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Recently I read in a news post that the Treasury Department is able to order the coinage of a coin made of platinum with a value of 1,000,000,000,000 USD, or 1 trillion US dollars. You can read about this subject The Trillion Dollar Coin Idea To Save The Economy(courtesy of Business Insider):

The premise of the idea is this: Although the Treasury can't just create money out of thin air to pay its bills, there is a technicality in the law that says the Treasury has special discretion to create platinum coins of any denomination, and the thinking is that Tim Geithner could make the coin and walk it over to the Federal Reserve and deposit it in the Treasury's bank account.

The opinion of the winner of the Economics prize in memory of Alfred Nobel Paul Krugman (Conscience of a Liberal, The Opinion Pages):

First, as a legal matter the Federal government can’t just print money to pay its bills, with one peculiar exception. Instead, money has to be created by the Federal Reserve, which then puts it into circulation by buying Federal debt. You may say that this is an artificial distinction, because the Fed is effectively part of the government; but legally, the distinction matters, and the debt bought by the Fed counts against the debt ceiling.

The peculiar exception is that clause allowing the Treasury to mint platinum coins in any denomination it chooses. Of course this was intended as a way to issue commemorative coins and stuff, not as a fiscal measure; but at least as I understand it, the letter of the law would allow Treasury to stamp out a platinum coin, say it’s worth a trillion dollars, and deposit it at the Fed — thereby avoiding the need to issue debt.

My questions are:

  • Is this legal? If I am not wrong, only the Fed has the power to print official money?
  • Who will accept this coin, and how will this coin save the economy?
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    I think it best not to touch this question with a trillion foot pole :p How will this coin "Save" the economy is not constructive. The first question is fine – SoylentGray Jan 7 '13 at 18:37
  • That is essentially quantitative easing. – Dale Jul 10 '13 at 19:56
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    "Is this legal, because if I am not wrong only the Fed has the power to print official money?" The Fed does not have the power to print money. That's the treasury's job. The Fed does effectively control the size of the money supply by controlling how money is issued. – Brythan Jul 2 '16 at 15:33
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    "You want inflation? That's how you get inflation!" – Criggie Jun 3 '17 at 0:17
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    "We would love to pay you back all of the money I owe you. Here, do you have change for a Trillion?" – einpoklum Aug 25 '17 at 17:17
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The purpose of the coin isn't to raise the amount of money in circulation, it's to alter the debt-load of the government, which prevents an un-raised debt ceiling from negatively impacting the economy. In Krugman's description, this is the key bit:

First, as a legal matter the Federal government can’t just print money to pay its bills, with one peculiar exception. Instead, money has to be created by the Federal Reserve, which then puts it into circulation by buying Federal debt. You may say that this is an artificial distinction, because the Fed is effectively part of the government; but legally, the distinction matters, and the debt bought by the Fed counts against the debt ceiling.

By making the coin, and depositing in the Federal Reserve, it means that the amount of money in existence has been drastically altered. However it's been done in a way that avoids buying Federal debt. So the government has more money to spend without having increased its debt load.

The debt ceiling is a law where Congress authorizes the total amount of Federal debt. Normally, Congress just votes to increase this as a minor bureaucratic action (this is separate from the budget, which lays out how the government will spend money). During the most recent debt ceiling raise in late-2011, it became an issue.

Since the debt ceiling is decoupled from the budget, the federal government is essentially ordered by Congress to spend money as allocated in the budget. In order to do this, the government borrows money to finance things. But if the debt ceiling isn't raised, then the federal government is essentially stuck unable to pay its bills because it can't borrow more money. So the trillion coin idea is a way to avoid hitting the debt ceiling without borrowing more money. There would likely be some economic impact to this, but since this it's never been done, it's not precisely known what the impact would be. On the other hand, we know the impact of a government shutdown, which is what would happen without a debt ceiling raise or a trillion dollar coin being minted.

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    <comments removed> Please keep comments focused on improving the post and try to not to turn comment threads into miniature chat rooms and debates. Thanks. – Robert Cartaino Jan 10 '13 at 19:21
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    There would likely be some economical impact to this, but since this it's never been done, it's not precisely known what the impact would be. - While it's quite true that the impact is unknown, we know from historical precedent that drastically increasing the amount of money in existence often leads to rapid inflation. There's no guarantee that would happen here, but it's probably worth a mention. – Bobson Oct 4 '13 at 15:26
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    @Bobson : historically, increasing money in circulation leads to inflation. I am unsure if the deposit of a 1-trillion coin in the Federal Reserve would have the same effect. It would if the Fed was to issue more dollars once the gvt's debt is erased, but it is unclear to me if that's implied in Krugman's argument. – Evargalo Nov 9 '17 at 13:09
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    So if I understand it correctly, this would wouldn't change anything fundamental, it would just be a book-keeping trick to allow the executive to run up more debt without having to ask Congress for permission. – Paul Johnson Jun 17 at 13:30
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It doesn't make much sense to me.

Money is a measure of the amount of wealth of a country and printing this coin doesn't alter the wealth of the US.

The effective value of one dollar is, in other words, the total wealth of the US, divided by the number of dollars in circulation.

If they were to increase this number by 1 trillion, the value of each dollar in circulation will be decreased in inverse proportion, or, in other words, the "value" of this super-coin will be "drained" from the whole economy.

The overall effect would be inflation.

More info here

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    +1. Agree. Imagine if they offer 3 of these coins to China to pay back the existing debt. Nonsense. Whenever a country started to get an astronomical amount of debt, the ultimate solution was to start introducing bigger and bigger bills to finance the debt. This indicated hyperinflation. USD is somewhat different case since it is not a single country currency, but I think this exception is just delaying the collapsion. – CsBalazsHungary Apr 16 '13 at 11:20
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    I think the point of Krugman's idea is that the peta-coin in the Federal Reserve would not be in circulation. Sure the president of the Fed is not going to buy anything with it anyway. So the value of the green bills in your wallet might not change at all; maybe it would rather be the value of the peta-coin that would drop to zero once it is issued ? – Evargalo Nov 9 '17 at 13:14
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    While it would not change the overall wealth of the US, it would reallocate that wealth. – Danubian Sailor Apr 20 '18 at 19:08
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A trilion dollar coin isn't going to be very useful unless you can find an industry that regularly makes trillion or close to a trillion dollar transactions.

Not only do you have to find someone who's going to sell you a trillion dollars worth of something, but in order for them to actually use the coin, they'll have to find someone else who wants to give them a trillion dollars worth of capital for it.

On the other hand, if the Fed mints a trillion dollars worth of smaller detonations, that will cause the value of the dollar to go down, considering that there are a trillion more dollars.

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    I downvoted because you do not understand the point of the trillion dollar coin. If you have the reserves you then it does not count against the debt limit. So the coin would be held in the Fed as backing for secured debt issuance... bypassing the congressional advise and consent. – SoylentGray Jan 7 '13 at 18:53
  • @Chad - too bad you can't downvote a comment. You can't "back" debt issuance with a coin whose value is determined by fiat. This is no different financially than depositing a paper IOU that says "1 Million <cue Austin Powers>... Trillion US Dollars". The whole point of collateral backing the debt is that it has tangible value. – user4012 Jan 7 '13 at 19:07
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    @DVK - That is the point you an IOU is debt that would count against the limit. If you have an asset to back the debt then that asset works in reverse... at least that is the idea. It would bring the total indebtedness down by 1 trillion allowing for spending of borrowed money. Its an accounting gimmick that only works when you can make your own money. I suspect that evenually the supreme court would rule against the administration on this but that will take time to get there. – SoylentGray Jan 7 '13 at 19:11
  • @Chad - it would either count as debt (thus not reducing total indebtedness at all - an accounting gimmic as you stated yourself), OR count as asset money which would be inflationary. Either way, Sam's answer is correct. – user4012 Jan 7 '13 at 19:25
  • @DVK - A trilion dollar coin isn't going to be very useful unless you can find an industry that regularly makes trillion or close to a trillion dollar transactions. - That is my problem with his answer. It is the first line and stands as its own paragraph. If it were at the bottom and said it could be if... that would be different. The next answer is why the first paragraph is right. The last line of his answer is the only one that is correct. But that is an aside – SoylentGray Jan 7 '13 at 19:30
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It doesn't make sense for other countries, since "Supply and Demand balance" decreases money value. But for US it make sense because US dollar is the world reserve currency. So US can share its "decrease of money value" (and debt) with other countries.
THis is the biggest robbery in the history.

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    This doesn't exactly answer the question, but you have a point. Whenever US$ is devaluated, the whole world would pay for the US debt. – Evargalo Nov 9 '17 at 13:17
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    @Evargalo Which is why the US often goes to war against countries that try to back their currencies with things other than USD (eg: Iraq) – user3082 Apr 24 '18 at 2:29

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