion coin would magically solve our problems?

Proponents of the magic coin are simply proponents of eliminating all checks on increased borrowing.

Yes, the debt ceiling power results in a high stakes standoff between Congress and the executive branch. But what’s new about that? It’s the very design of our system to have the branches of government engaged in these kinds of stand offs. If there are harmful consequences from the standoff, they will affect Congress much more immediately than they will affect the president.

But the magic coin would be far worse than the debt ceiling standoff. The Economist magazine calls it a “textbook case of monetizing the debt.” And that’s ominous.

Those who argue that the coin would not cause inflation deny that printing money causes inflation, despite the fact that Milton Friedman won a Nobel Prize for explaining that “inflation is always and everywhere a monetary phenomenon.”

With the disastrous fiscal situation we face, anything that puts pressure on spending is good thing, and thus the debt ceiling standoff, like the separation of powers, is a feature, not a bug.

And minting a magic $1 trillion coin looks more like a scene from the movie “Idiocracy” than something any U.S. president should ever consider.


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