Wednesday, January 9, 2013

Trillion Dollar Bash: Paul Krugman & the Coin That Will Rule Us All

It's amazing to think that there are large numbers of Serious People on the sophisticated left (these are the ones who always chortle over the Republican "war on science") who see a way out of the debt ceiling via the minting a trillion-dollar coin that the gov't could deposit - TA DA! - with the Federal Reserve. Paul Krugman - who won a Nobel Prize and is widely viewed as the leading apostle of Keynsean economics ca. now - thinks this is just what the doctor ordered.

Enter the platinum coin. There’s a legal loophole 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.

Krugman et al. have sort of thought this through except for one detail: it's completely crazy, not to mention a mockery of the law and the Constitution. I mean, you have to love the idea of a "loophole" that allows you to mint a trillion-dollar anything. After a deafening round of mockery from the right, Krugman doubles down with a rousing defense of the concept:

What the hysterics see is a terrible, outrageous attempt to pay the government’s bills out of thin air. This is utterly wrong, and in fact is wrong on two levels. 
The first level is that in practice minting the coin would be nothing but an accounting fiction, enabling the government to continue doing exactly what it would have done if the debt limit were raised. 
Remember that the coin is supposed to be deposited at the Fed, which is effectively just a semi-autonomous government agency. As the federal government proper drew on its new Fed account, the Fed would probably respond by selling off some of its $3 trillion balance sheet. In effect, the consolidated federal government, including the Fed, would be financing its operations by selling debt instruments, just as always. 
But what if the Fed decided not to shrink its outside balance sheet? Even so, under current conditions it would make no difference — because we’re in a liquidity trap, with market interest rates on short-term federal debt near zero. Under these conditions, issuing short-term debt and just “printing money” (actually, crediting banks with additional reserves that they can convert into paper cash if they choose) are completely equivalent in their effect, so even huge increases in the monetary base (reserves plus cash) aren’t inflationary at all.

Krugman has an out for any blame that may come the left's way should this inflationary coin come to light: the Republicans made me do it!

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.
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.

John Boehner's mind control is so total he is planting ideas that are literally out of a Simpson's episode (one featuring Fidel Castro!) in the minds of the brilliant among us.

Counting to a trillion is easier if you've a trillion dollar bill

No comments:

Post a Comment