how the $1 trillion coin minted by the United States and deposited into the treasury doesn’t help resolve the outstanding debt without ramifications.
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This doesn’t resolve outstanding debt.
It solves the debt CEILING.
The debt ceiling is problem Congress created that only Congress can solve.
Congress during the Reagan/Clinton/Bush/Obama/Trump Era spending ran up the US credit card because no one wants to take out the political fallout for cutting programs or raising taxes.
But Congress ALSO passed a law, the debt ceiling, which is the credit card limit.
So Congress says “keep spending” but also caps the credit card limit. And luckily for them, because the President actually needs to execute on this, he gets the blame.
So what can the President do? He can stop paying federal employees, who will sue him for stolen wages. He can stop paying government contractors (default), who will sue him (furlough/sequestration). He can stop paying interest on existing bonds (default), who will sue him. Or he can beg Congress to solve a problem they caused by raising the credit card limit (raise the debt limit).
He can try to cook the books by printing $, and deposit it in the bank (the Federal Reserve). This technically reduces the credit limit by adding $1 trillion jn assets.
To hopefully avoid hyperinflation, he doesn’t actually spend this $, but instead continues to borrow $ through bonds.
This is legally questionable, but it’s fundamentally a way to cheat the books because it’s easier than getting Congress to do its job.
The only way to fix the budget is for Congress to actually cut spending or raise taxes. And the ultimately, this means cuts to Social Security, Medicare or the military, and raising taxes.
Every comment here is wrong.
First, we need to understand the problem. It is really easy to get the order of things wrong. The US government already ordered so much spending, which, yes, is greater than the taxes it brings in. In order to finance the spending the US issues debt, that is sought after and wanted by many parties both inside and outside the US. Since Congress ordered this spending, the government has no right not to spend the money.
The debt limit is a relic of WWI where congress went from approving every individual bond issued by the US to telling the treasury, “you do it, just don’t go above this limit without our say so”. Now, the US government has hit that limit and needs permission to go higher since the spending has already been ordered. This is analogous to buying something on a credit card and deciding at a certain point you have too much debt, so you just aren’t going to pay the bill. Not that you will spend less, but that you won’t pay for what you already bought.
This long explanation is to say the only problem with the US government paying its debt is not lack of funds or willing creditors it is an arbitrary limit that was decided on for no real reason.
The coin gets around this arbitrary, made-up limit by increasing the assets the US officially has, so the net debt is lower, and thus, the debt limit has not been reached. If it is legal it will have no, zero, knock on effects to the economy. Of course, that isn’t going to happen because if it did, then Congress could just normally raise the limit normally and the coin would not be necessary.
The value of money is based on it being guaranteed by assets the market value at least at the value of the money it guarantees.
This $1 trillion coin will not be worth $1 trillion on the market, so using it to guarantee $1 trillion means that there’s more federal reserve money than federal reserve assets at market value. That will reduce the confidence of people in the US dollars, making it being used less internationally and creating inflation.
If the US does it too much, it will create hyperinflation, that is when monthly inflation is at least 50%, so the value of money goes down by at least 130 times a year. What you can buy with $1 now will cost $130 dollars minimum after a year of hyperinflation.
The Federal Reserve would deposit the coin in the Treasury, thereby reducing the national debt and postponing or eliminating the need to raise the U.S. debt ceiling….
Think about it like your rent is due, your need to hit groceries and you have no money, then all of a sudden you find $100. Basically it’s a loophole, that the Fed isn’t entertaining
It would cause ramifications.
Understanding what money actually is and why we have a debt should come first before this ludicrously stupid idea. Why didn’t anyone think of it before? It’s because you’re just kicking the can down the road. Debt has to be repaid at some cost, whether to the borrowers or the lenders. By printing a $1 trillion coin, you’re putting the onus on the primary users of the currency, making their existing money worth less, and therefore requiring them to work harder to earn the same amount of money to acquire the same necessary goods.
Well, you can’t spend that coin, so it’s pretty pointless. The US has been running a deficit since the Clinton administration and while the coin could make the treasury look better, it couldn’t be used to pay off the bonds the treasury issues, so it doesn’t actually do anything.
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