Paul Krugman: a better option than a $1 trillion platinum coin

Unbalanced budgets lead Congress to raise or temporarily extend the national debt limit on 78 separate occasions since 1960, but the political gridlock has some experts worried this time may be different. The potential for a worst-case scenario in which lawmakers can’t come to an agreement that leaves the U.S. unable to pay its debts has reinvigorated the debate about potential borrowing workarounds, including unreasonable ones. -but-plausible proposal that former Nobel laureate Paul Krugman is a favorite of—create a $1 trillion coin.

“By printing a $1 trillion coin, then depositing it at the Fed, the Treasury can get enough money to avoid the debt ceiling – while doing no damage to the economy. So why not?” explained the economist in a 2014 New York Times op-ed. This is a sea change in the trillion-dollar coin discourse, which used to be popularized nor before Inside editor Joe Weisenthal, who is now ensconced in Bloomberg as co-host of Odd Lots podcast.

However, Krugman appeared to have a change of heart about the $1 trillion coin on Wednesday, arguing that “bond premiums” would be a better solution to the debt ceiling problem in a long that time. Twitter dizziness. Most coin critics firmly believe that it is a “gimmick” which could cause inflation to rise, there is an issue of credibility, according to the economist, and only a negative view can weaken the possibility of the idea.

“People who should know better are always wrong, and think the coin will be inflationary,” Krugman wrote, explaining that he still thinks the coin is a viable solution, but it’s primarily there is a public relations problem. “And that’s a reason to want a route that doesn’t encourage trust misconceptions.”

To Krugman’s point, even Federal Reserve Chair Jerome Powell raised the coin question, though only to reject the idea. “There are no rabbits to pull out of hats here,” he said when asked about the topic at a meeting of a House Financial Services Committee meeting in early March. “That’s a rabbit out of a hat.”

Krugman also noted the complexity of his new solution, premium bonds, may be a good thing. He believes that the Treasury may offer premium bonds, or bonds that sell higher than their face value because of the high coupon rate relative to prevailing market rates, and raise money. without increasing the national debt.

“In my experience, when you try to explain all this, people’s eyes light up – which is good! It’s hard to be angry about something that confuses you,” he argued, adding that “nobody understands bond premiums, while people think – wrongly – that they understand the coin. [to be inflationary].”

Krugman’s potential solution comes after Janet Yellen warned of a LETTERS to Congress on Monday that in less than a month, the US will not be able to pay its bills. Since the federal government hit the $31.4 trillion debt limit in June, the Treasury Secretary has explained that he is relying on “extraordinary steps” to continue fulfilling its obligations—but that will not continue forever.

“If Congress fails to increase the debt limit, it will cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to protect our national security interests.” ,” he wrote.

The debt ceiling debate has grown increasingly heated in Washington over the past few months, with Republicans pushing for drastic spending cuts in a bill that Democrats have labeled “ransom note,” while the Biden administration insisted that the debt ceiling should be lifted no strings attached. Biden’s aides have recently begun debating whether the debt ceiling in and of itself is unconstitutional. They taught the Fourteenth Amendmentwhich they argue requires the Treasury to continue issuing new debt to pay bondholders, Social Security recipients, and government employees, even if Congress fails to raise the debt ceiling.

Either way, if lawmakers can’t come to an agreement and the US is forced to default on its debts, Moody’s Analytics found that nearly 6 million jobs and $12 trillion in household wealth would be lost. And Krugman warned of an April Times op-ed that failure to raise the debt limit could lead to “disastrous consequences” globally as well.

“At the very least, it will disrupt the functioning of the federal government. At the worst, it will cause a global financial crisis, possibly as bad or worse than the crisis of 2008,” he wrote.

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