- The US may print $1 trillion worth of platinum currency to resolve the crisis surrounding the government’s so-called debt ceiling.
- According to economist Paul Krugman, if the central bank sells bonds and withdraws dollars from circulation, it can offset the inflationary effect of issuing such currency.
- Says the former Nobel laureate: “People who know better keep saying that currency causes inflation.
- Also Read: US Fed raises interest rates quarterly, says inflation still too high for interest rate cuts later this year
A publication A platinum coin worth $1,000 billion It could prevent the US government from getting caught up in the so-called debt ceiling crisis. Each year, the U.S. Congress must approve an increase in the U.S. government’s maximum borrowing limit.
If the debt ceiling is not raised, the government could be in serious trouble. A deal on a new debt ceiling threatens to fail because of political infighting between Democrats and Republicans in Congress. Treasury Secretary Janet Yellen has warned that the Fed could be in trouble for cash disbursements as early as June.
Issuing $1 trillion in platinum currency is, in theory, a way for the US government to avoid the problem of debt ceiling approval.
The idea behind the coin is that the US Treasury uses its power to mint platinum coins and coins with a face value of $1,000 billion. It is deposited into a government account at the US Federal Reserve. This new money can be used to pay government creditors.
$1 Trillion Platinum Coin: What Happens to Inflation?
Some economists call the $1 trillion coin “Unable to workThis would be an unrealistic solution that could fuel inflation.
“But that’s not going to happen,” top economist Paul Krugman said Wednesday on Twitter. “The central bank will undoubtedly neutralize any monetary effect by selling part of its massive bond portfolio.” Most likely in the form of $1 trillion in government bonds.
If the central bank sells bonds and receives dollars instead, the Federal Reserve can withdraw those dollars from circulation. This has a neutral effect on the money supply compared to the issuance of a new $1,000 billion coin.
Meanwhile, the day is fast approaching when the US government will no longer be able to meet its financial obligations. There are no signs of progress in political negotiations between Democrats and Republicans on raising the debt ceiling.
Krugman thinks the government will issue “premium bonds” rather than $1 trillion in currency to avoid severe payment problems. “But like I said, people who should know better are consistently wrong and say the currency will increase inflation,” he tweeted.
However, he admitted that Federal Reserve Chairman Jerome Powell was unwilling to accept $1 trillion in currency as deposits at the Federal Reserve. There is also the possibility that the US Supreme Court may want to block the issuance of “premium bonds”. “But I assume no one wants to kill the global economy,” Krugman wrote.
Also Read: Treasury Secretary Warns US Treasury Will Be Empty By Early June If Debt Ceiling Not Raised
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