You see, past monetary operations have left the Fed in possession of a huge portfolio, including more than $5 trillion in U.S. So wouldn’t allowing the Treasury to pay its bills by drawing on an account also created out of thin air - on accepting the coin, the Fed would simply declare that the Treasury had a $1 trillion account - mean increasing the monetary base? Not if the Fed didn’t want it to. The Fed’s economic influence comes from its ability to increase the monetary base at will, normally by buying federal debt from banks and paying for those purchases by crediting the banks’ accounts with money that’s essentially created out of thin air. What we actually mean when we talk about “printing money” is an increase in the monetary base - the sum of cash in circulation and the reserves held by private banks, mainly in the form of deposits at the Fed. And that’s all wrong.įirst things first: Minting the coin would not amount to financing the budget deficit by printing money. And by resorting to this gimmick we would be sending the world a signal that we’re a messed-up nation having big problems governing itself - although the truth is that we are a messed-up nation thanks to the nihilism of one of our two major parties, so minting the coin would arguably just be acknowledging the obvious.īut I’ve been told that some senior administration officials have been making another argument against the coin or any similar strategy, one that echoes Lewis Douglas - namely, that going that route would undermine the credibility of the dollar. The strategy might face legal challenges. The Fed, which is semiautonomous, might not agree to play along.
Let me say right away that there are some good reasons to be uneasy about minting the coin. As I mentioned in my newsletter last week, one possible way out would be to exploit an apparent legal loophole by minting a platinum coin with a huge face value, say $1 trillion, depositing that coin in an account at the Fed, then drawing on that account to pay the government’s bills.
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But there are echoes of the gold standard debate in some of the discussions about how to deal with Republican brinkmanship over the debt limit. Last time I checked, civilization was still here. But even some of Roosevelt’s own aides were aghast: Lewis Douglas, his budget director, reportedly blurted out, “This is the end of Western civilization.” It was an essential move: The nation was in the midst of a banking crisis, and to end that crisis the Federal Reserve needed the freedom to print money as needed. Franklin Roosevelt took the United States off the gold standard soon after his inauguration as president in 1933.