It’s time like these that America really suffers from having a media that’s dumber than the general public is ignorant, one more interested in telling doom and gloom tales that make for good entertainment, and therefore good ratings, than it is interested in educating the public by reporting all the facts and who is lying.
The short-term effects of the platinum coin idea are easy to understand, which exacerbates the issue. I’ve heard that even Jon Stewart got most of it wrong while trying to make it funny, precisely because everyone already feels like they understand it well enough to not have to do research. That has lead to several fundamental misunderstandings which need to be explained.
First of all, it’s not magic, smoke and mirrors, or a trick. Minting a coin with a domination of $1 trillion dollars results in a coin that, in financial markets, has a value of exactly $1 trillion dollars. If you took that coin to Wall Street and tried to deposit it at Goldman Sachs, they’d happily take it off your hands and establish an investment account for you with a balance of $1 trillion. (Then they would promptly steal it from you in about a trillion different ways, but that’s a different horror story.) If you deposited that coin at your local bank in an account earning 0.5% interest per year, that bank (assuming it had the funds) would happily pay you about $50 million per year in interest. So would any foreign investment firm or bank.
If you still don’t think that’s possible or “real”, that is exactly what the Federal Reserve did when it lent $15+ trillion in secret to Wall Street after the $1 trillion public bailout called TARP. The only difference is that the Fed printed money to buy up Wall Street debt (aka the “toxic assets”), rather than minting a coin and giving it to another federal agency to pay interest on debt. As I understand it, it’s also similar to quantitative easing. If you think some or all of that was a waste of money, I’m right there with you (on some of it). But that was all real money, and so is the coin.
Second, the whole “if you can do that, why can’t we just print X trillion more and get rid of the debt and deficit” line assumes that every situation is the same, and that the results would be too. That’s not the case at all. Expanding the monetary base (printing money, minting coins) will devalue our currency causing higher interest rates and inflation once the economy returns to something resembling full employment. The less you expand the base, the better it is for us down the road when we need to pull back. Minting what would end up being a $350-400 billion coin would be less burdensome than a $1 trillion coin, or in the case of trying to rid the country of debt, $16 trillion. Doing the latter would eventually devalue the currency so much that you’d probably do far more damage than good.
Third, the coin idea isn’t to solve a problem, it’s to avoid them. Not the debt ceiling problem, the GOP hostage taking and default problems. Whatever the negative consequences of expanding the monetary base to pay interest on the debt, they would be far less severe than letting our government default (possibly triggering worldwide depression but nobody really knows what because it has never happened before) or letting the Republican Party take the economy hostage once per year, every year, for the rest of eternity, mostly because a “win” for the GOP in that fight would be savage spending cuts that have proven to cause recessions and massive amounts of new debt in virtually every country on the planet that has tried it since 2008.
The best argument for the coin isn’t that it solves the debt limit today (or forever), it’s that for 12 months, it protects our growing economy from the bad (austerity) and horrible (default) things that might end up coming to pass if we don’t think out of the box.
Let me put this way: let’s all assume that defaulting on our debt would be catastrophically bad and that’s not an option. We know the GOP wants big spending cuts (austerity) in exchange for raising the debt ceiling. But we also know that the GOP wanted big cuts in 2011 in order to raise the ceiling, and the compromise back then was the Budget Control Act. E.g. the fiscal cliff.
In other words, without the “constitutional option” or the $1T coin, the most likely outcome is that the GOP forces the creation of a second fiscal cliff bomb primed to explode in December of 2013.
What’s worse, paying our debt and securing 12 months of prosperity with *no* drawbacks for at least 4-6 years, or creating another fiscal cliff/defaulting and causing an (American encompassing) worldwide depression?