Paul Brodsky: The Real Idea Behind The Trillion Dollar Coin

This article is a commentary from Paul Brodsky on the topic of the “Trillion Dollar Coin.”

Speaking of monetary abstractionism, there has been recent talk of a fiscal gimmick called “The Trillion Dollar Coin,”  in which a platinum coin valued at $1 trillion would be created by the U.S. Mint for the Treasury Department. Treasury would then rid itself of its pesky fiscal deficit in one fell swoop by simply keeping the coin on deposit at the Fed.

The Trillion Dollar Coin idea is a marvel of political imagination and public ignorance (and so it seems to have legs!). As with most clever illusions, the Trillion Dollar Coin is based on sound logical footing, one in fact we have argued in favor of: asset monetization. But there is a fundamental difference separating the Fed monetizing Treasury’s gold to devalue the dollar, followed by a re-pegging of dollars to gold at the higher fixed exchange rate (our idea), and assigning an arbitrary value to an asset no one else is allowed to own.

After declaring the coin to be worth $1 trillion there would be no market-based discipline. In its aftermath, twice or half the amount of global platinum could not be exchanged in the marketplace for double or half the amount of dollars. (It is reminiscent of the Weimar Germany scheme to back Papiermarks with agricultural land. Brilliant! Er, but how do its users exchange the money for the land?) Not only would it be difficult to value extant platinum, it would be almost impossible to value anything in the world (at least in dollars).

Once the coin were struck, it would become obvious to the global marketplace – producers, consumers, savers, investors and trade partners – that future global purchasing power would be left exclusively in the hands of the US Treasury. Treasury would be able to simply outbid everyone on the planet for everything.

We suspect the Japanese Ministry of Finance would soon mint a ¥100 trillion pair of chopsticks and put them on deposit with the BoJ. They could then purchase most if not all of the oil on the market today for future consumption! We are confident oil exporters would not raise their prices because they would have the magic chopsticks as collateral. And why wouldn’t all the world’s treasury ministries simply create priceless flux capacitors and use them to create all the taxes needed to self-fund their governments? (To do so Ben Bernanke would have to hand over its proprietary technology – the Fed “has a technology called a printing press…”)

Obviously, the Trillion Dollar Coin idea is a political ploy with a targeted mission: to rid the US Treasury of its debt ceiling, which is an increasingly frequent and embarrassing public reminder of government ineptitude. Everyone knows government-led de-levering is not a serious threat. However, the irony of the scheme and its MMT (*) / liberal Keynesian promoters could not be more delicious. The scheme exposes the forty year-old charade, otherwise known as the global monetary system, better than any mind-exercise we have been able to come up with.

As we considered the plan, Hunter S. Thompson’s observation sprang to mind: “in a world of thieves, the only final sin is stupidity.” Though the Trillion Dollar Coin idea would work from an accounting standpoint, it seems awfully unlikely Americans and the rest of the world would let the US Treasury enjoy a very visible monopoly on fraudulent monetary accounting.

(*) MMT, or Modern Money Theory, is espoused by imaginative economists technically proficient in double-entry bookkeeping and deficient in confidence that free marketplaces can provide accurate valuations.

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  • R*

    So if they can just print or make anything valuable to rid themselves of debt then why are we paying taxes ??

  • goldsilverworlds

    That’s a very good question indeed and asked by several commentators / writers. If the government / central bank was really concerned about the well being of people, they could have chosen to do this. As well know, the freshly created money went to the banks, where is “sitting” now. In case the velocity of the money picks up, we’ll see significant price inflation. So no matter how you look at it, the ones that lose most in this game are the hard working people. That’s my humble opinion.

  • The “Trillion Dollar Coin” idea is exactly the kind of thing “our”government would think up. A coin worth a trillion dollars, simply because they say it is. It’s the same thing the Fed has been doing to the American people with their worthless paper currency, created out of thin air. To pay them back in kind has a certain attraction, but may set a dangerous precedent. The fraud on the American people would simply be transferred from the Federal Reserve to the UNITED STATES government, and the corrupt morons in D.C. would probably go wild with it. My understanding is that the coin(s) would feature a likeness of King Barack, which is o.k. by me, as I will probably never have to look at one. If it would, indeed, “pay” the debt to the banksters, I say go for it. We’re so far down the toilet now, we probably can’t be saved anyway.

  • A good question, R*. If the government can print all the money they need, why do we have an “income” tax? Would it be about control?

  • I think we are at a point in history where it is worth a bit of time to really understand hyperinflation. To help with this I am working on a Hyperinflation FAQ:

  • Alex K

    The idea was shot down by THE FED because they can’t allow congress (government) to print their own money, despite that the constitution says only congress should have the right to coin money. The income tax in America was introduced in 1913 – same year the Fed was established and they will not relinquish their monopoly over the debt creation that easily. Brilliant article on this over at by jason Hamlin.

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