The Platinum Coin Spit-Take and Other Debt Ceiling Lunacy
The latest reporting from the U.S. indicates that Republicans have offered to pause their debt ceiling obstructionism, which had threatened to create economic and constitutional crises on October 18, until sometime in December. Among other things, this means that my phone might stop ringing for the next two months. Woo hoo!
[The Axios reporter] somehow came up with this: "Even if it’s legally sound, no one knows whether it’s physically possible to mint a platinum coin between now and Oct. 18." What?! That could be done in an hour. The whole point of the gambit is that minting a new coin would be quick and easy, especially because the coin need not even have anything stamped into it. The Treasury could just as well toss a lump of metal on a table with "platinum" written on it in crayon, with a piece of paper next to it reading: "This is our new trillion-dollar coin."
A major concern for economists is hyperinflation. Minting the $1 trillion coin would be like creating money out of thin air. When all that new money poofs into existence, the other currency in circulation becomes less valuable. That could hurt consumers, who are already dealing with price inflation.
Then there’s the question of what a $1 trillion coin would mean for U.S. monetary and fiscal policy. Monetary policy means making decisions about the money in the economy. That’s mostly left up to the Federal Reserve, which is somewhat insulated from political tinkering. Fiscal policy means making decisions about what the government spends money on. That’s an entirely political process left up to Congress and the president.
The $1 trillion coin would completely mix the two. It would have the president use monetary policy (creating new money) to solve a fiscal problem (the government is running out of borrowing capacity).
If the only people who are qualified to have an opinion on monetary issues are people who are on the inside, or in the know, then that’s extremely dangerous for electorally accountable politics. We don’t have to be afraid of pulling back the "Wizard of Oz" curtain and it all collapsing.