Green Room

Re: Trillion dollar coin

posted at 5:15 pm on January 4, 2013 by

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.

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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.

Agree completely, Ed.

What’s helped to keep the US dollar afloat is the “boil the frog” method of spending where it’s gradually been rising. Minting $1 trillion platinum coins, however, would be both a very visible and very “banana republic” move. It would cause the loss of confidence which is the necessary ingredient for hyperinflation. I have to think there would be a panicked flight out of the dollar, even with the Fed as the largest holder of US debt.

Doomberg on January 4, 2013 at 5:27 PM

Even talking about it seriously by Congress-critters could cause people to flee the dollar.

Meric1837 on January 4, 2013 at 5:28 PM

Yeah but Zimbabwe didn’t have Obama. Look at their tides.

onomo on January 4, 2013 at 5:34 PM

re-posting from AP’s:

With the FOMC minutes that came out yesterday, there were extremely diverging pov’s on the Fed’s current actions. Therefore I do not see a $1tril extra digital dollars put out there.

I would love for them to do this, or some idea further along. The People are morons and only respond to direct effects, which is what this would be. This would also not just be a domestic effect, we are still the world’s reserve currency.

John Kettlewell on January 4, 2013 at 5:49 PM

Maybe the Franklin Mint can market a “platinum like” Trillion ObamaDollar for just 4 payments of just $49.99 each plus shipping and handling. The small print will say each payment includes $1.5B handling fee. Hey the low info voters will love this almost as they love Sham-Wow!

simkeith on January 4, 2013 at 7:04 PM

I would love for them to do this, or some idea further along. The People are morons and only respond to direct effects, which is what this would be. This would also not just be a domestic effect, we are still the world’s reserve currency.

John Kettlewell on January 4, 2013 at 5:49 PM

We won’t be indefinitely. There is not a single exotic financial instrument extant that doesn’t somehow involve printing money now. We can’t continue like this indefinitely — and we won’t.

gryphon202 on January 4, 2013 at 8:28 PM

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.

The “minimalist” scheme here is to ensure that no further publicly-held debt needs to be issued, so there would be no more borrowing.

Of course, since the inflation rate will be at a minimum the value of the number of trillion-dollar coins issued divided into the private-sector GDP value, and likely far higher as the dollar is a “floating” currency, the resulting hyperinflation will drive people away from bonds.

Steve Eggleston on January 4, 2013 at 8:47 PM

The “minimalist” scheme here is to ensure that no further publicly-held debt needs to be issued, so there would be no more borrowing.

Of course, since the inflation rate will be at a minimum the value of the number of trillion-dollar coins issued divided into the private-sector GDP value, and likely far higher as the dollar is a “floating” currency, the resulting hyperinflation will drive people away from bonds.

Steve Eggleston on January 4, 2013 at 8:47 PM

Unfortunately, though driving people away from bonds would normally put the brakes on inflation (and cause deflationary pressure in an otherwise sane fiscal environment), there are too many creative ways for governments to print money now for it to make a whit of difference at all now.

gryphon202 on January 4, 2013 at 9:07 PM

Problem is that the $1T coin would be on every TV show and would be a novelty to the morons that elected this guy. Not a reason to start stockpiling grain in your basement.

Mario Lopez would open his Hollyweird show with it. Ellen would have it on as a guest. It’d be like the Stanley Cup for our braindead electorate.

We have devolved into a nation led by morons who were elected by morons, and those of us with brains are sitting here wondering WTF happened.

CycloneCDB on January 5, 2013 at 12:43 AM

I say we do it. The policies being pursued by Obama and the Democrats are going to ruin the country the same way, but just in a grinding, staggering fashion that won’t play out for another 20 or 30 years, long after King Obama retired to his island palace in Hawaii. If the only way out is through, I’d prefer to get going now.

JeremiahJohnson on January 5, 2013 at 10:12 AM

You know, why on earth don’t they just confiscate all the monopoly money, declare it legal tender, and deposit that in the treasury? There would literally be no difference. They are declaring something that is not a trillion dollars, to be a trillion dollars. What difference does it make what it actually is? That anyone, even in the age of the majority Ozero voter, is exactly that stupid, simply blows my mind.

Dirty Creature on January 5, 2013 at 12:51 PM

I have a question: when this coin is designed, will it, as the last couple of dollar coins have, be sized like our quarter? I’m just thinking that it would be funny, mistaking it as such and then dropping it into a vending machine for a soda, or a bag of chips.

You know, why on earth don’t they just confiscate all the monopoly money, declare it legal tender, and deposit that in the treasury? There would literally be no difference. They are declaring something that is not a trillion dollars, to be a trillion dollars. What difference does it make what it actually is? That anyone, even in the age of the majority Ozero voter, is exactly that stupid, simply blows my mind.

Dirty Creature on January 5, 2013 at 12:51 PM

Exactly. This is absolutely no different than printing a trillion extra dollars and cramming them into circulation. Sure- you’ve inflated all of our debt away. But a peanut butter sandwich just got really expensive really fast.

BillH on January 5, 2013 at 1:44 PM

~Obama Voice~

“Heads I win, tails you lose.”

dentalque on January 5, 2013 at 1:54 PM

Picture a “trillion dollar” worthless coin minted with the face of Barack Hussein Obama. The irony is stunning.

labrat on January 5, 2013 at 6:38 PM

What if the Evil Owner of a nuclear power plant took the trillion dollar coin and fled to Cuba with it?

MidniteRambler on January 6, 2013 at 8:10 AM

Let them mint it so long as it has Obama’s portrait on one side and a big toilet on the other side.

NeoKong on January 7, 2013 at 10:05 AM