U.S. $1 Trillion Coin Isn’t the Right Answer to Our Debt Ceiling Crisis

By: Money_Morning

Ben Gersten writes: There's increasing support for the idea of minting a $1 trillion coin to help the United States avoid hitting the debt ceiling.

Even those supporting the idea - including The New York Times' Paul Krugman - admit it sounds "silly," but say it deserves consideration in that it could help solve one of our country's biggest economic issues.

"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," Krugman wrote.

While the government can't make infinite sums of money however and whenever it likes, there's a legal loophole that gives the Treasury Department the authority to create platinum coins of any denomination.

The law that gives Treasury that authority is meant to allow the issue of commemorative coins, but its intentions have been misinterpreted and distorted by politicians and economists alike.

Here's the real deal with a $1 trillion coin and what it would do to the U.S. economy.

The Scary Reality of a $1 Trillion Coin
If you think the Fed pumping billions of dollars into the money supply every month is damaging enough to the U.S. economy and the value of the dollar, imagine an immediate $1 trillion injection.

"It's essentially wrapping a full year's worth of Helicopter Ben's bond purchases in one transaction, as Bernanke would put it as a Fed asset and pay for deficits with it," Money Morning Global Investing Strategist Martin Hutchinson said. "It's very dangerous, but so are Bernanke's current policies."

The coin would not lead to immediate inflation, as the money would not make it into the hands of consumers. But it would further undermine the faith in our government and ultimately devalue the dollar.

"It's just a disguised new form of debt," former Congressional Budget Office Director Douglas Holtz-Eakin told FOX News Network. "This would say (to the markets) they cannot manage their finances as a nation; they're down to gimmicky coins."

He added: "It would have all the implications of near-default."

Ultimately, the $1 trillion coin idea is more of a political game instead of a reasonable solution to the debt ceiling debate, or any other fiscal matter.

Democrats have offered the idea as a way to counter Republicans' threat to take the country into default unless Democrats agree to match spending cuts dollar-for-dollar to any increase in the debt ceiling. But U.S. President Barack Obama has insisted he will not negotiate with Republicans over raising the debt ceiling, as he did in the 2011 debt ceiling debate.

If the coin were issued, it would buy the country time before a default, as the debt ceiling crisis wouldn't have to be solved as long as the $1 trillion lasts. For a time, that would take away Republicans' leverage in continued fiscal debates.

If the coin were to become a real possibility, the Obama administration could offer to abandon the idea to gain leverage in its bid to increase the debt ceiling.

But opposition in Washington just might prevent any real progress on introducing the coin idea to debt ceiling talks. Rep. Greg Walden, R-OR, said he's introducing a bill to ban minting the $1 trillion coin.

"Some people are in denial about the need to reduce spending and balance the budget," Walden said in a press release. "This scheme to mint trillion dollar platinum coins is absurd and dangerous, and would be laughable if the proponents weren't so serious about it as a solution. I'm introducing a bill to stop it in its tracks."

Source :http://moneymorning.com/2013/01/08/1-trillion-coin-isnt-the-right-answer-to-our-debt-ceiling-crisis/

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