Paul Krugman is the latest economics commentator to endorse the hottest solution going to the debt ceiling standoff: minting a $1 trillion coin. The Treasury, proponents say, has the right to mint coins of any denomination. By making and depositing a $1 trillion coin with the Fed, the Treasury could create an accounting credit which would allow it to go on borrowing and paying bills without crossing the debt limit.
Business Insider has so far been the lead proponent of this solution, but as Paul Krugman’s endorsement shows, the momentum is increasing. We suspect that proponents have a point that this move won’t set off hyper-inflation, but that doesn’t mean it’s cost free. Solving a contentious political dispute by recourse to a legal technicality is not the stuff of strong democratic governance. And governance questions aside, toying with the credibility of fiat money is a dangerous game to play. The dollar is like Tinkerbell; it only lives as long as people believe. “Solving” the debt problem with a $1 trillion coin might make sense to trained economists and policy wonks, but public credibility in the government and its fiat currency will be needlessly and perhaps dangerously strained. The Edwardians used to say that people could do what they liked “so long as they don’t do it in the street and frighten the horses.”
Trillion dollar coins frighten the horses in, we suspect, ways that will haunt the country for years.
But if the Obama administration does decide it is in the nation’s best interests to go ahead and disturb some horses, we here at Via Meadia have some further advice for the good folks at the Treasury: rather than depositing the coin at the Fed, send it to stately Mead Manor here in Jackson Heights, Queens. We guarantee that we’ll spend the money judiciously and speedily, stimulating the economy in ways Washington simply will not be able to match. And if we find that our spending the money is causing too much inflation, we’ll be sure to pull back on the reins at just the right moment. Trust us. It will all work out for the best. So help us God.