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Reader Questions on the 1 Trillion Coin Proposal: Where's the Money Come From? Will It Cause Inflation?

Several people asked me to comment on the $1 trillion coin proposal endorsed by New York Times columnist and Noble Prize winner Paul Krugman.

I did so yesterday in a satirical post Krugman Supports the $1 Trillion Coin; Why Stop There? I Support the $1 Quadrillion Coin.

In response to the above article, I have received several emails wondering where the money comes from. For example reader Tom writes ...

Hello Mish,

Thank you for your hard work and honest voice in producing this blog, I follow it daily. There is something that I do not understand in the platinum coin proposal. Where does the treasury come up with the trillion to purchase the platinum? Is this money printed from thin air? If the treasury had a spare trillion to purchase platinum they would not need to give it to the fed, simply use the trillion to finance more worthless deficit spending, a blatantly bad idea given the very low return we are now experiencing on stimulus.

Thanks,
Tom


Fictitious Accounting Entry

Hello Tom.

The proposal is nothing but a fictitious accounting entry. There is no trillion dollars. Certainly the treasury would not buy a trillion dollars worth of platinum. Indeed, that would be impossible, at least at today's pricing.

Rather, the proposal was to take a coin (size is irrelevant), and stamp "one trillion dollars" on it.

Questions of legality have arisen as noted in my article.

It's important to note that Krugman (correctly) never proposed spending the coin. It would take an act of Congress to spend it.

Thus, the proposal was to value the coin at one trillion dollars simply as an accounting entity. In other words, the Treasury would take a coin worth essentially nothing, that could not be spent, and value it on the books as one trillion dollars.


Accounting Fraud

My personal opinion is that it would be fraud to do place a one trillion value on a coin that could not be spent (in this case, because the money was already spent. In higher denominations, the money would not be spent until Congress authorized such spending).

Regardless, actual future spending would be precisely what Congress authorized to be spent, no more no less.


No Inflationary Effect

There would be zero inflation as a result of minting such a coin. Indeed, it would not cause inflation if the Treasury minted a 1,000 quadrillion coin. This is an important point.


Debt Ceiling Nonsense

The entire exercise is to avoid another nonsensical discussion about whether or not Congress will bump up the debt ceiling. I say "nonsensical" because we all know that Congress will indeed cave in and bump up the debt ceiling.

On that score, Krugman actually has a point. However, (ignoring legalities and accounting fraud) there certainly is a huge need for discussion in Congress about the deficit and debt levels.

That is why I am against the coin idea even if it is legal (which I doubt).

However, in case I am legally wrong, I repeat what I said earlier (the treasury should mint a one quadrillion coin), simply to highlight the absurd nature of the idea.

With that, I repeat my proposal for this picture on the front of the coin.

Alfred E Newman For President

The back of the coin should be equally obvious.

Paul Krugman Prays for America.

Paul Krugman Praying

 

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