Re: Trillion dollar coin
posted at 5:15 pm on January 4, 2013 by Ed Morrissey
I wrote about that last year when I called it “the old grandpa coin trick.” The fallacy that fuels this is that people believe that a government can issue a few trillion of its baseline currency without affecting its value, merely because they assign that value to a couple of platinum coins. This is, of course, absurd. If we try to borrow money on that basis, bondholders will not fall under that same delusion — they will bail on the dollar as fast as possible. If we try to pay back debt on that basis, no one will buy any more American bonds, at least not until sanity has returned to Washington.
Regardless of the magic nature of the coins in which a nation produces an explosion of currency, the net effect will be to devalue the rest of the currency, which will mean savings and retirements that evaporate and a disastrous economic outcome. Ask Zimbabwe how their one-hundred-trillion-dollar bills worked out for them. Here’s what the CIA World Factbook has to say about it:
Until early 2009, the Reserve Bank of Zimbabwe routinely printed money to fund the budget deficit, causing hyperinflation. Dollarization in early 2009 – which allowed currencies such as the Botswana pula, the South Africa rand, and the US dollar to be used locally – ended hyperinflation and restored price stability but exposed structural weaknesses that continue to inhibit broad-based growth.
That would have happened even if Robert Mugabe had platinum to make coins.
Recently in the Green Room: