Why reduce spending when you can just print more money?
First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit — tax and spending bills the president is legally required to implement — and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.
And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can’t pass through normal constitutional processes.
Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And 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.
So why not?
Krugman’s contentions are specious for a number of reasons.
First, Krugman suggests that Congress is entirely to blame for this situation because they spend money and then refuse to give the President authority to borrow to meet that spending. Here’s the problem: The biggest areas of problem spending in the federal budget are mandatory spending items.
According to the CBO, in 2011 the federal government took in $2.3 trillion in revenues and had to dole out $2.1 trillion in mandatory spending on programs like Medicare and Social Security, and to pay interest on the national debt already accumulated. That means that before Congress even gets to areas of discretionary spending – all the money spent on roads, the military, etc. – they’re pretty much already in the red.
And none of that mandatory spending can be reformed, because Democrats in Congress (and more than a few Republicans) won’t let it happen. And even if they did, Obama would veto it.
Second, while President Obama could strike a $1 trillion coin and deposit it in the US treasury under the law, he shouldn’t. Because doing so makes us all poorer by watering down our currency. Inflating our monetary supply by $1 trillion means every dollar the rest of us earn and save is worth less.
Krugman talks of defending the full faith and credit of the US debt, but what does creating money from thin air do to our credit? Do you think our creditors are going to continue buying debt when we’re going to start paying them off with money we’ve just invented?
It’s amazing the lengths to which some will go to avoid admitting that what America faces is a spending problem. We’ve got more government than we can afford. The solution is to shrink government.