Under our monetary system, the Federal Reserve (a quasi-independent body) controls the issuing of currency and other levers that influence the money supply. This is supposed to serve as a check on the government’s ability to print money unwisely. It’s a weak check, but a check nonetheless. However, it seems that federal law contains a loophole (dealing with the minting of platinum coins) that allows the Treasury to issue currency without the approval of the Federal Reserve.
Nevertheless, even if the Treasury can do it, monetizing the debt is a crackpot idea. I thought everyone knew that, so I never paid any attention to the talk of minting trillion-dollar platinum coins.
But now, Paul Krugman is advocating it:
Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. . . By minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all.
Got that? No economic harm at all! We’re in LaRouche territory here, folks!
POSTSCRIPT: By the way, the notion that Republicans would try to “force America into default” is pure partisan bullshit. As we learned from the last go-round with the debt ceiling, Republicans wanted to ensure that the debt was paid, and proposed legislation to ensure that by giving debt service priority. It was voted down on party lines, because Democrats wanted to keep default on the table. Quite simply, Democrats preferred to risk default than to make meaningful cuts to spending. So what Krugman really means is:
Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to cut spending? Yes, absolutely.
This kind of thinking leads to hyper-inflation.
(Via Power Line.)