Trillion Dollar Coin Idea - Why Doesn't This Make Sense in My Head?

Since =\ sense

because it's pretty muc the dumbest idea our government has EVER had. Let's assume, for a moment, that it DOESN'T cause massive hyper inflation (which it will). The fact that our government could do this would cause our creditors to see that we will NEVER be serious about repaying our dept. Demand for our debt would plummet, causing the U.S. to no longer be able to borrow money to pay the interest on it's debt + causing demand for bonds to plummet, causing the price of bonds to plummet, causing a devaluation of the dollar, causing a world-wide recession, causing the dollar to be dumped as the world reserve currency and pricing currency for oil, causing further devaluation of the dollar, causing massive worldwide depression, leading to a regime change in the United States as we go the way of Weimer Germany.

quote:

---

The fact that our government could do this would cause our creditors to see that we will NEVER be serious about repaying our dept. Demand for our debt would plummet, causing the U.S. to no longer be able to borrow money to pay the interest on it's debt

---

Pretty much what I was thinking.

quote:

---

I believe the idea is to make a coin with a face value of $1 trillion, not a coin worth $1 trillion

---

Face value means nothing. The only value that means anything is what you can get if you sell it.

quote:

---

I believe the idea is to make a coin with a face value of $1 trillion, not a coin worth $1 trillion, which is why this is baffling to me.

---

No, the best I can tell, the idea is to make the coin legal tender, in which case it would definitely be worth $1 trillion.

Although there are some people who insist that the constitution only allows Congress to mint currency fully backed by gold or silver, in reality Congress has the power to mint currency without raising debt. This is called seigniorage.

This still happens on a small scale when, for example, the U.S. Mint creates and sells sets of commemorative quarters for the 50 states, as the U.S. Treasury estimates that it has earned about $6.3 billion from these since it launched the program in 1999.

Many moons ago, I tried to explain to people how having the U.S. Treasury print money to pay down federal debt would have very different effects on debt, taxes, and inflation, than having the Federal Reserve print money, although one poster around here insisted there would be no monetary difference, besides the fact that Congressmen would be making the decision rather than the Fed (which isn't even true, as the U.S. Treasury & Mint could become just as insulated from Congress as the Fed is now, if need be).

quote:

---

What money does actually circulate any more? It's all ACH now pretty much.

---

True. I guess by circulate, they mean in the same sense that you would "inject liquidity into the market".

quote:

---

No, the best I can tell, the idea is to make the coin legal tender, in which case it would definitely be worth $1 trillion.

---

I guess it depends on what we consider value. If it is legal tender I can buy a trillion dollars worth of stuff in the US for it. But like drewnbrla and foshizzle said, in the absence of the US government you wouldn't be able to sell this coin for $1 trillion, so it's basically no different and no more imaginative than a trillion dollar bill.

quote:

---

This still happens on a small scale when, for example, the U.S. Mint creates and sells sets of commemorative quarters for the 50 states, as the U.S. Treasury estimates that it has earned about $6.3 billion from these since it launched the program in 1999.

---

I can see the parallel, but that money circulates just like regular quarters do.

I guess I'm just confused about why this is something unique, or clever, or whatever supporters are calling it.

quote:

---

But like drewnbrla and foshizzle said, in the absence of the US government you wouldn't be able to sell this coin for $1 trillion, so it's basically no different and no more imaginative than a trillion dollar bill.

---

Well, no, but a trillion dollar bill is still worth a trillion dollars so long as it's legal tender.

If the Treasury Department decided to use the legal tender value of the coin to pay all its Medicare bills for a year or two, then it could just go ahead and do this (presumably electronically after taking the physical coin out of circulation). I'm guessing that there would be some kind of promises not to do that which would go along with the creation of the coin, but then again, this is all just a zany idea that's not really serious and is never going to happen.

What is serious, however, is the future prospect of the U.S. Treasury using seigniorage in the future ... albeit not with $1 trillion coins.

This is not an economic issue, it's a legal issue.

Declaring a platinum coin to be worth $1 trillion is no different financially or economically from declaring U.S. treasury securities to be worth $1 trillion.

However, this tactic would completely remove congress from having any say-so over the debt limits of the federal government, not that they have shown much restraint anyway. But it would provide a precedent where the executive branch would 100% control the borrowing powers of the U.S. government.

And psychologically, it could create some serious doubts by future U.S. debt buyers if the government has any intention of ever paying down the debt. That doubt should (hopefully) force interest rates to rise in spite of the Fed's efforts to manipulate rates lower.

quote:

---

And psychologically, it could create some serious doubts by future U.S. debt buyers if the government has any intention of ever paying down the debt

---

That's what I was thinking. I can't imagine how anyone could be serious about this idea.