Economist Paul Krugman says the US Treasury could easily print a $1 trillion coin to avert the debt ceiling crisis.
In a new tweetstorm, Krugman says the coin would effectively help the US pay its bills, and the main drawback would be a negative perception of the move from fellow economists and the public at large.
Contrary to conventional widsom, Krugman believes the new coin would not be inflationary, and the US would likely sell an equivalent amount in US bonds to negate the impact.
“I keep seeing people saying that this would be Modern Monetary Theory (MMT), that we’d just be printing money to cover the deficit. But it wouldn’t be that at all. The Fed would surely sterilize any impact on the monetary base by selling off some of its huge portfolio of US debt…
But as I said, people who really should know better constantly get this wrong, and imagine that the coin would be inflationary. And that’s a reason to prefer a route that doesn’t inspire confident misconceptions.”
To avoid a new coin controversy, Krugman says the US could go another route by creating a new form of “premium bonds” to raise capital without impacting the money supply.
“Think of the Fed as a branch of the federal government, which from a fiscal point of view it is. Then this consolidated entity would in effect be covering deficits by selling bonds — i.e., normal deficit finance, just through the back door.”
Krugman believes the public would be more open to premium bonds, although the legality of the move could end up in the courts.
“As for claims that Fed Chair Powell would refuse to accept the coin, or the Supreme Court would block premium bonds — well, nobody knows.
But my guess is that nobody wants to be the guy who destroys the world economy. Even people happy to see it burn don’t want their fingerprints on it.”
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The post US Treasury Can Print $1,000,000,000,000 Coin To Pay Bills, Avoid Debt Ceiling Crisis: Economist Paul Krugman appeared first on The Daily Hodl.