By Chase Donnally
Starting a few weeks ago, a number of American economists and commentators became enamored with the idea of minting several trillion-dollar coins to “fix” our debt ceiling problem. The treasury, as it turns out, is legally allowed to mint platinum coins of any denomination, a law which was originally intended for the purpose of making commemorative coins for collectors. The suggestion has been that it use this power to create several trillion dollar coins, deposit them at the Federal Reserve, and use the newly created money to pay off our debts.
Sound crazy? It should. But for a period the idea was gaining support, mainly from persons on the left. Nobel Laureate Paul Krugman took a “Why not?” approach to the idea on his blog, stating that it would cause “no economic harm at all” and be a far better alternative than defaulting on our debts. A Democratic representative from New York, Jerry Nadler, even brought up the idea in an interview, suggesting that though it might sound silly, it’s the best response to “blackmail to destroy the country’s economy,” (obviously a reference to political brinksmanship and the fiscal cliff.)
Luckily the US Treasury, the Federal Reserve, and the President have all stated that no trillion dollar coins will be printed, and that there actually does not exist such a legal loophole. This comes as a huge relief to those who recognize the danger of inflation posed by simply printing massive quantities of money, and likely a disappointment to everybody looking for an easy fix to our economic woes.
It is important to recognize what this trillion-dollar-coin-plan really was: a gimmicky trick, filled with misdirection. At its core, the real idea was simply for the Federal Reserve to print trillions of dollars and have the United States pay off its debt with that new money. The minting of the coin simply came in as a way to force the Federal Reserve’s hand in the matter. But between the strange idea of a “special platinum coin” and “legal loopholes,” the real plan (“print the money”) was lost on some.
This is where the real problem comes in. While there were a great many people who immediately recognized the absurdity of paying our debts with money created out of thin air (comedic political commentator Jon Stewart among them), too many saw this as a silly but possibly workable solution to our budgetary problems. These people were content to believe that some sort of legal gimmick would be able to solve the problem that we spend far more money than we have.
This may come as an unpleasant shock to many, but there is no magic trick that can solve the problem of our massive debt. Raising taxes will have a marginal effect, but may ultimately hurt more than it helps. And minting a trillion dollar coin, or paying our debts with printed money? Not only would it destroy our credibility, it may destroy the value of the currency itself. The only real solution to our debt crisis is to cut our spending, and that means real cuts, not “cuts in projected spending increases.” Default on our debt might still be avoided if prudent spending cuts are made, but given the political climate in Washington, that seems unlikely to happen in time.
Gimmicks like the trillion dollar coin serve only to distract from the real issue, and trivialize the seriousness of the problem. Spending cuts may sound unattractive, but if they don’t happen, we will default. There is no other option. We cannot simply keep raising the debt ceiling forever.