I think Allahpundit puts it well:
“Words cannot express my excitement that this banana-republic idea is now being taken seriously enough to attract vocal support from a sitting Democratic congressman. If you’re looking for a way to convince the public that the left has no interest whatsoever in reducing spending before we face a fiscal meltdown, you can’t do better than having Obama and Geithner respond to the GOP’s demand for cuts by producing a de facto handful of magic beans.”
This idea is crazy. But of course there are plenty standing up to defend it.
To start, Josh Barro at Bloomberg is defending this plan like nobody’s business. I’d like to address one of his arguments for printing a trillion dollar coin:
“Hitting the debt ceiling isn’t an option. It’s no way to run the country, and Republicans know that. So, a debt-ceiling increase shouldn’t count as a “concession,” and it’s nutty for Obama to have to give substantive policy ground to get one.”
Yes, it is an option. Running out of money is a natural consequence to unmitigated, irresponsible spending sprees. For crying out loud, every poor and middle class family has experienced the embarrassment of reaching the checkout lane, and finding they need to put items back in order to pay the bill. (or, worse still, as I have witnessed at Walmart, families returning to the store to return canned food)
But then again, our esteemed officials probably have no idea what it means to be ‘on a budget’, or to live on canned food, especially considering their recent wage increases.
To continue, Joe Weisenthal communicates his defense at Business Insider of this out-of-this-world plan by arguing against 3 ‘myths’, as he puts them.
Mr Weisenthal’s ‘myth’ #1: “This will cause massive hyperinflation.”
“Think about the mechanics, the trillion dollar coin goes to the Fed, but in terms of the real economy, government spending takes place exactly as normal. Now it is true that the Treasury might not be doing bond purchases at this time, and that this could leave more money in the system, that could heat up and cause inflation, but this is easily remedied, because the Fed has a gigantic pile of Treasuries it’s sitting on that it could sell back into the open market to “sterilize” the government spending.”
Okay Mr. Weisenthal. Assuming you sell stored up bonds back into the market, to pull money out as fast as you put it in, and assuming investors are still confident enough to purchase those bonds (since you’ll essentially be using debt to service debt), and assuming no other unforeseen ill effects, maybe there won’t be any hyperinflation.
But in that case, you’re essentially raising the debt ceiling by proxy. You see, the public debt would increase in this scheme (because you’re selling old government bonds back into the market), as a necessary cost of avoiding hyperinflation. So you’re essentially pulling a ‘magic beans’ maneuver to avoid the power of Congress, and allow the Executive Branch to have its way, regardless of the cost.
Let’s move on to your other points.
Mr Weisenthal’s ‘myth’ #2: “The trillion dollar coin will destroy the dollar!”
This is a restatement of Mr. Weisenthals first talking point: hyperinflation. There’s no reason to address it further.
Mr Weisenthal’s ‘myth’ #3: “If this idea is so great, then minting a $16 trillion dollar coin could just solve our debt problem!”
“This line of reasoning ignores the point completely. People who say this (or say we should print a $100 trillion coin) are mistakenly thinking that the point of this exercise is to pay off our debts and get out of the hole. That’s not it. Our debts are plenty manageable at current levels, and with interest rates the way the are. The point is to stay within the law, while getting around the technical problem of the debt ceiling.”
Yes, because legislative representatives elected by a just-barely minority 49% are a ‘technical problem’ to be worked around. Mr. Weisenthal, you’re showing your true statist colors with this one: you don’t believe the government should have any obstacle to increase taxes, increase spending, create more regulations, or borrow more money.
And let us be honest. It’s precisely that mindset that got us into this debt mess in the first place.